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What Medicaid Is and How It Works

Medicaid is a government program that helps pay for health care costs for millions of Americans. Unlike Medicare, which is based on age, Medicaid is based primarily on income. The program was created in 1965 and is run jointly by the federal government and individual states. This means each state has some flexibility in how it runs its own Medicaid program, which is why coverage and rules can differ from state to state.

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The basic purpose of Medicaid is to cover medical expenses for people and families with lower incomes. This includes doctor visits, hospital stays, prescription medications, mental health services, and dental care in many states. The program covers approximately 75 million people across the United States, making it one of the largest health insurance programs in the country.

Medicaid is different from private health insurance because it is government-funded through taxes. The federal government provides a large portion of the funding, and states contribute their own money as well. When you receive services through Medicaid, you typically pay little to nothing out of pocket. Instead of paying premiums like you would with private insurance, most Medicaid recipients pay small copayments or nothing at all for certain services.

Each state operates its Medicaid program with slightly different rules, income limits, and covered services. For example, one state might cover vision care while another might not. Some states have expanded their Medicaid programs to cover more people, while others maintain more restrictive programs. This variation is important to understand because it means the information that applies in one state may not apply in another.

Practical Takeaway: Understanding that Medicaid is a state-run program helps explain why you need to look at your specific state's rules. What you read about Medicaid in one state may not describe how the program works where you live.

Types of Medicaid Programs and Who They Serve

Medicaid covers many different groups of people through various programs designed for specific populations. The traditional categories include children, pregnant people, parents and caregivers, people over 65, and people with disabilities. Each category has different income limits and requirements that vary by state.

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Children make up a significant portion of Medicaid recipients. The Children's Health Insurance Program (CHIP) was created in 1997 as part of Medicaid and provides coverage for children in families that earn too much to qualify for regular Medicaid but cannot afford private insurance. As of recent data, CHIP covers approximately 9 million children nationwide.

Pregnant individuals and new parents represent another important group. Medicaid coverage for pregnant people typically begins as soon as pregnancy is confirmed and may continue for 60 days after delivery in some states, though many states have extended this period. This coverage includes prenatal care, labor and delivery, and postpartum care—services that can cost thousands of dollars without insurance.

People with disabilities can receive Medicaid regardless of age. This includes individuals with physical disabilities, developmental disabilities, mental health conditions, and other disabilities. For working-age adults with disabilities, Medicaid often covers services that allow people to live in their communities rather than in institutional settings. These services might include personal care assistance, therapy, and medical equipment.

Seniors aged 65 and older may receive Medicaid to help cover costs that Medicare does not pay for, such as long-term care in nursing homes. Some seniors qualify for what is called "dual coverage," where both Medicaid and Medicare pay for their care. Additionally, many states have expanded Medicaid to cover working-age adults with incomes below certain thresholds, though rules vary significantly.

Practical Takeaway: Different people qualify for Medicaid through different pathways. Knowing which category you might fall into helps you understand what information applies to your situation.

Income Limits and Financial Thresholds by State

Income limits are the primary factor that determines whether someone may be able to use Medicaid. However, these limits vary considerably from state to state and depend on family size. The federal poverty level is used as a reference point, with many states setting their Medicaid income limits at a percentage of the federal poverty level.

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As of 2024, the federal poverty level for a single person is approximately $14,600 per year, for a family of three it is about $30,000 per year, and for a family of four it is approximately $39,000 per year. Many states use these figures or percentages of these figures to determine income limits. For example, a state might set the income limit at 138% of the federal poverty level, which would mean a single person earning approximately $20,100 per year might be considered for that state's program.

One major difference between states relates to the Medicaid expansion that occurred after the Affordable Care Act of 2010. Some states chose to expand Medicaid to cover all adults earning up to 138% of the federal poverty level, while other states did not. This means that in expansion states, a working-age adult without children might be able to receive Medicaid, while in non-expansion states, the same person might not. As of 2024, approximately 38 states and Washington D.C. have adopted the Medicaid expansion, while 12 states have not.

Income is calculated differently depending on your situation. For most adults, household income is counted. However, there are special rules for different populations. For example, when determining income for a pregnant person, some states count only the pregnant person's income, while others count household income. Students, workers with disabilities, and other groups may have different income counting rules as well.

Additionally, not all income counts toward the limit. Some types of income are excluded from the calculation, such as Supplemental Security Income (SSI) for some populations, certain disability benefits, and sometimes portions of earned income. Understanding what counts and what does not count requires looking at your state's specific rules.

Practical Takeaway: Income limits are the starting point for understanding Medicaid eligibility rules. Your state's income limits determine the first question: whether your household income falls within the range your state uses. Check your state's Medicaid office website to find the exact income limits that apply to your family situation.

Covered Services and What Medicaid Pays For

Medicaid covers a wide range of health care services, though the exact services covered vary by state and by type of Medicaid program. All state Medicaid programs must cover certain mandatory services, while other services are optional and left to each state to decide whether to include.

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Required services that all states must cover include: inpatient hospital care, outpatient hospital services, emergency room services, physician services, laboratory and X-ray services, skilled nursing facility services, home health services, and family planning services. Additionally, all states must cover Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) services for children under 21, which includes comprehensive health and developmental services.

Many states choose to cover additional optional services. These commonly include dental care, vision care, hearing aids, mental health and substance abuse treatment, rehabilitation services, and prescription medications. Prescription drug coverage through Medicaid is particularly important, as it helps people afford necessary medications. According to Medicaid data, approximately 70% of Medicaid recipients receive some prescription drug coverage through their state program.

Long-term care services represent a significant portion of Medicaid spending. For seniors and people with disabilities, Medicaid covers nursing home care and, in many states, home and community-based services that allow people to remain in their homes while receiving care. These services can include personal care assistance, adult day care, and home modifications. In fact, Medicaid is the largest payer of long-term care services in the United States.

Mental health and substance abuse treatment services are covered by Medicaid, though the extent of coverage varies. This includes inpatient psychiatric hospital services, outpatient mental health services, and substance abuse treatment programs. The Mental Health Parity and Addiction Equity Act requires that Medicaid treat mental health coverage similar to physical health coverage.

Medicaid also covers transportation to medical appointments in some states, medical equipment and supplies, and preventive services such as vaccinations and screenings. For people with disabilities, Medicaid may cover rehabilitation services and assistive technology devices.

Practical Takeaway: The services your state's Medicaid program covers are listed on your state Medicaid website. Before researching other aspects, learn what services are available in your state, as this determines what you may be