17.1 Medicaid and Other Government Programs

Medicaid and Other Government Health Programs

Medicaid is a joint federal-state welfare program that pays medical costs for people with low income and limited assets. Unlike Medicare (a federal, age- or disability-based entitlement), Medicaid eligibility is means-tested — you must qualify financially. The federal government sets minimum standards and shares funding through the Federal Medical Assistance Percentage (FMAP); each state runs its own program, so benefits and income limits vary.

Who Qualifies

Medicaid combines a categorical test (you fit a covered group) with a financial test (income/assets below the state cap). Mandatory groups federal law requires states to cover include:

• Low-income families with children and pregnant women
• Children in low-income households (often via CHIP, the Children's Health Insurance Program)
• Aged, blind, and disabled persons receiving Supplemental Security Income (SSI)
• Adults up to 138% of the Federal Poverty Level (FPL) in states that adopted ACA Medicaid expansion

A common exam trap: age alone never qualifies you for Medicaid. A 70-year-old needs low income/assets to be eligible; age qualifies you for Medicare instead.

Covered Services and Cost

Federal law requires state Medicaid programs to cover a baseline set of mandatory benefits, with optional benefits added at state discretion. Mandatory services include:

• Inpatient and outpatient hospital services
• Physician and nurse-midwife services
• Laboratory and X-ray services
• Nursing-facility care for adults and home health services
• Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) for children under 21

Medicaid generally charges little or no premium and minimal cost-sharing because enrollees are, by definition, low-income. This contrasts sharply with Medicare's Part B premiums and deductibles, which fall on the beneficiary.

Medicaid vs. Medicare — Know the Difference

This pairing is heavily tested. Use the table below.

Dual eligibles qualify for both: Medicare pays first, Medicaid wraps around as the payer of last resort, covering premiums, cost-sharing, and custodial nursing-home care.

Long-Term Care, Spend-Down, and the Look-Back

Medicaid is the nation's largest payer for long-term custodial care — non-skilled help with Activities of Daily Living (ADLs) such as bathing, dressing, and eating. Because Medicare and most major-medical plans exclude custodial care, families turn to Medicaid only after exhausting savings. Many enter a nursing home as private payers, deplete assets, then spend down to Medicaid's asset limit (often a few thousand dollars in countable resources).

To stop applicants from gifting assets to qualify, federal law imposes a 60-month (5-year) look-back. Any transfer for less than fair market value within five years of applying triggers a penalty period. The penalty equals the gifted asset's value divided by the state's average monthly nursing-home cost (the divisor).

Worked example: A state's monthly private nursing-home divisor is $9,000. An applicant gifted $90,000 to a child 18 months before applying. Penalty = $90,000 / $9,000 = 10 months of ineligibility, beginning when she would otherwise have qualified — not when the gift was made.

Spousal Protections and Partnership Programs

To avoid impoverishing the at-home spouse, federal rules provide the Community Spouse Resource Allowance (CSRA) and a Minimum Monthly Maintenance Needs Allowance (MMMNA), sheltering a portion of assets and income for the spouse who remains in the community.

Long-Term Care (LTC) Partnership Programs link private LTC insurance to Medicaid: every dollar a qualified partnership policy pays in benefits lets the insured protect an equal dollar of assets from Medicaid spend-down (dollar-for-dollar asset disregard). This is a key reason producers cross-sell tax-qualified LTC coverage.

Income rules also separate spouses. The institutionalized spouse generally must apply most income toward care, but the MMMNA redirects a share to the community spouse so the at-home partner is not left destitute. Producers should never advise clients to make uncompensated transfers solely to qualify for Medicaid — doing so can constitute improper estate planning and exposes the client to penalty periods.

Other Government Programs to Recognize

• CHIP — covers children in families earning too much for Medicaid but who cannot afford private coverage.
• TRICARE — health coverage for active-duty military, retirees, and dependents.
• CHAMPVA — covers dependents/survivors of veterans with permanent service-connected disabilities.
• Workers' Compensation — state-mandated coverage for job-related injury/illness; pays medical and lost-wage benefits regardless of fault.
• Social Security Disability Insurance (SSDI) — cash benefits after a 5-month waiting period; Medicare follows after 24 months of SSDI entitlement.

Medicaid Eligibility and Spend-Down

Medicaid is a joint federal-state program providing health coverage to low-income individuals, including long-term custodial care that Medicare does not cover. Eligibility is means-tested (income and asset limits), so applicants with excess assets may have to spend down to qualify. A 5-year look-back reviews asset transfers for less than fair value and imposes a penalty period. Medicaid is the largest payer of nursing-home care, which is why LTC and Partnership planning interacts with it.

Other Government Programs

The exam touches several public programs. CHIP covers children in families earning too much for Medicaid but who cannot afford private coverage. TRICARE covers active and retired military and dependents. Workers' compensation covers job-related injury and illness (no-fault, employer-funded). Social Security (OASDI) provides retirement, survivor, and disability benefits funded by FICA payroll taxes. Distinguish means-tested programs (Medicaid, CHIP) from earned-benefit programs (Social Security, Medicare).