Medicaid stands as a cornerstone of the United States healthcare system, serving as the primary program to deliver comprehensive health coverage and vital long-term services and supports to over 90 million low-income individuals. Its significance has been underscored by events like the COVID-19 pandemic, which dramatically influenced Medicaid spending and enrollment figures. As of 2023, Medicaid programs are navigating a shifting landscape, particularly concerning the unwinding of the continuous enrollment provision enacted during the pandemic, placing millions of enrollees at risk of losing their healthcare safety net.
The Basics of Medicaid: A Federal-State Partnership
Medicaid operates as a joint venture between the federal government and individual states. While the federal government establishes broad guidelines, each state administers its own Medicaid program, granting them considerable flexibility. This state-level administration allows for tailored approaches in determining which populations and services are covered, the methods of care delivery, and the levels of provider reimbursement. States can further customize their programs through Section 1115 waivers, enabling them to experiment with innovative strategies, provided they align with the overarching objectives of Medicaid as determined by the Secretary of Health and Human Services (HHS). This inherent flexibility results in substantial variations across different state Medicaid programs, leading to differing proportions of state residents benefiting from coverage.
A crucial aspect of Medicaid financing is the guaranteed federal matching funds. The federal government commits to matching state expenditures for eligible services provided to enrolled individuals, without any pre-set spending limits. The standard federal match rate is legally set at a minimum of 50%, with states having lower per capita incomes receiving a higher federal contribution. Certain services and populations may also qualify for enhanced match rates. Notably, the Affordable Care Act (ACA) expansion population receives a 90% federal match. In fiscal year 2021, total Medicaid spending reached $728 billion, with the federal share constituting 69% of this amount. Medicaid spending tends to increase during economic downturns due to rising enrollment. Significant spending surges were also observed following the ACA implementation and more recently due to pandemic-related enrollment growth.
Medicaid represents a substantial portion of state budgets. However, state spending on Medicaid is generally second to that on elementary and secondary education. Conversely, Medicaid is the largest source of federal revenue for states. In state fiscal year 2021, Medicaid accounted for 27% of total state expenditures, 15% of state-funded expenditures, and a significant 45% of expenditures derived from federal funds.
Who Benefits from Medicaid? Diverse Populations and Extensive Coverage
Medicaid serves as the nation’s public health insurance for individuals with limited incomes, encompassing over one-fifth of the American population. This includes a significant number of individuals with complex and costly healthcare needs. Medicaid is the primary payer for long-term care services in the US. It also extends coverage to low-income Medicare beneficiaries, assisting with premiums, cost-sharing, and services not covered by Medicare. Collectively, state and federal Medicaid expenditures constitute nearly one-fifth of all personal healthcare spending in the nation, providing substantial financial support to hospitals, community health centers, physicians, nursing homes, and community-based long-term services and supports.
A Program in Evolution: Medicaid’s Historical Journey
The Medicaid program is governed by Title XIX of the Social Security Act, complemented by extensive federal regulations and guidance. These frameworks define federal requirements and available options for states. The Centers for Medicare and Medicaid Services (CMS), a division of HHS, is the federal agency responsible for administering Medicaid and overseeing state programs. While state participation in Medicaid is voluntary, states choosing to participate must adhere to core federal mandates. Initially, not all states joined Medicaid immediately after its inception in 1965, but by the 1980s, all states had become participants. Historically, Medicaid eligibility was linked to cash assistance programs like Aid to Families with Dependent Children (AFDC) and Supplemental Security Income (SSI). Over time, Congress broadened federal minimum requirements and introduced new coverage mandates and options, particularly for children, pregnant women, and individuals with disabilities. The 1996 legislation replacing AFDC with Temporary Assistance to Needy Families (TANF) severed the direct link between Medicaid eligibility and cash assistance for certain groups. The Children’s Health Insurance Program (CHIP) was established in 1997 to cover low-income children ineligible for Medicaid, offering an enhanced federal match rate.
The ACA in 2010 marked a significant expansion of Medicaid, extending eligibility to nearly all non-elderly adults with incomes up to 138% of the federal poverty level (FPL). This expansion created a new coverage pathway for adults without dependent children, a group historically excluded from Medicaid. However, a 2012 Supreme Court ruling made the ACA Medicaid expansion effectively optional for states. As of April 2023, 41 states and DC have adopted Medicaid expansion. States expanding Medicaid receive a higher federal funding rate for newly eligible enrollees. The ACA also mandated states to modernize and simplify Medicaid eligibility and enrollment processes.
During the COVID-19 pandemic, Congress mandated continuous Medicaid enrollment in exchange for increased federal funding. This resulted in an estimated enrollment surge of 23 million, reaching nearly 95 million by the time the continuous enrollment period ended on March 31, 2023. As states resume routine eligibility redeterminations, millions are at risk of losing Medicaid coverage as the continuous enrollment provision unwinds. Studies indicate that a significant portion of those disenrolled from Medicaid or CHIP experience periods of uninsurance. Policies facilitating smoother transitions to alternative coverage options are crucial to mitigate coverage loss during this unwinding process.
Medicaid’s Crucial Role for Vulnerable Populations
Medicaid operates as an entitlement program, guaranteeing coverage to all individuals meeting eligibility criteria. While Medicaid covers one in five US residents, it is particularly vital for specific populations. In 2021, Medicaid covered four in ten children, eight in ten children living in poverty, one in six adults, and nearly half of adults in poverty. Compared to White individuals, Medicaid covers a greater proportion of Black, Hispanic, and American Indian or Alaska Native (AIAN) children and adults. It also provides coverage to 43% of non-elderly, non-institutionalized adults with disabilities.
Medicaid finances 41% of all births in the US, nearly half of children with special healthcare needs, five in eight nursing home residents, 23% of non-elderly adults with any mental illness, and 40% of non-elderly adults with HIV. Furthermore, Medicaid pays Medicare premiums and often provides supplementary coverage for services not covered by Medicare, such as long-term services and supports, for almost one in five Medicare beneficiaries (12.5 million).
Among non-elderly Medicaid enrollees, half are children under 19, six in ten are people of color, 57% are female, and 70% are part of families with working members. Despite the majority of adult Medicaid enrollees being employed, many lack access to employer-sponsored coverage or find it unaffordable.
Breadth of Services: Healthcare and Long-Term Care
Medicaid offers a comprehensive range of services to meet the diverse healthcare needs of its beneficiaries. Beyond federally mandated services, all states choose to cover additional optional services. Prescription drugs are covered in all states, and most states include physical therapy, vision care (eyeglasses), and dental services. Medicaid provides extensive benefits for children through Early Periodic Screening, Diagnosis, and Treatment (EPSDT) services. EPSDT is particularly crucial for children with disabilities, granting access to a broader spectrum of benefits than typically offered by private insurance. Uniquely, compared to commercial insurance and Medicare, Medicaid covers non-emergency medical transportation, facilitating access to healthcare appointments, as well as long-term care, encompassing nursing home care and various home and community-based services (HCBS). While nursing facility coverage is mandatory, most HCBS coverage is optional for states. States are increasingly expanding coverage for behavioral health services and benefits addressing social determinants of health (SDOH) like nutrition and housing.
Spending Patterns: Age and Disability as Key Drivers
Medicaid spending is concentrated among individuals eligible due to age (65+) or disability. Although these groups constitute only one-fifth of enrollees, they account for over half of Medicaid expenditures. This reflects their greater healthcare needs and frequent utilization of long-term services and supports.
Across states, per-enrollee spending varies significantly, ranging from approximately $4,873 to $10,573 in 2019. This variation is attributed to state flexibility in program design, covered benefits, provider payment rates, and differences in resident health and population characteristics. Within each state, substantial cost variations also exist across eligibility groups and even within the same group, especially for individuals with disabilities.
Positive Impacts: Access to Care and Health Outcomes
Extensive research demonstrates that Medicaid beneficiaries experience significantly improved access to healthcare compared to uninsured individuals, who are also primarily low-income. Medicaid enrollees are less likely to delay or forgo necessary care due to financial constraints. Key indicators of healthcare access and satisfaction among Medicaid enrollees are comparable to those with private insurance. Federal regulations generally include provisions to limit out-of-pocket costs for Medicaid enrollees, further enhancing access. Long-term studies indicate that Medicaid eligibility during childhood is linked to positive health outcomes and broader benefits, such as improved educational attainment. Research on ACA Medicaid expansions for adults reveals associations with increased healthcare access, improved self-reported health, reduced mortality, and enhanced economic stability.
Despite these positive impacts, challenges remain in provider access, particularly for psychiatrists and dentists. These access gaps often mirror broader healthcare system issues but are exacerbated in Medicaid due to provider shortages in low-income areas, lower Medicaid physician payment rates, and lower physician participation compared to private insurance. Studies indicate that physicians are less likely to accept new Medicaid patients compared to those with Medicare or private insurance, although acceptance rates are higher in settings like community health centers. These factors may contribute to Medicaid enrollees experiencing greater difficulty obtaining healthcare than those with private insurance.
States utilize diverse service delivery models, with comprehensive managed care being the dominant approach, covering 70% of enrollees in 2020. Managed care plans are contractually obligated to maintain adequate provider networks. The Biden Administration has proposed rules aimed at strengthening service access in Medicaid and addressing financing and quality issues in Medicaid managed care.
State Innovation: Medicaid 1115 Waivers
Section 1115 demonstration waivers empower states to test innovative Medicaid approaches that deviate from federal statutory requirements, provided CMS deems these proposals likely to advance Medicaid program objectives. These waivers have been utilized over time, reflecting evolving state and CMS priorities, as well as shifting priorities across presidential administrations. Waivers have served to expand coverage, modify delivery systems, and restructure financing and program elements. Nearly all states have at least one 1115 waiver in operation, and many have pending waiver requests with CMS.
Recent waiver activity under both the Trump and Biden administrations highlights the use of waivers to pursue administrative priorities and the dynamic balance between state flexibility and federal oversight. The Trump administration emphasized work requirements, eligibility restrictions, institutional behavioral health service payments, and capped financing. The Biden administration has reversed work requirement approvals, phased out premium requirements, and encouraged waivers promoting coverage expansion, health equity, and “whole-person care.” Current focus areas include leveraging Medicaid to address health-related social needs and providing healthcare to individuals transitioning from incarceration. Some states are also seeking approval for continuous Medicaid coverage for children and certain adults for extended periods.
Medicaid’s Role in Economic Downturns and Emergencies
The COVID-19 pandemic underscored Medicaid’s capacity to respond to economic downturns and emergencies. During economic recessions, Medicaid enrollment increases as more individuals become eligible, leading to higher program spending at a time when state tax revenues may decline. Congress has historically responded to such situations by enacting temporary increases in the Federal Medical Assistance Percentage (FMAP) to bolster Medicaid coverage and state economies. During the COVID-19 pandemic, enhanced federal funding was tied to states maintaining continuous Medicaid enrollment. This continuous enrollment provision expired on March 31, 2023.
States can also seek federal flexibility to implement policy changes addressing emergencies. Emergency authorities enable states to expand Medicaid capacity and target specific services, providers, or enrollee groups disproportionately affected. During the COVID-19 pandemic, all states and DC received approval to utilize emergency authorities to enhance healthcare access through telehealth expansion, eligibility adjustments, benefit modifications, and workforce support for home and community-based services.
The expiration of the COVID-19 Public Health Emergency (PHE) in May 2023 has broad implications for the healthcare system, affecting costs, coverage, and access. States are in the process of unwinding numerous emergency policies. However, many pandemic-era policies and lessons learned, including telehealth access, inter-agency coordination, and improved data analytics for public health emergency response, are expected to endure.
Public Support for Medicaid: Broadly Favorable Views
Public opinion surveys indicate strong public support for Medicaid. Two-thirds of US adults report having a personal connection to Medicaid. Majorities across political affiliations hold positive views of the program, and 70% believe it effectively serves low-income individuals. Medicaid expansion also enjoys widespread popularity. Seven states have adopted Medicaid expansion via ballot measures, and polls reveal that two-thirds of residents in non-expansion states desire expansion in their states. Political divides exist in perceptions of Medicaid’s primary function. While majorities of Democrats and independents view Medicaid as a government health insurance program, over half of Republicans perceive it primarily as a government welfare program. Republicans with personal connections to Medicaid tend to hold more favorable views and are more likely to see it as a health insurance program.
