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A joint federal-state program that provides HEALTH CARE insurance to low-income persons.

Medicaid was enacted in 1965 as an amendment to the Social Security Act of 1935 (title XIX, 42 U.S.C.A. § 1396), entitling low-income persons to medical care. The program is a joint federal-state endeavor, with the federal government providing money to the states, which provide additional financing and administer medical programs for the poor that satisfy federal standards. Medicaid has become a major social WELFARE program. By 1995, 34 million people were covered by Medicaid, including 17 million children.

Before 1965, a patchwork of programs financed by state and local governments, along with charities and community hospitals, provided indigent persons with limited health care. Most of these programs provided emergency health care services. President LYNDON B. JOHNSON supported Medicaid as well as MEDICARE legislation for retired persons in 1965. The enactment of Medicaid meant that persons who met federal financial eligibility requirements were entitled to health care.

Medicaid furnishes at least five general categories of treatment: inpatient hospital services, outpatient hospital services, laboratory and X-ray services, skilled nursing home services, and physicians' services. Generally, each of these services is available to treat conditions that cause acute suffering, endanger life, result in illness or infirmity, interfere with the capacity for normal activity, or present a significant handicap. In addition, all states provide eye and dental care and prescription drugs. Almost all states provide physical therapy, hospice care, and rehabilitative services.

Medicaid is a "vendor" plan because payment is made directly to the vendor (the person or entity that provides the services) rather than to the patient. Only approved nursing homes, physicians, and other providers of medical care are entitled to receive Medicaid payments for their services. Since the early 1970s, rising medical costs have placed financial pressures on the

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Medicaid program. Consequently, health care providers are not fully reimbursed for the services they provide to Medicaid patients. Because of lower reimbursement payments, one-third of physicians limit the number of Medicaid patients they see, and one-quarter of them refuse to accept any Medicaid patients.

The federal government, through statutes and regulations, has enacted an increasing number of criteria for the states to follow in administering the Medicaid program. For example, from 1987 to 1992, the federal government imposed 30 mandates on states that related to eligibility, reimbursement, and services. The intent of these mandates was to reduce variations among the states and to create more consistency in the coverage to low-income persons.

Under federal law, states cannot reduce other welfare benefits that people receive when they become eligible for Medicaid. State plans cannot impose a citizenship or residency requirement other than requiring that an applicant be a resident of the state. No age requirement exists, and everyone receiving welfare may apply for Medicaid. People who are "medically needy" because they are unable to cover costs for their medical care are also eligible, even if their incomes or resources exceed the level that would qualify them for welfare. Beginning in 1988, Medicaid was extended to the "working poor"—low-income persons who have jobs with no health coverage.

When Medicaid began, persons who were eligible had the right to select their own doctors, hospitals, or other medical facilities. Because of skyrocketing medical expenditures, almost all states have received waivers from the federal government concerning the choice of physician. These states now direct most of their Medicaid clients to private, MANAGED CARE programs. Managed care is a general term that refers to health plans that attempt to control the cost and quality of care by coordinating medical and other health-related services.

The federal government has also granted waivers to states that prefer to pay for home and community care for elderly beneficiaries who otherwise would end up in nursing homes. This type of care is less expensive than nursing home care and allows state funds to be stretched further.

The federal government reimburses states based mainly on their per capita income. States with high per capita incomes, such as New York and Illinois, receive 50 cents from the federal government for every dollar they spend on Medicaid. Poorer states receive more, with Mississippi receiving reimbursement of 79 percent. The average reimbursement level is 57 percent.

Medicaid FRAUD has plagued the program. The size and complexity of the system, with each state administering Medicaid differently, create opportunity for health care providers and state employees to engage in abuse. It is estimated that ten percent of Medicaid expenditures are paid on fraudulent claims by vendors. Relatively little fraud is attributable to individuals who provide false information to receive Medicaid benefits.

Another problem for Medicaid has been the growing number of middle-class, elderly persons who divest their assets, usually to their children, to meet the Medicaid financial guidelines and qualify for state-paid nursing home care. This practice results in cases where the truly needy cannot find a bed in a nursing home. In addition, the divestiture of assets imposes additional financial pressures on a program that already has difficulty meeting the demands of the truly needy. If an individual or couple gives away or sells a resource at less than fair market value, the SOCIAL SECURITY ADMINISTRATION must report such a transfer to the state Medicaid agency. A TRANSFER OF ASSETS may result in a period of ineligibility for certain Medicaid covered nursing home services.

The U.S. Supreme Court, in Wisconsin Department of Health and Family Service v. Blumer, 534 U.S. 473, 122 S. Ct. 962, 151 L. Ed. 2d 935 (2002), upheld a Medicaid formula for determining Medicaid eligibility for a person needing nursing home care. More than 30 states developed Medicaid rules that used an "income-first" formula, while the remainder of the states used a "resource-first" formula to help determine eligibility for Medicaid assistance and the proper amount of income for the community spouse. The "income-first" rule generally calls upon the community spouse to count more of his or her assets toward his spouse's nursing home care. The "resource-first" rule allows the spouse to keep more assets, in the belief that income from these assets will help to support the community spouse.

The state of Wisconsin used the income-first formula. A married coupled challenged this formula, and the U.S. Supreme Court determined that either formula could be used by a state without violating the Medicare Catastrophic Coverage Act of 1988 (MCCA). The Court placed great emphasis on the fact that the HEALTH AND HUMAN SERVICES DEPARTMENT (HHS) had issued several statements in support of the income-first rule and noted that in late 2001 HHS had proposed a rule that would formalize this support.

The seriousness of these fraudulent transfers led Congress in 1996 to make a person criminally liable who "knowingly and willfully disposes of assets (including by any transfer in trust) in order for an individual to become eligible for medical assistance" (42 U.S.C.A. § 1320a–7b(a)). A person convicted of this offense may be fined $25,000 and imprisoned for five years.

The Balanced Budget Act of 1997 provided a new opportunity for states to further expand HEALTH INSURANCE coverage for children under Medicaid. The legislation created a new State Children's Health Insurance Program under Title XXI of the SOCIAL SECURITY ACT. Funding is available to states for this voluntary program. A state's allotment may be used to expand Medicaid, to develop a new program or to expand an existing program to provide health insurance to uninsured children, or to implement a combination of the two approaches. Up to ten percent of a state's allotment may be used for administrative costs, outreach, or other health care services for children. The new funds must be used to serve children below age 19 living in families with incomes at or below 200 percent of the federal poverty level.

The increase in state and federal expenditures on Medicaid ($240 billion in 2003) and in federal mandates to states on administration of the program have led to calls for reform. Reform efforts, which have been based on the payment to the states of block grants for medical assistance, have been unsuccessful. President GEORGE W. BUSH asked Congress to consider a block grant program for Medicaid in his 2003 legislative proposals. His proposal would give more authority to the states to set eligibility requirements. By 2003, 45 million people qualified for Medicaid assistance.


Bove, Alexander A., Jr. 1996. The Medicaid Planning Handbook: A Guide to Protecting Your Family's Assets from Catastrophic Nursing Home Costs. 2d ed. Boston: Little Brown.

Bremner, Faith. 2002 "Kempthorne Pleased with Bush Medicaid Reform Plan." Gannett News Service (February 24).


Health Care Law; Health Insurance.

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