In an era of heated healthcare debates, Medicaid has become a focal point of political discussion. Republicans in Congress are proposing approximately $880 billion in cuts to this critical healthcare program that serves over 72 million Americans. These potential changes could result in coverage loss for up to 20 million people if states can’t compensate for reduced federal contributions. Let’s dive deep into understanding what Medicaid is, how it works, and why it matters.
Medicaid vs. Medicare: Understanding the Difference
Medicaid and Medicare are often confused, but they serve fundamentally different populations. Created together in 1965 under President Lyndon B. Johnson’s administration, these programs have distinct purposes:
Medicare primarily serves people aged 65 and older, regardless of their income level. It functions as a supplemental insurance program with limited scope, covering about 68.4 million Americans. Medicare doesn’t cover long-term care, most dental services, or routine physical examinations.
Medicaid, on the other hand, is a comprehensive government insurance plan jointly funded by federal and state governments. It serves people with lower incomes or disabilities and covers approximately 72 million Americans—roughly one-fifth of the U.S. population. Medicaid beneficiaries typically have no copayments and receive coverage for nursing home care and home-based long-term care services that Medicare doesn’t provide.
State-by-State Eligibility Variations
One of Medicaid’s most complex aspects is how eligibility requirements vary across states. Originally, Medicaid primarily covered children and parents or caretakers with household incomes below the federal poverty line. While states must follow broad federal guidelines to receive funding, they maintain significant flexibility in program design, administration, eligibility rules, and benefits offered.
The Affordable Care Act (ACA or “Obamacare”) of 2010 allowed states to expand eligibility to adults earning up to 138% of the federal poverty line—approximately $21,000 for an individual today. In exchange, states received enhanced federal matching funds.
Currently, 40 states plus the District of Columbia have expanded coverage, while 10 states—Alabama, Florida, Georgia, Kansas, Mississippi, South Carolina, Tennessee, Texas, Wisconsin, and Wyoming—have not. In non-expansion states, eligibility thresholds for parents and caretakers vary dramatically, from as low as 15% of the federal poverty line in Texas to 105% in Tennessee. Alabama’s threshold is particularly restrictive at just 18% of the poverty line, equivalent to $4,678 annually for a three-person household.
CHIP: Medicaid’s Partner Program for Children
Children from low-income families have historically qualified for Medicaid. In 1997, Congress created the Children’s Health Insurance Program (CHIP) to extend coverage to children in families that earn too much for traditional Medicaid but too little to afford commercial health insurance.
Like Medicaid, CHIP is jointly funded by federal and state governments. However, CHIP differs as a block grant program rather than an entitlement—states receive fixed federal funding annually and aren’t required to cover everyone who meets eligibility criteria. States determine their CHIP implementation, with some maintaining separate programs and others using CHIP funds to expand Medicaid eligibility for children.
Budgetary Impact on Federal and State Finances
Medicaid represents a significant portion of both federal and state budgets:
- At the federal level, Medicaid and CHIP account for 8% ($584.5 billion) of the federal benefit budget in 2024, compared to Medicare’s 12% ($847.5 billion).
- For states, Medicaid is the largest source of federal funds, constituting approximately one-third of state budgets on average and 57% of all federal funding states received last year.
Federal Funding Formula and Potential Cuts
Federal Medicaid contributions to states primarily depend on the Federal Medical Assistance Percentage (FMAP) formula, which is based on residents’ average personal income. States with lower average incomes receive more assistance:
- Mississippi, a relatively low-income state, receives nearly $8 in federal funds for every $10 spent, with the state covering only $2.
- New York receives only $5 in federal funds for every $10 spent.
- By law, the FMAP cannot drop below 50%.
For expansion states, the federal government currently covers 90% of costs for expansion adults. The proposed Republican cuts would reduce this percentage, forcing states to:
- Make up the difference with state funds
- Scale back coverage for certain groups
- Eliminate optional benefits
- Reduce provider payment rates
- Raise taxes or cut other budget areas like education
- Potentially reverse Medicaid expansion entirely
Nine states—Arizona, Arkansas, Illinois, Indiana, Montana, New Hampshire, North Carolina, Utah, and Virginia—have “trigger” laws that would automatically rescind expansion if federal matching drops below 90%. According to KFF analysis, reducing the federal match to traditional Medicaid percentages (50-77% depending on state wealth) would cost states $626 billion over a decade to maintain current expansion coverage.
Medicaid’s Critical Healthcare Role
Medicaid serves as the nation’s largest health payer and is particularly crucial for vulnerable populations:
- Nearly 20% of Americans receive Medicaid coverage
- Almost half of all adults at or below the federal poverty line are insured through Medicaid
- The program covers 40% of all children nationally and 80% of children below the poverty line
- Medicaid provides coverage for people experiencing homelessness or transitioning from incarceration
Essential Services Coverage
States must cover essential health services to receive federal Medicaid funding, including:
- Inpatient and outpatient hospital services
- Doctor visits
- Laboratory work
- Home health services
States can choose to cover optional services like prescription drugs and physical therapy.
Medicaid finances 41% of all U.S. childbirths and covers healthcare services for 40% of adults ages 19-65 with HIV. The program is essential for many Americans accessing basic healthcare needs.
Spending Distribution Among Beneficiaries
Medicaid spending is not evenly distributed among enrollees:
- ACA expansion adults (25% of enrollees) account for 21% of total expenditures
- Children (33% of enrollees) account for only 14% of spending
- People qualifying due to disability or age 65+ (25% of enrollees) account for over 50% of all spending
The higher costs for elderly and disabled enrollees stem from their greater rates of chronic illness, complex medical needs, and use of expensive services like nursing homes and long-term care facilities.
Immigration Status and Medicaid Coverage
Generally, people in the country illegally are ineligible for traditional Medicaid or CHIP. However, some states have created exceptions using state funds:
- 14 states and DC provide Medicaid coverage to all children regardless of immigration status
- 23 states and DC use CHIP to cover pregnant individuals regardless of immigration status
- 7 states provide Medicaid to some adults living in the country illegally
- New York covers individuals over 65 who meet income requirements, regardless of immigration status
- California covers adults 19-65 under the income threshold, regardless of immigration status
Public Support for Medicaid
According to KFF surveys, Medicaid enjoys broad public support:
- Two-thirds of Americans report that someone close to them has received Medicaid coverage
- Half say they or a family member have been covered by Medicaid
- Approximately 75% of people across political affiliations consider Medicaid very important
- The majority oppose decreases in Medicaid program spending
- Most residents of non-expansion states want their states to expand Medicaid under the ACA
As policymakers debate potential changes to this vital program, understanding its structure, reach, and importance becomes increasingly essential for all Americans.
