What is Medicaid?

Medicaid is a U.S. government program that provides free or low-cost health insurance coverage for low-income people.

How Does Medicaid Work?

Enacted in 1965, Medicaid is funded by states, which receive matching funds from the federal government. The federal government requires states to provide Medicaid services to people who are, among other things, receiving welfare or Supplemental Security payments or have incomes at or below 133% of the federal poverty level. States may choose to provide Medicaid coverage to other groups as well.

States are required to pay for certain services under Medicaid in order to receive matching funds from the federal government. Some of these are hospital services, nursing facility services, vaccines for children, lab and X-ray services, ambulances and prenatal care. States may, at their option, offer additional coverage, such as for prescriptions, eyeglasses and physical therapy.

Generally, states pay health care providers directly for health care services obtained by people in the Medicaid program. The federal government then reimburses the state for half the cost (and sometimes more). In some cases, patients must pay a deductible or copayment, though pregnant women, children and certain nursing home or hospital patients may get this waved under certain circumstances in some states.

Why Does Medicaid Matter?

Medicaid covers tens of millions of Americans. Because states shoulder a substantial amount of Medicaid expenses, the program is a significant factor in states' ability to balance their budgets and fund other programs.

The Patient Protection and Affordable Care Act of 2010 (PPACA) increases Medicaid eligibility in all 50 states by raising the federal income limit for eligibility. This thereby mandates states to cover more people under their Medicaid programs, but there is some question about how states will pay for their portion of these higher costs and whether they will have to cut funding for education, law enforcement or other services -- or raise taxes. In 2012, the Supreme Court made this mandate optional. An aging American population and the rising cost of health care services makes the changes of particular concern.