Medicaid is a joint program run by the federal government and state governments that covers health care costs for low-income Americans who have no, or inadequate, health insurance. It was created in 1965 as part of the Social Security Act and is funded by federal, state and local taxes. Medicaid is a means-tested, needs-based social welfare program, whose main conditions for eligibility are limited income and meager financial assets. Today, Medicaid provides full or partial health coverage for an estimated 60 million people, including 9.2 million seniors.
In 2010, total Medicaid spending exceeded $404 billion. The states covered 32 percent of that amount, or $131.3 billion, and the federal government paid $272.8 billion — accounting for 7 percent of the federal budget. In 2011, total Medicaid spending grew to $432 billion, and by 2020, expenditures are projected to reach $871 billion, when an estimated 85 million Americans will be eligible.
The recently passed Patient Protection and Affordable Care Act (ACA) — also known as ObamaCare — will require an expansion of Medicaid. According to a Congressional Budget Office (CBO) estimate, the federal government will pay $931 billion or 93 percent of the expansion costs between 2014 and 2022; states will pay roughly $73 billion, or 7 percent.
States are expected to offset those increased expenditures by realizing savings in costs they currently incur for providing care to uninsured people. These individuals will either become Medicaid-eligible, or be obligated to purchase private insurance under the ACA’s individual mandate.
What Does Medicaid Cover?
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
Nationwide, 32 percent of all Medicaid spending is for long-term care for the elderly and those with disabilities. In 2010, per capita Medicaid spending for the elderly averaged $15,495. Seventy percent of all nursing home residents in America are assisted by Medicaid.
In 2008, Medicaid paid for 40 percent of all childbirth-related hospitalizations, at a cost of $6.4 billion.
Who is Eligible for Medicaid?
Because each state is responsible for promulgating its own Medicaid procedures under federal guidelines, policies vary. States have broad authority to set eligibility standards and can choose to fund certain populations and groups. For example, a state may cover pregnant women even if they have higher incomes or “medically needy” individuals who do not meet normal financial standards for program benefits.
Medicaid eligibility requirements are complex, change often and vary from state to state. For an individual to be eligible for Medicaid, he or she must be financially qualified, and for long-term care services, medically qualified, as well – meaning that the person is unable to care for him or herself and requires assistance with, or supervision of, daily activities.
States use one of two approaches to determine if someone is financially qualified for Medicaid benefits: There are 23 “income cap” states and 27 “spend-down” states. Income cap states set a fixed limit above which an individual does not qualify. The current limit is three times the Social Security Income (SSI) payment amount — or $2,094 per month.
Spend-down states consider an individual’s income, but also the cost of medical care. For example, if a potential recipient’s income is above the limit, but he or she has medical expenses that reduce that amount below the cutoff, that individual can qualify for Medicaid.
Another factor determining Medicaid eligibility is a person’s financial assets. Most states have a $2,000 limit, though some allow up to $15,000. Certain assets, such as cars, homes, clothing, jewelry and furniture are generally not counted against the limit.
Most seniors who qualify for Medicaid are also enrolled in Medicare. Depending upon a senior’s income and number of assets, Medicaid will pay all or part of Parts A and B premiums, deductibles and/or co-pays.
What if You Don’t Qualify?
If an individual’s assets exceed a state’s Medicaid eligibility requirement, but his or her income is not sufficient to cover long-term health care costs, he or she can “spend down” assets by paying for care out of pocket, until the eligibility requirement is met.
It is important to note that one cannot simply give away excess assets in order to meet an eligibility threshold, as Medicaid investigates up to five years of asset transfers prior to an individual’s program application. Spend-down expenses must be medically necessary.
Other options for achieving eligibility include structuring financial resources by allocating assets to a trust account, like a funeral trust, or separating assets between spouses so that a needy partner can qualify for benefits, while the healthier partner assumes a greater portion of the couple’s resources.
The process of creating or contributing to a trust, or proportioning marital assets, is complicated, and interested people are advised to consult with a professional Medicaid planner before considering either option.