How Medicaid Works

Mother kissing daughter in doctors office.
Image©:John Fedele/GettyImages

Medicaid is a social welfare program providing health insurance benefits to low income people in the United States. Whether you’re a Medicaid recipient or hoping to become one, understanding how Medicaid works can make it easier to get the health care you need. If you’re not a Medicaid beneficiary, but work caring for Medicaid recipients, understanding how Medicaid works can help you get your patients what they need.

How Medicaid Works From a Recipient’s Perspective

Medicaid Eligibility

Medicaid eligibility is at least partially based on income. In some states, residents with incomes of 138% of federal poverty level or less will qualify for Medicaid. To be eligible for Medicaid in other states, you must meet different low-income criteria as well as be a member of a vulnerable group such as a child, pregnant woman, elderly person, disabled person, blind person, or the parent of a young child.

In addition, some states require that you meet asset guidelines in order to get Medicaid. For example, even though you’re a low-income elderly person, you might not qualify for Medicaid if you have $100,000 sitting in a retirement account because your assets are too large.

It’s common for states to have several ways a person might qualify for Medicaid. For example, you might qualify by having an income below 138% of FPL, by having an income less than 200% of FPL and being pregnant, or by receiving Supplemental Security Income. How many ways there are to qualify for Medicaid and the exact eligibility criteria vary from state to state.

Medicaid Benefits

The benefits you receive when you get Medicaid vary from state to state as well as varying from person to person within a state. Federal regulations require that certain basic benefits be provided to certain vulnerable beneficiaries in every state. However, beyond that, states have flexibility in deciding which benefits to provide to which groups of people.

For example, a state might provide all of the beneficiaries who qualified for Medicaid under one set of criteria with full Medicaid health insurance benefits. It might provide people who qualified under a different set of criteria with only a few of the benefits the first group got.

How you access your Medicaid benefits if you’re a Medicaid recipient varies from state to state as well as within each state. However, a couple of methods are common.

  • Fee-For-Service. If your Medicaid benefits are delivered through the fee-for-service method, you’re free to visit any doctor, hospital, or other provider that will accept Medicaid payments. Each provider will get paid by Medicaid for the service he or she renders each time you seek care.
  • Managed Care. If your Medicaid benefits are delivered through managed care such as an HMO, you may only get care from providers within the managed care provider network. Additionally, you may have to get prior authorization before getting certain types of care, or have a referral from your primary care physician. Frequently, state Medicaid programs will contract with private health insurance companies to provide managed care services. In this situation, your Medicaid services might be provided through or administered by a private health insurance company such as Blue Cross, UnitedHealthcare, Humana, or other private health insurers.

In some cases, you may have no choice as to whether you get a managed care plan or a fee-for-service plan when you enroll in Medicaid. In other cases, you might get to choose between them when you enroll. Or, you may be provided with a hybrid system in which your state contracts with a managed care organization to provide most of your Medicaid benefits, but a few of your Medicaid benefits are provided on a fee-for-service basis. For example, maybe medical care, hospitalization, preventive care, lab, and x-rays are provided through a managed care contract, but medical transportation services might be provided on a fee-for-service basis.

Whatever method Medicaid uses to deliver benefits to you, almost universally those who actually provide your health care services are physicians, nurses, clinics, and hospitals in your own community. It’s quite likely that you’ll be getting your care at the same hospital or from the same group of doctors that some of your non-Medicaid neighbors are using, although you’ll probably pay less for those services than your neighbors are paying.

In some areas, you may have to shop around to find a physician who will accept new Medicaid patients into his or her practice. In other areas, there’s no problem finding a provider.

Unlike private health insurance, most Medicaid beneficiaries get Medicaid without having to pay monthly premiums for it. Likewise, most health care services are provided to Medicare beneficiaries without having to pay a deductible, copay, or coinsurance for the service. However, some states are exploring ways to charge nominal cost-sharing fees for some services. For example, a state may provide emergency room services for free in case of emergencies, but may charge a $25 copay if the ER visit was for something that could have been taken care of at your doctor’s office, instead.

Applying for Medicaid

You can apply for Medicaid either of in two different ways.

  1. Apply by contacting your state’s Medicaid program office directly. Find contact information for your state’s Medicaid program from the site’s State Profiles page.
  2. Apply by filling out an application for health insurance on your state’s Affordable Care Act health insurance exchange. If it looks like you’ll qualify for Medicaid, the exchange will either process your application for Medicaid or forward your application to your state’s Medicaid program. In this case, you’ll be given further instructions as to what you need to do to finalize your Medicaid application. Find your state’s health insurance exchange through this Marketplace finder at

How Medicaid Works From a Governmental Perspective

Medicaid is a joint federal and state program. The federal government sets up regulations that provide a broad universal framework that all Medicaid programs must follow. Each state designs and runs its own Medicaid program within this framework of federal regulations.

Since the federal regulations allow quite a bit of design flexibility, Medicaid programs vary from state to state. For example, if a person receiving Medicaid in one state was to move, he might not meet eligibility criteria in his new state. If he did meet Medicaid eligibility criteria in his new state, the Medicaid benefits he received there might differ from those he received in his former state.

Medicaid Funding

Medicaid is paid for by funds from both the federal government and each state’s government. The federal government provides 50-83% of the funds needed for traditional Medicaid recipients. The states provide the remainder of the funds.

The richer a state’s residents are, based on per capita income, the lower the percentage of funds provided by the federal government will be. The rest of the funds come from your state. You can see exactly what percentage of your state’s Medicaid program funds come from the federal government here.

One notable exception to the 50-83% rule for federal funding of Medicaid is the Medicaid expansion created by the Affordable Care Act. The federal government shoulders 90-100% of the costs for providing Medicaid to those who are only receiving Medicaid due to the ACA’s Medicaid expansion.

Medicaid and the Affordable Care Act

The authors of the ACA originally intended for all states to provide Medicaid coverage to residents with incomes of 138% of FPL or less. However, a ruling by the Supreme Court made this Medicaid expansion optional. Some states have chosen to expand Medicaid as originally intended by the ACA’s authors; other states have chosen not to expand Medicaid. In states that haven’t expanded Medicaid, it’s more difficult to qualify for Medicaid and a larger percentage of low-income residents remain uninsured than in states that have opted to expand Medicaid.

Learn More About Medicaid

Medicaid is a complex, ever-changing labyrinth where state and federal governments intersect with local governments, private for-profit businesses, non-profits, and private individuals. Medicare and Medicaid together provide health benefits to over 100 million people.

Was this page helpful?

Article Sources