Medicaid FAQs

What is Medicaid?

Medicaid is a program that offers medical assistance to individuals with low income and resources. Nationally, Medicaid pays the medical bills or contributes to the payment of medical expenses for approximately 36 million people each year.

The Medicaid Program was created in 1965 at the same time the Medicare Program was established. Both of these programs were included in the Social Security Amendments of 1965 (P.L. 89-97), which expanded the Social Security Act. The Medicaid Program is authorized in Title XIX of the Social Security Act, which may be found in the United States Code at 42 U.S.C. 1396, et seq..

Although a state's participation in the Medicaid Program is strictly voluntary, the huge expense of providing medical assistance to poor residents and the availability of significant federal funding through this program has prompted every state to participate. In fiscal year 1994, national Medicaid expenditures for medical services was $108 BILLION dollars. Total program costs for that year were nearly $138 BILLION, with the federal government paying roughly 60% of that total.

In administering the Medicaid Program, a state is required to designate a "single state agency" to be responsible for the operation of the program. Although this agency may delegate certain tasks to other state agencies (e.g., receipt and processing of applications), the "single state agency" remains ultimately responsible for the program. The "single state agency" also acts as the point of contact for the federal Health Care Financing Administration (HCFA), which is a part of the United States Department of Health and Human Services. HCFA oversees the Medicaid Program from the federal perspective in order to ensure that the states remain in compliance with the federal requirements for participation in Medicaid.

The "single state agency" is also required to develop and maintain the "State Plan," which describes the state's Medicaid Program. The State Plan, and any amendments to it, must be approved by HCFA in order to become effective.

Who pays for the Medicaid program?

The program is jointly-funded, with money coming from the states and the federal government. A state's money (known as "match") is used to "draw down" federal funds (known as "federal financial participation" or "FFP"). The amount of federal funds a state receives for its "match" is determined by a match rate known as the "federal medical assistance percentage" ("FMAP"). This match rate is based upon a formula that takes into account the per capita income of each state, with "poorer" states getting more federal funds for each state dollar. By law, the FMAP match rates may range from a low of 50% to a high of 83%. These rates are adjusted annually.

For a state with a 67% FMAP match rate, the federal government will pay 67% of the cost of medical services provided under the program. The state will be responsible for the remaining 33%. Stated differently, for every one dollar the state spends to pay for medical services, the federal government will contribute two dollars.

Lower match rates -- typically 50% -- apply to administrative expenses, although higher rates may be offered to encourage certain activities.

Is Medicaid the same as Medicare?

No! Medicaid and Medicare are two completely separate programs that differ greatly in many significant respects:

Medicare is a health insurance program primarily for people age 65 and older and for certain disabled individuals. Eligibility for Medicare does not depend on financial status. Medicare provides some basic protection against health care costs, but does not cover all medical expenses. Medicare is divided into two parts: (1) Part A -- "hospital insurance" -- includes hospital care, a very limited amount of skilled level nursing home care, home health services, and hospice; and (2) Part B -- "medical insurance" -- includes physician services, x-rays, medical equipment, out-patient surgery, some types of therapy, ambulance services, dialysis, etc.. The cost of Medicare Part A coverage is paid for with a portion of the payroll taxes ("FICA") that also fund Social Security. Coverage by Medicare Part B, which is optional, requires payment of a monthly premium.

The Medicare Program is administered by the federal government's Health Care Financing Administration (HCFA), which is a part of the United States Department of Health and Human Services. In administering Medicare, HCFA uses "intermediaries" (such as Blue Cross Blue Shield) on a regional basis to process claims and answer questions. Unlike Medicaid, Medicare is designed to provide uniform coverage throughout the entire nation. In other words, a service that is covered in California should also be covered in New Hampshire.

Like many health insurance plans, Medicare requires the covered individual to meet an annual "deductible" and to make "coinsurance" payments for some types of services. Because these requirements can impose significant financial burdens, many people buy supplemental private insurance -- often known as "Medigap" policies -- to cover these payments.

Medicaid is a program that pays for health care for individuals with low levels of assets and income. Unlike Medicare, Medicaid does use a "means-tested" approach to eligibility, so an individual's participation does depend upon his/her financial status. Also, because Medicaid allows states the flexibility to customize programs to meet their particular needs, Medicaid coverage may vary greatly from state to state. A person who is eligible in Nevada may not necessarily be eligible in Ohio, and services that are covered in New York might not be covered in North Carolina. Finally, instead of being administered by the federal government like Medicare, the states take the lead role in administering their Medicaid Programs, with oversight provided by the federal government.

Is Medicaid the same in every state?

No. Medicaid Programs vary significantly from state to state, both in terms of who may be eligible to receive services and in what services are covered.

In order to participate in the Medicaid Program, a state must cover certain categories of eligible individuals and must provide a required range of basic services. However, after including these required groups and services, a state has a great deal of flexibility in adding additional services or additional categories of eligibility in order to create a customized program that most closely fits the particular needs (and resources) of the state and its citizens.

What laws govern the Medicaid Program?

Because of the joint federal-state nature of the Medicaid Program, this can often be a confusing issue. Federal statutes and regulations establish the framework of much of the Medicaid Program, and the states must operate their programs within the parameters set by these federal laws. Conflicting state laws are overridden by the federal provisions. The primary federal requirements are contained in Title XIX of the Social Security Act (codified at 42 U.S.C. §1396, et seq.) and in the regulations issued by the Health Care Financing Administration in Title 42 of the Code of Federal Regulations (CFR). Additionally, provisions of the general requirements applicable to all federal grant programs (found in Title 20 of the CFR) may also apply.

State laws may also apply for various administrative and programming aspects of a state's Medicaid program. For instance, the appeals procedures for challenging a decision of the Medicaid Program may be governed by a state's Administrative Procedures Act. State statutes and regulations may also establish program or eligibility requirements. Some states make widespread use of the formal vehicles of statutes and regulations to implement their Medicaid programs, while others rely more heavily on more informal methods of interpreting and applying the federal requirements.

Who is eligible for Medicaid?

Because of the large number of categories of Medicaid eligibility and the differing requirements applicable to each, there is no simple answer to this question. In general, Medicaid eligibility, especially in the area of long term care, usually has three (3) components: (1) administrative, (2) financial, and (3) medical.

A person's financial status might determine the applicable category of eligibility (e.g., children covered by the Aid to Families with Dependent Children (AFDC) have a specific Medicaid eligibility category), or the category may depend upon a medical condition (e.g., blind or disabled). Knowing which category of Medicaid eligibility is at issue is vital, since the rules that apply are determined by the category.

Under the area of administrative requirements, Medicaid applicants are required to be residents of the state in which they apply. They are also required to apply for any other benefits to which they may be entitled. They also must have, or apply for, a Social Security number.

Because Medicaid is a "means-tested" program, financial criteria must also be met. An applicant must fall within certain limits for income and assets/resources. Depending upon the category of eligibility, assets and income of a spouse or other family members may be considered. Exclusions are generally available for certain assets (e.g., the home, personal belongings, etc.), which means that these assets are not "counted" in determining eligibility, but the rules governing these exclusions may vary depending upon the eligibility category.

Eligibility for particular types of services -- especially long term care services such as nursing home care or home and community-based care -- usually also require the applicant to meet certain medical criteria. These criteria are generally known as "level of care" requirements, and are intended to ensure that the individual's medical and/or functional condition do require the services in question. The failure to meet level of care requirements may prevent an individual from becoming eligible, even if he/she meets all of the other financial and administrative eligibility requirements. Therefore, before engaging in complicated Medicaid planning for long term care needs, individuals should thoroughly consider the applicable medical/functional requirements to receive such care, and assess whether or when these requirements will be met.

What services does Medicaid cover?

The range of services covered by Medicaid varies greatly from state to state. However, all states cover basic health services such as hospital visits and physician visits (although some states may impose limits on the amount of these services). Other services such as therapies, durable medical equipment, and prescription drugs are generally covered, but are often subject to limits. As discussed below, Medicaid's long term care services are a primary reason many individuals -- especially the elderly or the disabled -- seek Medicaid eligibility.

Why is Medicaid important in the long term care setting?

The costs for long term care are relatively high (thousands of dollars per month), regardless of whether the care is rendered in a nursing facility or in a home or community setting. Additionally, with the extended life expectancies resulting from the technological advances in health care, individuals often need this kind of care for increasingly long periods of time.

Medicare pays for only a very limited amount of nursing home care, and only under very restrictive conditions. Similarly, with the exception of special long term care insurance policies, most private health insurance plans do not cover long term care. In the absence of insurance or some other funding source, long term care costs can quickly deplete an individual's -- or couple's -- life savings. As a result, individuals who have never before had to rely on government assistance programs may find themselves in need of Medicaid assistance to pay for long term care.

In a study released in April of 1995, the federal government's General Accounting Office (GAO) confirmed that Medicaid has become the nations's largest single source of funding for long term care services. The GAO found that for 1993, Medicaid spent almost $44 BILLION dollars on long term care, with about $36.3 billion of that total going to nursing homes, and the remaining $7.4 billion being used to fund home and community-based services. For that same period, approximately $38.5 billion was spent from private sources to pay for long term care, with only $200 million (i.e., about one-half of one percent) coming from private long term care insurance.

In addition to long term care provided in nursing homes, many states include extensive home and community-based services in their Medicaid programs. These services are generally directed to individuals who would otherwise require institutionalization, but who have elected to remain at home for as long as possible. These home and community-based programs often operate as "waivers," meaning certain requirements usually applicable to Medicaid services have been waived by the federal government.

What happens if I have other insurance or Medicare?

Medicare or other insurance does not prevent an individual from qualifying to receive medical assistance through the Medicaid Program. However, Medicaid is almost always the "payor of last resort," which means that the other payment sources must be used first. Generally, if these other sources pay the provider more than the Medicaid rate, Medicaid will not make any additional payment. However, if a service is not covered by these other sources, Medicaid will step in and pay for the service (assuming, of course, that the service is included in the Medicaid Program's covered services and that the service has been performed in accordance with the program's requirements.)

For some special categories of individuals eligible to receive Medicare, the Medicaid Program will cover the Medicare co-insurance and deductibles and/or the premiums for Part B coverage. In an effort to reduce overall costs to the Medicaid Program, some states will also make premium payments for private health coverage under some circumstances (e.g., the cost of the premiums is expected to be more than offset by having the private coverage available to pay for health care services).

Can I give away my assets to qualify?

Because of individuals giving away their assets in order to artificially impoverish themselves and become eligible for Medicaid, Medicaid has what is known as the "transfer of assets rule" that applies to long term care services (nursing home, home and community-based services, etc.). The most recent version of this rule was enacted in 1993 as a part of the Omnibus Budget Reconciliation Act of 1993, and may be found at 42 U.S.C. §1396p(c).

In overly simplified terms, this rule allows the state to "look back" for a period of thirty-six (36) months prior to an individual's application for Medicaid long term care (the "look-back" period is sixty (60) months if certain kinds of trusts are involved). Any gift or disposal of assets for less than fair market value that has occurred during this "look-back" period will trigger a penalty period during which the individual will not be allowed to have Medicaid pay for his/her long term care. Transfers made by a spouse during this "look-back" period may also trigger a penalty for the spouse applying for assistance.

The length of the penalty depends on the amount of the uncompensated portion of the transfer. That amount is divided by the monthly average private pay rate for nursing home care, which gives the number of months that the penalty will run. [Example: An individual sells her $100,000 home to her son for $65,000. The uncompensated value of this transfer is $30,000 ($100,000 value - $65,000 received = $35,000 uncompensated). If the state's average private pay rate for nursing home care is $3,500/month, the individual in question will incur a penalty period of 10 months ($35,000 uncompensated portion of transfer divided by $3500/month average private pay rate = 10 months). In effect, the "transfer rule" seeks to disqualify an individual for the length of time that he/she could have paid for his/her own care with the assets that were transferred.

The application of the transfer rule can be VERY complicated, and the use of transfers in the context of Medicaid eligibility planning should only be undertaken with a full understanding of the application of the rule and its exceptions in the specific state in question.

What if a person needs long term care, but their spouse will remain at home?

In order to prevent the spouse in the community from becoming too impoverished, the Medicaid rules allow for that community spouse to keep an "extra" amount assets that are otherwise countable as resources in the eligibility process (e.g., stocks, bonds, bank accounts, etc.). This "extra" amount is known as the community spouse resource allowance (CSRA). Although the allowed amount may vary from state to state, it is usually in the range of $60,000 to $80,000. This CSRA is in addition to excluded assets (such as the home, a car, personal property, etc.) that the spouse may also keep.

Depending upon the community spouse's income, the rules may also allow a portion of the institutionalized spouse's monthly income to be allocated over to the community spouse in order to bring the community spouse's monthly income up to a prescribed level.

What is "estate recovery"?

Estate recovery is Medicaid's effort to recover some of its costs from the estate's of deceased recipients. When a Medicaid recipient dies, the Medicaid Program files a claim against the estate for the expenses paid on behalf of that individual by Medicaid, much like any other creditor would. (In some states, the Medicaid Program automatically receives a lien against the property of the deceased individual.) Certain protections for surviving spouses, disabled children, etc. are built in to this process.

Many states have been pursuing estate recovery for years as an optional aspect of their Medicaid programs. In 1993, however, Congress changed the federal statute to require all states to implement estate recovery programs as a condition of participating in the Medicaid Program. Some states have done so very aggressively (even going so far as to redefine what constitutes an estate), while others have taken a much more restrained approach. Therefore, individuals should educate themselves about the particular facets of estate recovery in their specific locales, since this may be a factor to be considered in deciding whether to apply for Medicaid.


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Remember: Always seek the advice and assistance of qualified professionals before you make any decision that will affect you or your family.