Medicaid 101: An Overview of Medicaid's Functions and Structure

We want to give a special thank you to a few HTNers, Casey Langwith, Dr. Lindsey Leininger, and Duncan Reece who offered insights and comments, helping to bring this article to fruition!

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TLDR: This article is the first part of a multi-part series on Medicaid, which aims to serve as a 101-level introduction into the topic of Medicaid. As with many, if not all topics in healthcare, Medicaid is complicated. We hope this article (in combination with future articles), helps put the pieces together for folks on how the program is structured, financed, and care is delivered. 

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In the first half, we explore a few broad questions to understand the role of Medicaid, how it’s structured, and more. In the second part, we dig into the specific subgroups/programs to figure out the demographic makeup of and how folks qualify for each.

Table of contents

• Medicaid: A brief introduction
• How does Medicaid fit into the broader US healthcare system?
• How does Medicaid eligibility work?
• Related eligibility groups
• How is Medicaid structured? 
• How can states make changes to their Medicaid plans?
• Takeaways & summary
• Resources

Medicaid: A brief introduction

Medicaid is a public health insurance program in the United States. It is a federal-state partnership program, meaning it is administered by states, according to requirements set by the federal government. It is important to note that while it is a federal-state program, Medicaid very much operates on a state by state basis (more on this later).

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Acting as an assistance program, Medicaid typically provides health coverage to the most underserved populations – including low-income adults, children, pregnant women, elderly adults, and people with disabilities. Medicaid members often have complex, high-cost care condition profiles, among them are substance use disorder, childbirth, anxiety, hypertension, and depression. More pointedly, Medicaid is an “entitlement” program and thus, anyone who meets the eligibility rules (which we will dig into below) has a right to enroll in Medicaid coverage. 

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As of July 2022, nearly 82.8 million Americans were enrolled in Medicaid, making it the single largest insurance program in the US. Following a period of enrollment declines from 2017 to 2019, the Covid-19 pandemic accelerated Medicaid enrollment, which was up 29.5% from February 2020 to July 2022. The recent increase in enrollment was driven by economic changes (increased unemployment), Medicaid expansion initiatives, and the temporary continuous enrollment requirement (aka Families First Coronavirus Response Act) – which blocked states from disenrolling Medicaid members during the emergency period. It is important to note that the emergency order is set to end January 2023, which has several implications that will impact this population. You can read more about those in this KFF article here.

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Now that you have the elevator pitch on Medicaid, the next few sections will dig into broad questions to help provide understanding for the scope and structure of the program, with a few notes on how it operates. 

How does Medicaid fit into the broader US healthcare system?

According to the US Census Bureau, in 2021 about 66% of people were covered by private insurance, compared to just 36% that were in public programs (Note: The estimates by type of coverage are not mutually exclusive; people can be covered by more than one type of health insurance during the year – hence why these do not equal 100%). Looking at those numbers, you can quickly see how in the US - unlike many other countries - private insurance provides coverage for the majority of the population. Yet public programs remain quite important in the U.S., both for the 36% that receive coverage via public programs, and also because the role government rates play in setting commercial rates.

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Zooming into the 36% on the public insurance side, Medicaid accounts for nearly 19% of the total US population. Despite being a smaller part of the broader US insurance landscape, Medicaid plays a crucial role as the safety net responsible for covering those who cannot afford private insurance. Some of the underserved groups covered by this safety net include low-income adults and children, people with disabilities, low-income Medicare beneficiaries (aka “dual eligible”), long-term care assistance, and more. 

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Source: US Census Bureau

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We will explore who is covered in each of these subgroups and how they qualify for Medicaid in more detail later in the article.

How does Medicaid eligibility work?

Earlier on in the article we talked about how states are subject to various federal requirements in order to participate in Medicaid – one of those requirements comes into play when we talk about eligibility. In fact, there is a list of mandatory eligibility groups – such as individuals on Supplemental Security Income (SSI), pregnant women and children, low income families, and more. Beyond covering these groups, states have the option to cover several other groups, including individuals receiving home and community-based services (HCBS), children in foster care, among others. 

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While there are many different group pathways for an individual to pursue, in general, there are two main buckets of criteria that individuals must satisfy in order to be eligible for Medicaid: 1) financial and 2) categorical.

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Seeing that Medicaid is an insurance program for low-income individuals, the primary criteria to qualify for Medicaid is based on, you guessed it - income levels. However, there are other various categorical pathways that individuals can follow in order to be eligible.

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• Financial criteria (MAGI pathway): In 2014, the Affordable Care Act (ACA) streamlined a new methodology for determining income eligibility, which today is based on Modified Adjusted Gross Income (MAGI). The MAGI pathway applies to pregnant people, parents, and children with low incomes. This methodology factors in taxable income and tax filings to determine financial eligibility for Medicaid. Following the ACA’s Medicaid expansion, most states (39 year-to-date) have expanded Medicaid coverage for adults with incomes up to 138% of the federal poverty level (FPL). Medicaid expansion itself is a major political hot ground and thus, it is important to note that not all states have not adopted Medicaid expansion – in fact, 12 states cover fewer individuals, which is shown through their lower FPL limits. You can see those Medicaid income eligibility limits for adults (as a % of FPL) across all states in this KFF database. Additionally, Healthcare.gov provides a helpful tool for individuals to quickly identify if they qualify for Medicaid (or CHIP) based on income levels here.
• Categorical criteria (non-MAGI pathways): Outside of individuals covered by Medicaid through the MAGI pathway described above, states have the option to cover other groups that can qualify through non-MAGI pathways. These include people with significant health needs – such as seniors and individuals with disabilities – whose income is too high to otherwise qualify for Medicaid. It is important to understand that nearly all non-MAGI pathways are optional, which results in significant state variation. You can see state by state adoption of major optional non-MAGI pathways in Table 1 here. 

The chart below shows a high-level overview of Medicaid’s role in filling coverage gaps – looking at the major eligibility groups across MAGI and non-MAGI pathways.

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Let’s explore what these specific criteria look like across a few of the major eligibility groups.

Related eligibility groups

In the sections below, we will look at specific criteria across several major eligibility groups (both MAGI and non-MAGI pathways).

Children’s Health Insurance Program (CHIP)

While often mentioned and discussed together, it is important to note the differences between Medicaid and Children’s Health Insurance Program (CHIP). At first glance, it might seem like CHIP is essentially Medicaid for children, but that’s not entirely true. In fact, while CHIP is another program targeted at low-income individuals, CHIP specifically provides low-cost health coverage to children of families that earn too much money to qualify for Medicaid, but too little to afford private insurance. In some (6) states – including Colorado, Missouri, and New Jersey – CHIP also covers pregnant women.  

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As of July 2022, approximately 7.1 million individuals were enrolled in CHIP - this was up 5.6% from February 2020. Similar to the Medicaid program, CHIP is administered by states, according to federal requirements and is jointly funded by states and the federal government. 

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Eligibility

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In order to be eligible for CHIP, a child must be:

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• Under 19 years of age,
• Uninsured (determined ineligible for Medicaid, and not covered through a group health plan or creditable health insurance),
• A citizen or meet immigration requirements,
• A resident of the state, and
• MAGI-criteria: Eligible within the state’s CHIP income range, based on family income, and any other state specified rules in the CHIP state plan.

You can also read more on the eligibility requirements for targeted low-income pregnant women here.

Dual-eligibles 

Dual-eligible beneficiaries are individuals who qualify for traditional Medicare and are also eligible for some level of assistance from their state Medicaid program - and thus are enrolled in both Medicare and Medicaid simultaneously. 

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As of March 2021, about 11.6 million individuals are considered dual-eligible.  

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Eligibility

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Under the dual umbrella, individuals can fall into one of several eligibility categories: 

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• QMB Only: Qualified Medicare Beneficiaries (QMBs) without other Medicaid (also known as QMB “partial benefit”)
• QMB Plus: QMBs with full–benefit Medicaid
• SLMB Only: Specified Low-Income Medicare Beneficiaries without other Medicaid
• QIs: Qualifying Individuals
• QDWIs: Qualified Disabled and Working Individuals 
• Full-benefit Medicaid only 

If you’re interested in digging deeper into what each of these categories mean, we recommend this detailed overview from CMS.

Long-Term Services & Support (LTSS)

Medicaid serves as the primary payor in the US for long-term care services. While most people aged 65 and older (and many under 65 with disabilities) have Medicare, many of these long-term services are actually covered by Medicaid. Millions of Americans – including children, adults, and seniors – require access to these services to treat various disabilities and chronic conditions. 

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These long-term services help individuals live more independently by providing assistance with personal and healthcare needs – such as eating, bathing, medication management, walking, getting dressed, and more.

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Under the LTSS umbrella, there are two main models for the delivery of services. The type of service/care is typically quite similar between the two - what differs is how the care is delivered and where the patient lives:

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1. Home- and community-based care (HCBS): primary location is in the patients’ home or home community
2. Institutional based care: primary locations include assisted living centers, adult family, and nursing homes

In 2020, approximately 5.8 million people used paid long-term services and supports (LTSS) delivered in home and community settings and 1.9 million used LTSS delivered in institutional settings.

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One HCBS program that has gained popularity in recent years is the Program for All-Inclusive Care for the Elderly (PACE). While PACE is permanently available to individuals under Medicare, the program is only provided to Medicaid beneficiaries if the individual state chooses to provide it as a Medicaid benefit.

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Eligibility

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In order to be eligible for LTSS under Medicaid, individuals must meet state-specific eligibility requirements regarding a combination of their income levels and functional limitations.

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• Financial criteria – While individuals must share information on income and resources, LTSS eligibility differs from Medicaid in that it is not determined on the basis of modified adjusted gross income (aka it follows a non-MAGI pathway).
• Functional criteria – Measures of functional status are referred to as level-of-care (LOC) criteria. States use various functional question assessments to collect information on an applicant’s health conditions and functional needs.

States can offer one or more of the pathways listed below to provide eligibility to people in need of LTSS. Each pathway below considers a different combination of financial and functional criteria to qualify LTSS users:

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• Poverty-related pathway
• Medically needy pathway
• Special income-level pathway
• TEFRA/Katie Beckett pathway
• Section 1915(i) state plan home and community-based services
• Medicaid buy-in pathways
• Exceptions to prevent impoverishment

If you’re interested in digging deeper into each of the pathways, we recommend this detailed overview from MACPAC.

How is Medicaid structured? 

Now that we have a sense for Medicaid’s broader role and who is in the program, let’s review how the program itself is structured.

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As detailed above, Medicaid is set up as a federal-state partnership program, meaning it is administered by states, according to requirements set by the federal government. One component of this partnership dynamic is that Medicaid is jointly funded by states and the federal government. The federal share costs are determined by the Federal Medical Assistance Percentage (FMAP) calculation, which we will dig into in more detail in an upcoming article on the financing of Medicaid. 

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Each state has a single agency that administers Medicaid. Part of the deal when receiving federal funding for Medicaid is that states must meet a set of requirements as mandated by federal law. Beyond these basic requirements, each state program is actually quite flexible in how it operates, resulting in very unique and highly complex differences between each of the 50 state programs.

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Every state must create a Medicaid State Plan that describes the structure and scope of its program in detail, which is then reviewed and approved by the Department of Health & Human Services (HHS). It acts as a formal written agreement between a state and the federal government to ensure a few things: 1) the state will follow the federal rules in order to claim federal funding 2) indicates which optional groups, services, or programs the state will cover 3) describe the state-specific standards to determine eligibility, how providers are reimbursed for services, and processes to administer the program

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For example, the State of New York provides a copy of its entire Medicaid State Plan here. As you’ll see briefly below, the document is organized into seven main sections:

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• Section 1: Single State Agency Organization
• Section 2: Coverage and Eligibility
• Section 3: Services: General Provisions
• Section 4: General Program Administration
• Section 5: Personnel Administration
• Section 6: Financial Administration
• Section 7: General Provisions

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To get a bit more tangible, let’s briefly zoom into the ‘Services: General Provisions’ section of the State Plan. In this section, the document outlines details related to the services covered under Medicaid in that state – such as the amount, duration, and scope of services. 

How can states make changes to their Medicaid plans?

As mentioned earlier, the structure of Medicaid allows states the flexibility to make desired changes and updates to their existing Medicaid State Plans. It can get a bit confusing to understand how HHS allows states to change their Medicaid programs, so let’s review the a few general mechanisms to make such changes:

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1. State Plan Amendment (SPA): SPAs are made when a state intends to start (or stop) covering an optional population group or service. SPAs do not need to be budget neutral for the federal government.
2. Section 1915(b) Waiver: In general, the Medicaid statute allows beneficiaries freedom of choice of providers. However, the Section 1915(b) waiver permits states to implement special service delivery models – like managed Medicaid care – that restrict the choice of providers.
3. Section 1915(c) Waiver: Section 1915(c) waivers come into play when looking at home and community-based services (HCBS). The waiver permits states to provide HCBS as an alternative to requiring individuals to receive care in various institutional settings (e.g. nursing homes, intermediate care facilities, hospitals, etc.). This helps individuals who qualify for HCBS to identify key services, such as case management, home health aides, personal care, adult day programs, and more.
4. Section 1115 Waiver: While SPAs act as more permanent amendments, Section 1115 Waivers allow states to make temporary changes to the Medicaid plan. These waivers are granted for an experimental, pilot or demonstration project that is likely to assist in promoting the objectives of the Medicaid Act. Notably, while temporary by definition, these waivers often get extended indefinitely. Additionally, unlike SPAs these waivers must be “budget neutral”, which means that they cannot exceed the amount of projected federal spending absent the waiver.

To give you a brief sense for what these entail, below are a couple of examples of instances where State Plan Amendments versus Section 1115 Waivers are used. 

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The state of Minnesota offers a decently navigable webpage where individuals can view the current draft (open for public comment) and approved state plan amendments here. Below is an approved state plan amendment from January 2022 detailing changes for medication therapy management services under the Minnesota Medicaid program.

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On the other hand, let’s look at how Section 1115 Waivers exist in the real world. 

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We recently saw some news about CMS approving groundbreaking Medicaid Section 1115 demonstration initiatives in Massachusetts and Oregon. The waiver will allow Oregon to keep children enrolled in Medicaid up to age six, which is a big step to improving coverage and access for the population. 

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If you’re interested in digging further into the announcement, we recently had HTN friend and Medicaid nerd, Dr. Lindsey Leininger, to help us make sense of it all. We explore several key questions:

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• What the program means for parents and children impacted
• How Massachusetts and Oregon compare to other states with the initiative
• If we might see other states adopt similar efforts  
• The big risks for a demonstration project like this
• And more

You can read the full article here. You can also check out KFF’s Medicaid tracker to quickly find approved and pending Section 1115 Medicaid waivers. 

Takeaways & summary

As we mentioned up top, that was a lot to cover. Let’s quickly recap a few of the biggest takeaways:

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• With great flexibility, comes great complexity: Fortunately, Medicaid is structured so that it can be highly flexible, allowing for helpful and crucial updates to be made to improve patient outcomes. However, with that flexibility and continuous changes to the program, it can be difficult to keep track of each program, let alone all 50 :)  
• No two programs are (even close) to the same: We’ve seen the saying “If you’ve seen one Medicaid program, you’ve seen one Medicaid program” floating around the community recently. This could not be more true. As explored with the Medicaid State Plans, each of the 50 states has a different approach to the structure and scope of their programs. 
• Highly heterogeneous and disparate populations: As discussed, Medicaid covers many different populations and demographics, each often with highly complex and unique care profiles. 

By now, you’re probably putting together that each of these factors probably makes the financing and delivery of care under Medicaid very complicated. And you would certainly be correct. We’ll unpack and explore what this looks like in our next two upcoming articles. Stay tuned!

Resources

We know there’s lots more to learn about Medicaid than we could cover in one article. Below are the 10 places we found were the best place to learn about Medicaid:

• Medicaid Eligibility (MACPAC)
• Medicaid Waivers (MACPAC)
• Status of State Medicaid Expansion Decisions: Interactive Map (KFF)
• 10 Things to Know About the Unwinding of the Medicaid Continuous Enrollment Requirement (KFF)
• Medicaid & CHIP Enrollment Data (Medicaid.gov)
• Medicaid Income Eligibility Limits for Adults as a Percent of the Federal Poverty Level (KFF)
• Medicaid Financial Eligibility in Pathways Based on Old Age or Disability in 2022: Findings from a 50-State Survey (KFF)
• Medicaid Waiver Tracker: Approved and Pending Section 1115 Waivers by State (KFF)
• Mandatory Medicaid Eligibility Groups (Medicaid.gov)
• Primer: State Plan Amendments v. Section 1115 Waivers (National Health Law Program)