Medicaid: What it Means and How You Qualify

By Jay

Unless you actually receive Medicaid, chances are you don't know much about this unique social safety net that provides health insurance to some 60 million poor Americans -- nearly one-fifth of the U.S. population.

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Some assume that Medicaid is strictly a federal program. Others think it's part of welfare. More than a few think it's the same as Medicare.

In fact, it is none of the above.

Here's what you need to know about Medicaid.

Medicaid, Medicare: What's the Difference?

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Medicaid, a federal-state partnership administered separately by each state, provides health and long-term care assistance for low-income people who fall into certain eligible categories.

Medicare, a federally funded and administered program, provides health insurance for: people older than 65; those younger than 65 who have certain disabilities; and those with end-stage renal disease, regardless of income.

The name confusion over Medicaid and Medicare dates back to 1965 when both programs were signed into law as amendments to the Social Security Act by President Lyndon Johnson, as part of his "Great Society" initiative. The fact that some people are eligible for both Medicaid and Medicare (known as "dual eligibles") and the way that Medicaid goes by different names in some states are factors that add to the Medi-muddle.

Also tossed into the mix of names is the Children's Health Insurance Program, or CHIP, created in 1997 to expand Medicaid-style health care coverage to low-income children. Medicaid and CHIP currently cover more than 43 million kids.

Who is Eligible for Medicaid?

Medicaid coverage is now possible for these low-income Americans in every state:

  • Children.
  • Parents and caregiver relatives of eligible children.
  • Pregnant women.
  • People with disabilities.
  • Seniors in need of long-term care, including nursing home care.

Eligibility for Medicaid is tied to an applicant's household income and how it measures against the federal poverty level.

The thresholds vary, both by applicant category and by state. Here are some examples of what that means, from a 2012 survey by the Kaiser Commission on Medicaid: For a child in a family of three to be eligible, the median income cutoff across all the states was $46,325. But for jobless parents in that same family of three, the maximum household income allowed for Medicaid coverage was much lower, a median of $6,856 or less.

Applicants also must satisfy federal and state residency, immigration status and U.S. citizenship requirements for Medicaid.

"The majority of the public has the mistaken perception that Medicaid is available to all poor Americans," says Benjamin Sommers, assistant professor of health policy and economics at Harvard University. "But if you aren't in one of those traditional eligibility groups, it doesn't matter how poor you are, you're not eligible in most states."

The Affordable Care Act, the health care reform law signed by President Barack Obama, requires all states to expand Medicaid by 2014 to millions more poor Americans, including childless adults. But the U.S. Supreme Court has given states the ability to opt out of the expansion.

What does Medicaid cover?

While programs vary state to state, federal Medicaid guidelines require each state's program to offer these mandatory benefits:

  • Inpatient and outpatient hospital services.
  • Doctor visits.
  • Laboratory, X-ray, screening and diagnostic services.
  • Birth center and midwife services.
  • Family planning.
  • Home health and nursing home care.
  • Anti-smoking counseling.
  • Transportation to and from a health care facility.

Some states also cover vision care, dental services, mental illness, podiatry, prostheses, prescription drugs, chiropractic services, various therapies (physical, occupational, speech, hearing and language) and hospice care.

How is Medicaid Funded?

Each state's Medicaid program is funded by the federal government, the state government and, in some states, county governments.

"States get reimbursed by the federal government at the traditional federal Medicaid matching rate, which varies anywhere between 50 (percent) and 83 percent, depending on the state's per capita income. On average, it's about 57 percent," says John McDonough, director of Harvard's Center for Public Health Leadership and one of the architects of health care reform.

The states (in some cases, with help from counties) have to come up with the rest.

How does Medicaid pay my doctor?

States have several options regarding how Medicaid reimbursement is delivered. Under the traditional "fee-for-service" model, the program pays health care providers directly for each service. Over the past 15 years, however, some states have moved to require patients to join Medicaid managed care organizations, which are similar to HMOs and deliver services under monthly contracts with the state.

How does the long-term care coverage work?

To qualify for Medicaid's long-term care coverage, a person must be age 65 or over, blind or have a permanent disability. He or she would require assistance with activities of daily living, such as eating, bathing, dressing, using the toilet and transferring to and from a bed or chair.

State financial eligibility requirements also must be met, and they typically involve a rigorous assessment of assets, to determine whether the applicant is considered poor enough.

In most states, individuals who wish to qualify for Medicaid long-term care coverage are allowed to "spend down" to $2,000 in counted assets, or $3,000 for couples living together. Homes don't count toward the total, and neither do vehicles, personal belongings or assets held in trust. If one spouse is not living in a nursing home or other institution, most states allow that person to keep half the couple's assets between set minimum and maximum amounts, which ranged between $21,912 and $109,560 in 2010.

If you wait until the moment you need Medicaid for long-term care, the complexities of the program can be daunting, says Joy Thomas, Medicaid benefits specialist with Clinkscales Elder Law Practice in Hays, Kan.

"The biggest thing with Medicaid is to plan ahead," she says. "There are resources that may not have to be spent down. There may be ways that you can make resources noncountable within the rules that Medicaid has established. You've paid into the system for years, and you're entitled to those things when you reach a certain income and asset level."

Copyright 2012, Bankrate Inc.