Medicaid is a government health insurance program that provides coverage to low-income Americans who cannot afford private insurance. It is one of the largest payers for health care in the United States, currently covering about 68.8 million people. The program is jointly funded by the federal government and individual states, with each state running its own version within federal guidelines.
Who Medicaid Is Designed to Serve
Medicaid was created in 1965 to fill a gap: millions of Americans, particularly children, pregnant women, people with disabilities, and low-income seniors, had no realistic way to pay for medical care. The program targets specific groups that federal law requires every state to cover. These mandatory groups include low-income families, qualified pregnant women and children, and individuals receiving Supplemental Security Income (SSI) due to disability or age.
Children are eligible in every state if their family income falls at or below 133% of the federal poverty level, and most states set that threshold even higher. Under the Affordable Care Act, states were given the option to extend coverage to all adults with income at or below 133% of the federal poverty level. So far, 41 states (including Washington, D.C.) have adopted that expansion, while 10 states have not.
The Children’s Health Insurance Program (CHIP), which works alongside Medicaid, covers an additional 7.2 million children in families that earn too much to qualify for Medicaid but too little to afford private coverage.
What Medicaid Covers
Federal law requires every state Medicaid program to cover a core set of services: inpatient and outpatient hospital care, physician visits, laboratory and X-ray services, and home health services, among others. These are non-negotiable. Beyond that, states can choose to add optional benefits like prescription drugs, physical therapy, occupational therapy, and case management. In practice, most states cover prescription drugs, though they are technically optional under federal rules.
This means your exact benefits depend on where you live. A Medicaid enrollee in one state may have access to services that another state doesn’t offer. The federal framework sets a floor, not a ceiling.
The Largest Payer for Long-Term Care
One of Medicaid’s most significant roles, and one many people don’t realize until they need it, is paying for long-term care. Medicaid is the primary payer for nursing home residents across the country. Medicare, the program for adults 65 and older, covers only short-term skilled nursing stays after a hospitalization. It does not cover the kind of ongoing custodial care that many older adults eventually need. Medicaid does.
Medicaid-certified nursing homes are required to provide skilled nursing and medical care, rehabilitation services for injury or illness, dietary services tailored to each resident, pharmaceutical services, medically related social services, a professionally directed activities program, emergency dental care, and routine personal hygiene items. Residents cannot be charged extra for any of these. For millions of older Americans and people with disabilities, Medicaid is the only realistic way to afford years of residential care that can easily cost $80,000 or more annually out of pocket.
How Medicaid Helps People With Medicare
About 12 million Americans qualify for both Medicare and Medicaid at the same time. These “dual-eligible” individuals are typically low-income seniors or younger adults with disabilities. For them, Medicaid serves a critical gap-filling role: it can cover Medicare premiums, copays, and deductibles that would otherwise be unaffordable. It also covers services Medicare doesn’t, like long-term nursing home care and certain home-based support.
A federal coordination office exists specifically to streamline coverage for these individuals, with goals that include simplifying access, improving care transitions, and preventing the two programs from shifting costs onto each other in ways that leave patients stuck in the middle.
How Funding Works Between States and the Federal Government
Medicaid is not a single national program. It’s a partnership. The federal government sets minimum standards and shares the cost with each state through a formula called the Federal Medical Assistance Percentage (FMAP). The federal share has a floor of 50% and a ceiling of 83%, meaning the federal government always pays at least half. A state with per capita income equal to the national average receives roughly 55% of its Medicaid costs from the federal government. Poorer states receive a higher federal share, which is designed to prevent the most economically disadvantaged states from being unable to cover their residents.
This structure gives states flexibility to design their programs, set payment rates for providers, and choose which optional benefits to include. It also means Medicaid looks different from state to state in ways that can meaningfully affect the care people receive.
Effects on Preventive Care and Screening
Medicaid doesn’t just pay for treatment after people get sick. It also removes the cost barrier to preventive care. Research published in the American Journal of Preventive Medicine found that in states that expanded Medicaid, lower-income residents used preventive screenings at higher rates than in non-expansion states. Colon cancer screening and HIV testing showed the most significant increases, each rising by roughly 2.4 percentage points among lower-income populations by 2019. The increase in HIV testing was notably higher among lower-income groups than higher-income groups, suggesting the expansion reached the people it was designed to help.
These may sound like small numbers, but across millions of people, a 2-percentage-point increase in cancer screening translates into thousands of earlier diagnoses, when treatment is more effective and less expensive.
Reducing the Financial Burden on Hospitals
When uninsured people show up at emergency rooms, hospitals are required to treat them regardless of ability to pay. The resulting uncompensated care is a massive financial strain. Hospital uncompensated care costs reached an estimated $35 billion in 2008 and were projected to climb to $46.6 billion by 2019. Medicaid plays a direct role in reducing this burden in two ways: by insuring people who would otherwise be uninsured, and through a separate payment system called Disproportionate Share Hospital (DSH) payments that reimburses hospitals serving large numbers of Medicaid and uninsured patients.
In 2008, the Medicaid DSH program covered about 30% of total hospital uncompensated care costs nationally. State and local government subsidies covered another 31%, and Medicare covered about 20%. Without Medicaid, hospitals in low-income communities would face even steeper financial pressure, potentially leading to closures that leave entire regions without nearby emergency or inpatient care.
Why Medicaid Varies So Much by State
Because Medicaid is a federal-state partnership rather than a uniform national program, your experience with it depends heavily on geography. The 10 states that have not adopted Medicaid expansion generally have a coverage gap: adults without children or a disability may earn too much for traditional Medicaid but too little for marketplace insurance subsidies. In expansion states, any adult earning up to about $20,000 a year (for a single person) qualifies.
States also differ in how much they pay doctors and hospitals for Medicaid patients, which affects how many providers accept Medicaid insurance. Some states offer robust optional benefits like dental care and vision, while others stick closer to the federal minimum. The result is that Medicaid can be a comprehensive safety net in one state and a much thinner one in the next.