An Overview of the Medicaid Program

Posted by
Jean Hearne
Julie Topoleski
September 18, 2013

Medicaid is a joint federal-state program that pays for health care services for low-income individuals, including pregnant women, children, and parents and other caretaker relatives, as well as elderly and disabled individuals. As a result of the Affordable Care Act (ACA) and a subsequent Supreme Court ruling, each state has the option to expand eligibility for Medicaid beginning in calendar year 2014 to all nonelderly adults with income below 138 percent of the federal poverty guidelines (commonly referred to as the federal poverty level, or FPL). The people who will be newly eligible for Medicaid consist primarily of nonelderly adults with low income. Most children and pregnant women in low-income families qualify for Medicaid and the Children’s Health Insurance Program under prior law. Some parents of those children also qualify for Medicaid, although the income thresholds vary by state.

The federal government’s share of Medicaid’s spending for benefits varies among the states. That share historically has averaged about 57 percent. Beginning in calendar year 2014, the federal government will pay all of the costs of covering enrollees newly eligible under the ACA’s coverage expansion. From 2017 to 2020, the federal share of that spending will decline gradually to 90 percent, where it will remain thereafter. According to CBO’s estimates, those changes will result in a federal share of Medicaid’s spending that averages 60 percent by 2020.

In fiscal year 2012, federal spending for Medicaid was $251 billion, of which $223 billion covered benefits for enrollees. (In addition to benefits, Medicaid’s spending included payments to hospitals that treat a “disproportionate share” of low-income patients, costs for the Vaccines for Children program, and administrative expenses.) According to the Centers for Medicare & Medicaid Services, states spent $160 billion on Medicaid in calendar year 2011, the most recent year for which data are available.

States administer their Medicaid programs under federal guidelines that specify a minimum set of services that must be provided to certain categories of low-income individuals. Required services include inpatient and outpatient hospital services, services provided by physicians and laboratories, and nursing home and home health care. To be eligible for Medicaid, a person must have a low income and generally only a few assets—although the financial limits vary depending on the basis for an enrollee’s eligibility. Groups that must be eligible include children in low-income families and families who would have qualified for the former Aid to Families with Dependent Children program, certain other children in low-income families and pregnant women, and most elderly and disabled individuals who qualify for the Supplemental Security Income program.

Subject to those requirements and other statutory limits, states have flexibility in administering the Medicaid program and determining its scope. States may choose to make additional groups of people eligible (such as individuals with income above the standard eligibility limits and those who have high medical expenses relative to their income) or to provide additional benefits (such as coverage for prescription drugs and dental services), and they have exercised those options to varying degrees. Moreover, many states seek and receive federal waivers that allow them to provide benefits and cover groups that would otherwise be excluded. As a result, the program’s rules are complex, and it is difficult to generalize about the types of enrollees covered, the benefits offered, and the cost sharing required. By one estimate, federal and state expenditures on optional populations and benefits accounted for about 60 percent of the Medicaid program’s total spending in 2007.

About 72 million people will be enrolled in Medicaid at some point during 2013, CBO estimates; the average enrollment over the course of the year will be about 57 million. Those two ways of measuring enrollment yield divergent estimates because many people are enrolled in Medicaid for only part of the year.

Currently, almost half of Medicaid’s enrollees are children in low-income families, and just under one-third are either the parents of those children or low-income pregnant women. The elderly and disabled constitute the remaining almost one-quarter of enrollees. Expenses tend to be higher for beneficiaries who are elderly and disabled, many of whom require long-term care, than for other beneficiaries. In 2012, about 32 percent of federal Medicaid spending for benefits was for long-term services and supports, which include institutional care provided in nursing homes and certain other facilities as well as care provided in a person’s home or in the community. Overall, the elderly and disabled account for almost two-thirds of Medicaid’s payments for benefits.

To learn more, see yesterday’s The 2013 Long-Term Budget Outlook; you can also visit our Medicaid page for a complete set of CBO’s work on this topic.

Jean Hearne is Chief of the Low-Income Health Programs and Prescription Drugs Cost Estimates Unit in CBO’s Budget Analysis Division. Julie Topoleski is an analyst in CBO’s Health, Retirement, and Long-Term Analysis Division.