Medicaid Costs & Coverage

While the high cost of health care in America is a source of heated and enduring debate among politicians, policy wonks and cable news talking heads, most of us just want to know that getting treated for the flu (or a cracked tibia) today won’t result in having to hock the car or duck the landlord for the foreseeable future.

For more than 72.5 million Americans, that peace of mind is provided by Medicaid, a joint federal and state program that has become the single largest source of health coverage in the United States. Beneath its wide umbrella: children, pregnant women, parents, seniors, individuals with disabilities, and more.

With passage of the Affordable Care Act (a.k.a. ObamaCare) in 2010 accompanied by a fat infusion of funds from Washington, most states have extended Medicaid coverage to able-bodied, working-age, low-income childless adults. The response has been, to put it mildly, enormous.

Still, eligibility hurdles mean Medicaid is not for everyone. If you’re among those suffering the heat of daunting medical bills, check whether you (or your children) qualify before you’re swamped.

Medicaid vs. Medicare: What’s the Difference?

While Medicaid and Medicare both grew out of President Lyndon Johnson’s Great Society legislation in 1965, they are distinctly different programs.

Medicaid is a public-assistance program for needy Americans of all ages. Medicare is a federal health-insurance program that guarantees coverage for seniors aged 65 and over, plus some younger people with disabilities.

Like Social Security, Medicare is considered an entitlement. Working people who paid Medicare taxes on their earnings are automatically eligible when they turn 65. The program is not (right now) income-based.

Medicare is divided into four parts:
  • Part A — hospital care
  • Part B — coverage for doctors, medical tests and procedures (requires a monthly premium)
  • Part C, Medicare Advantage — administered by private insurance companies, Part C is an alternative to traditional Medicare coverage, and often includes Parts A, B and D (prescription drugs)
  • Part D — administered by private insurance companies, Part D provides prescription drug coverage (requires a monthly premium); mandatory, unless you have coverage from another source

Medicaid, by contrast, is a needs-based public-assistance program paid for by taxes collected at the federal and state levels. Within the limits of certain federal mandates, Medicaid programs operate differently from state to state.

In some circumstances — for instance, seniors of modest means needing long-term care, or help with premiums, copays or other medical expenses — Medicare and Medicaid operate in partnership.

Who’s eligible for Medicaid? Read on.

Mandatory Eligibility Groups

To participate in Medicaid, Congress requires states to cover specified groups, among them low-income families, qualified pregnant women and children, and people receiving Supplemental Security Income (SSI). The list goes on; states may choose to cover individuals receiving home- and community-based services, as well as children in foster care.

As mentioned above, the ACA allowed states to expand Medicaid to cover nearly all low-income Americans. Under ObamaCare, states may cover working-age adults with incomes at or below 138% of the federal poverty level. Most do; in states that do not, the debate, accompanied by energetic election-year ads, goes on.

ObamaCare also established a unified methodology for determining income eligibility for Medicaid, based on Modified Adjusted Gross Income (MAGI). MAGI is used to determine financial eligibility for Medicaid, CHIP (Children’s Health Insurance Program), and premium tax credits and cost-sharing reductions available through the health insurance marketplace. This single set of income-counting rules, accompanied by a single application across programs, makes it less complicated for people to apply and enroll in the appropriate program.

MAGI is the basis for determining Medicaid income eligibility for most children, pregnant women, parents and adults. The MAGI-based methodology considers taxable income and tax filing relationships to determine financial eligibility for Medicaid. As a unified scheme, MAGI eliminates criteria that varies by state or eligibility group, as well as asset or resource tests.

Additionally, individuals must meet certain non-financial eligibility standards. Generally, Medicaid clients must be residents of the state in which they receive Medicaid. Beneficiaries must be U.S. citizens or certain qualified non-citizens, such as lawful permanent residents. Beyond that, some eligibility groups are limited by age, or by pregnancy or parenting status.

Medically Needy Exceptions

Generally, Medicaid eligibility pivots on a potential applicant’s income. However, those who find themselves within Medicaid’s traditional eligibility categories — blind, aged, pregnant, disabled, a minor, or the parent of a minor child — may yet qualify for benefits despite having a disqualifying income.

In the 32 states and the District of Columbia that have adopted medically needy programs, a person can qualify for benefits if, after paying medical expenses, his/her income is reduced to such a low level the participating state declares the person eligible.

The applicant also must have limited assets, typically around $2,000 for a single individual, not counting a personal home, a car, and certain personal possessions. Someone with a substantial investment portfolio could yet qualify by placing it in a trust.

Trust assets remain available for needs not covered by Medicaid; be aware, however, that federal law requires the state to recover from the trust much of what it spent in Medicaid coverage when the person leaves the program, or after the beneficiary’s death.

What Medicaid Covers

Once an individual is deemed eligible for Medicaid coverage, generally there are no, or only very small, monthly payments, co-pays or deductibles. The program pays almost the full amount for health and long-term care, provided the medical service supplier is Medicaid-certified.

Certain services are covered in every state, including:
  • Laboratory and X-ray services
  • Inpatient hospital services
  • Outpatient hospital services
  • Physician services
  • Skilled nursing facility services
  • Some home health care services
  • Transportation to medical care
  • Prescription drugs
 Children receive additional Medicaid benefits, which also cover some adults:
  • Physical therapy
  • Eye doctor visits and glasses
  • Audiology and hearing aids
  • Podiatry services
  • Prosthetic devices
  • Mental health services
  • Dental services
  • Hospice services
  • Some assisted living services

In 2016, Medicaid covered 19.4% of all Americans, accounting for 17% of total U.S. healthcare spending, or more than $565.5 billion. Spending on managed-care and health plans accounts for 46% of program spending. At 26%, acute-care spending — doctor’s appointments, X-rays, prescriptions, dental work, injuries, illnesses and other urgent medical needs — comprises Medicaid’s second largest line item.

With increasing numbers of younger people coming on board, the share of Medicaid going to long-term care such as nursing homes has slipped to 20%, down from as high as 32% in 2010. Long-term care includes nursing homes, facilities for those with intellectual disabilities and home health care.

As noted above, Medicaid also kicks in for seniors on Medicare whose income is insufficient to cover premiums, deductibles, and other insurance costs.

Of course, coverage isn’t worth much if you can’t find a suitable physician, and Medicaid’s tight reimbursement schedule turns off plenty of doctors. In 2017, the Kaiser Family Foundation found that nationwide, only 70% of office-based doctors were accepting new Medicaid patients — but where you lived was critical. In Nebraska, 97% of office-based physicians were accepting new Medicaid patients, more than double the number in New Jersey (39%).

By comparison, nationwide, 85% of office-based physicians were accepting new patients covered by private insurance or Medicare.

Medicaid Appeals

There are any number of reasons your application for Medicaid might be denied by your state’s Medicaid agency. Your income is too high. You hold disqualifying assets. The state doubts your claim of disability.

Whatever the reason, you can appeal. And even though your state’s Medicaid agency will handle the appeal, it must adhere to federal Medicaid rules.

Rejected applications must be delivered within a specified time (90 days if based on a disability; 45 days for any other basis) and accompanied by a written denial notice explaining the reasons for why you were turned down.

Depending on the state, you might be required to make their appeals requests in writing. However, even if you aren’t required to file a written notice, you should. Be cognizant of the deadline (no more than 90 days from the date the denial notice is mailed), and if you can, deliver your appeal by hand to the local state Medicaid office. Be sure to witness the stamp.

Otherwise, send your appeal by certified mail, and request a delivery receipt.

An appeal hearing will follow, for which you must appear in person or by phone (depending on the state’s procedures). You will be alerted about the procedure, the location, and the date, all of which are required to be reasonable, and after adequate notice.

Applicants must be allowed to review their files and all the documents the agency relied on to deny Medicaid coverage. During the review, jot down the points you need to be sure to make so they won’t be forgotten. Applicants also may bring witnesses to testify on your behalf, and ask the agency’s witnesses questions.

If something comes up, such as a medical question, that could be resolved by the submission of additional evidence, ask for more time to retrieve the information before a decision is made.

Applicants may be accompanied by an attorney (contact your local legal aid office, or bar association, or telephone a lawyer); applicants also may bring a relative, friend, or some other spokesman to help.

If you win your appeal and qualify for Medicaid, the state Medicaid agency will apply coverage retroactive to the date you became eligible, usually the date of your original application. Keep close track of your medical expenses so they can be submitted when you qualify for benefits.

Cost Sharing

States have the option to charge premiums and to establish out-of-pocket spending requirements for Medicaid enrollees. These may include copays, coinsurance, deductibles, and other similar charges. Out-of-pocket maximums are limited, but states can impose higher charges for individuals with higher incomes.

Certain especially vulnerable groups, such as children and pregnant women, tend to be exempt from most out-of-pocket costs, copays and coinsurance cannot be charged for certain services.

In the interest of promoting cost-effective use of prescription drugs, federal Medicaid guidelines allow states to apply out-of-pocket charges at the pharmacy. States may mandate different copays for generic vs. brand-name drugs, or for drugs included on a preferred drug list.

People with incomes above 150% FPL may incur copays for non-preferred drugs as high as 20% of the drug’s cost. Those with incomes at or below 150% FPL face only nominal copayments.

States also can establish different copays for mail-order drugs and for drugs sold in a pharmacy.

States may also impose higher copays when people visit a hospital emergency department for non-emergency services. This copay is limited to non-emergency services; true emergency services are exempted from all out-of-pocket charges. For people with incomes above 150% FPL, such copays may be established up to the state’s cost for the service, but certain conditions must be met.

Among the criteria:
  • After an appropriate medical screening, the hospital determines the individual does not need emergency medical services.
  • An alternative non-emergency services provider is available and accessible in a timely manner to provide the services needed with the imposition of no or a lesser copay.
  • The hospital has provided the patient with (a) notice that a copay may be required before service is performed; (b) the name and location of an alternative non-emergency services provider; and (c) a referral to coordinate scheduling of the individual’s treatment by this provider.
Bill Fay

Bill Fay is a journalism veteran with a nearly four-decade career in reporting and writing for daily newspapers, magazines and public officials. His focus at Debt.org is on frugal living, veterans' finances, retirement and tax advice. Bill can be reached at bfay@debt.org.

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