Medicaid: Overview and Expansion Challenges

Driven by the Healthcare reform law (the Affordable Care Act, ACA or Obamacare) and un-yielding legacy systems, the federal and state governments have undertaken major modernization efforts. Approximately $1,000 billion will be spent in the next few years transforming the public systems used to manage Medicaid. This is in addition to the cost that will be incurred by the health care providers and insurance companies. That should explain the recent flurry of activities and buzz surrounding technology companies competing for a piece of that pie.

DISCLAIMER: This post offers a quick overview of Medicaid. Please refer to CMS and corresponding State government websites for detailed guidance.

What is Medicaid?

Medicaid is a jointly funded Federal and State health insurance program (“entitlement program”), for low-income citizens. It assists those who are eligible to receive federally assisted income (and maintenance) payments. Under the federal rules, Department of Health and Social Services (DHSS) has authority to limit services as long as the services provided are adequate in “amount, duration, and scope” to fulfill the recipient’s medical needs.

Medicaid began as a program to pay the health care costs of poor people who were unable to work. It covered the aged, the blind, the disabled and single parent families. Over the years, Medicaid has expanded to cover more people. For instance, children and pregnant women may qualify under higher income limits and without asset limits. Families with unemployed parents may qualify, and families who lose regular Family Medicaid because a parent returns to work may continue to be covered for up to one year. The following information was extracted from the SSA‘s website about Medicaid.


Thirty-two states and the District of Columbia provide Medicaid eligibility to people eligible for Supplemental Security Income (SSI ) benefits. In these States, the SSI application is also the Medicaid application. Medicaid eligibility starts the same months as SSI eligibility.

The following jurisdictions use the same rules to decide eligibility for Medicaid as Social Security Administration (SSA) uses for SSI, but require the filing of a separate application: Alaska, Idaho, Kansas, Nebraska, Nevada, Oregon, Utah and Northern Mariana Islands.

The following States use their own eligibility rules for Medicaid, which are different from SSA and SSI rules. In these States a separate application for Medicaid must be filed: Connecticut, Hawaii, Illinois, Indiana, Minnesota, Missouri, New Hampshire, North Dakota, Ohio, Oklahoma and Virginia.

What Does Medicaid Pay For?

The Medicaid program does not provide health care directly. Instead, it pays hospitals, physicians, nursing homes, managed care plans, and other health care providers for covered services that they deliver to eligible patients. Note that hospitals, physicians, and other health care providers are not required to participate in Medicaid, and not all do.

About two-thirds of all Medicaid spending on services pays for acute-care services such as hospital care, physician services, and prescription drugs; another 30 percent pays for nursing home and other long-term care services and supports. Medicaid covers more than 60 percent of all nursing home residents, and it pays 40 percent of the nation’s total costs for long-term care services and supports.

Medicaid also reimburses some hospitals for the uncompensated costs they incur when they care for low-income uninsured patients. These payments, known as Disproportionate Share Hospital (DSH) payments, account for about 4 percent of Medicaid services spending. These figures do not include administrative costs, which equal less than 5 percent of total Medicaid spending.

Federal rules require state Medicaid programs to cover certain “mandatory” services, such as: physician, midwife, and certified nurse practitioner services; inpatient and outpatient hospital services; laboratory and x-ray services; family planning services and supplies; rural health clinic/federally qualified health center services; nursing facility and home health care for adults over age 21; and Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) services for children under age 21. EPSDT guarantees that enrollees under age 21 have access to medically necessary services, regardless of whether the state’s Medicaid program otherwise covers these services.

Although it is not mandated by federal regulation, States cover certain additional services as well such as prescription drugs, dental care, vision services, hearing aids, and personal care services for the frail elderly and people with disabilities. These services, though listed as “optional” because states are not required to provide them, have been deemed critical to meet the health needs of Medicaid beneficiaries.

States have flexibility to determine the amount, duration, and scope of the services they provide under Medicaid (though the services must be sufficient to achieve the purposes of the Medicaid program). For example, states must cover hospital and physician services, but they can limit the number of hospital days or physician visits they pay for. As a result of this flexibility, Medicaid benefits packages vary substantially from state to state.

Medicaid: Federal vs. State?

State policies have a large impact on the amount the federal government spends on Medicaid, not only because states are guaranteed federal Medicaid matching funds for the costs of covered services furnished to eligible individuals, but also because states have broad discretion to determine who is eligible, what services they will cover, and what they will pay for covered services.

Under Medicaid, the federal government contributes at least $1 in matching funds for every $1 a state spends on its Medicaid program, whatever those costs may be i.e. minimum of 50%. The fixed percentage the federal government pays, known as the Federal Medical Assistance Percentages (FMAP), varies from state to state, with poorer states receiving larger federal amounts for each dollar they spend than wealthier states. In the poorest states, the federal government pays 73 percent of all Medicaid service costs; the national average is about 57 percent.

Medicaid pays substantially less than private insurance to cover people of similar health status. This is due primarily to Medicaid’s lower payment rates to providers and lower administrative costs. And over the past decade, costs per beneficiary grew much more slowly for Medicaid than for employer-sponsored insurance (ESI). The Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS) projects that Medicaid spending per beneficiary (excluding the effects of the Medicaid expansion) will grow no more rapidly through 2021 than spending per beneficiary with private insurance.

Moreover, because Medicaid costs are projected to rise more slowly than it estimated in August 2010, the Congressional Budget Office (CBO) in February 2013 lowered its estimate of projected federal spending on the program between 2011 and 2020 by $218 billion, or 6.4 percent.

What is Medicaid Expansion? How Does ACA Affect Medicaid?

Medicaid will play an even more integral role in insuring low-income Americans as the health reform law is fully implemented over the coming years. It is considered by some as a good deal for the state governments.

Currently, Medicaid coverage of poor adults is extremely limited, and poor non-disabled adults without children aren’t eligible for Medicaid at all. The Affordable Care Act provides coverage for poor and low-income adults by expanding Medicaid to 138 percent of the poverty line ($26,951 for a family of three). The 2012 Supreme Court decision upholding health reform gave states the choice of whether to expand their programs.

The federal government will pay nearly all of the expansion costs — 93 percent over the first nine years (2014-2022) — according to CBO estimates. That’s because the federal government will pick up 100 percent of the cost of the expansion to newly eligible individuals for the first three years and no less than 90 percent of the cost on a permanent basis. And by greatly reducing the number of uninsured, the expansion will enable states and localities to save substantial sums on uncompensated care for the uninsured. States will spend just 2.8 percent more on Medicaid with the expansion than they would have without health reform.

CBO now estimates that by 2023, 12 million more adults and children will enroll in Medicaid and gain access to affordable coverage as a result. If all states adopt the Medicaid expansion, it is estimated that up to 17 million more low-income people will enroll in Medicaid coverage.

Under the ACA, states must keep their current Medicaid eligibility rules for adults until 2014.  States must also maintain their Medicaid and Children’s Health Insurance Program (CHIP) eligibility rules for children until 2019.  As a result, Medicaid and CHIP have remained an increasing source of coverage for children and adults. The percentage of children under age 18 with publicly funded health insurance coverage rose by 1.2 percentage points in 2011, to 41 percent. That offset declines in employer-based coverage among children, allowing the uninsured rate to stay steady at 9.4 percent.

Expansion In A Nutshell?

Here are some select images from reputable organizations.


At best, Medicaid laws are complex and administration of its social programs even more complex. The technologies that support the entire Medicaid ecosystem have continued to evolve; however, the current changes expose serious limitations with many of the existing systems. These have become a significant factor driving every participant within its’ ecosystem to enhance / modernize its own solution. The federal government’s initiative to fund the wholesale modernization efforts across states is being welcomed by all, some readily and some reluctantly. This in a way may act as an economic stimulus of its own. More to come soon.