9.2 Medicaid

Medicaid: Joint Federal-State Health Coverage for Low-Income Americans

Quick Answer: Medicaid is a joint federal-state program that provides health coverage to low-income individuals. The federal government sets minimum standards and matches state spending; states administer the program and set eligibility within federal rules. The ACA expanded Medicaid to adults under 138% of the federal poverty level (FPL) in states that opted in. Medicaid is the payer of last resort, meaning it pays only after all other liable parties have paid.

Program Structure

Medicaid is authorized under Title XIX of the Social Security Act and administered by CMS at the federal level and by state Medicaid agencies locally. The federal government provides a Federal Medical Assistance Percentage (FMAP) match, which is higher in poorer states. States must cover mandatory populations to receive matching funds and may cover optional populations at the same match rate.

Mandatory Populations

Federal law requires states to cover:

• Children up to age 19 in families meeting state income limits
• Pregnant women at specified income levels
• Parents and caretaker relatives meeting AFDC-era income tests
• Aged, blind, and disabled individuals receiving SSI (in most states)
• Former foster care youth who aged out of foster care, up to age 26, regardless of income

The former-foster-care-to-26 rule is an often-tested mandatory category because it overrides the usual income limits.

Medicaid Expansion Under the ACA

The ACA created a new expansion category for adults under 138% FPL (the effective income threshold after a 5% disregard applied to the 133% statutory figure). The Supreme Court made expansion optional, so states decide whether to participate. As of 2026, most states have expanded, but a minority still have not, creating a coverage gap for adults above traditional Medicaid limits but below Marketplace subsidy floors in non-expansion states.

The federal match is enhanced for expansion enrollees at 90% in 2026, well above the standard FMAP, which is why expansion is financially attractive to states.

CHIP (Children's Health Insurance Program)

CHIP covers children in families that earn too much for Medicaid but cannot afford private coverage. CHIP is a separate Title XXI program, but many states operate it as an expansion of Medicaid, while separate CHIP programs also exist. CHIP income limits vary widely by state and can reach 200% to 300% or more of FPL.

Eligibility: MAGI vs. Categorical

Most Medicaid eligibility now uses Modified Adjusted Gross Income (MAGI), which is household income calculated from tax-return figures with no asset test. MAGI applies to children, pregnant women, parents, and expansion adults. Aged, blind, and disabled individuals and those needing long-term care still use categorical eligibility with income and resource (asset) tests, including spend-down rules that let applicants deduct medical expenses from income to qualify.

Payer of Last Resort

Medicaid is the payer of last resort by federal law. It pays only after all other liable third parties, including Medicare, employer plans, workers' compensation, and liability insurers, have paid. States must operate a Third Party Liability (TPL) program to identify and recover costs from these other sources before Medicaid pays.

Dual-Eligibles: Medicare Savings Programs

People enrolled in both Medicare and Medicaid are dual-eligible. Medicaid can pay Medicare cost sharing for low-income beneficiaries through Medicare Savings Programs (MSPs):

• QMB (Qualified Medicare Beneficiary): income up to 100% FPL. Pays Part A and B premiums, deductibles, coinsurance, and copayments. Largest MSP. Providers may not balance-bill QMBs.
• SLMB (Specified Low-Income Medicare Beneficiary): income 100 to 120% FPL. Pays the Part B premium only.
• QI (Qualifying Individual): income 120 to 135% FPL. Pays the Part B premium only, funded by an annual federal block grant on a first-come, first-served basis.
• QDWI (Qualified Disabled and Working Individual): income up to 200% FPL. Pays the Part A premium for disabled individuals who lost premium-free Part A because they returned to work.

Federal law prohibits providers from balance-billing QMBs for Medicare cost sharing.

Long-Term Care

Medicaid is the largest payer of nursing home days in the United States, paying for roughly 6 in 10 nursing facility residents. Medicare covers only short-term skilled nursing (up to 100 days per benefit period); Medicaid covers ongoing long-term care for those who meet financial and functional (ADL) criteria. Eligibility rules for long-term care are far stricter than for standard Medicaid: applicants must spend down assets to qualify, and estate recovery allows states to recover costs from the deceased enrollee's estate.

State Variation

Because states administer Medicaid, benefits, income limits, and covered services vary significantly. All states must cover mandatory benefits such as inpatient and outpatient hospital, physician, lab and X-ray, and family planning, but many optional benefits such as prescription drugs, dental, vision, physical therapy, and personal care are at state discretion.

Exam tip: Three facts dominate the Medicaid test surface: (1) Medicaid is a joint federal-state program, (2) Medicaid is the payer of last resort, and (3) the four Medicare Savings Programs (QMB, SLMB, QI, QDWI) and what each pays. Memorize the income bands: QMB up to 100% FPL, SLMB 100 to 120%, QI 120 to 135%, and QDWI up to 200% FPL.