Medicaid

Medicaid is a health care program for lower-income people. Bankrate explains.

What is Medicaid?

Medicaid is a health insurance program in the U.S. for people of limited resources that is sponsored by individual states with financial assistance from the federal government. As of May 2017, nearly 75 million people in the U.S. rely on Medicaid to receive care, including children, senior citizens, pregnant women, people with disabilities, and qualifying documented immigrants. People receiving Medicaid have to stay within a maximum income threshold set by their state to remain eligible.

Deeper definition

President Lyndon Johnson signed Medicaid into law with the Social Security Act of 1965, which also established Medicare, a similar health care plan for retirees. In a speech to Congress, Johnson said, “We can — and we must — strive now to assure the availability of and accessibility to the best health care for all Americans, regardless of age or geography or economic status.”

Medicaid as originally enacted was only for people receiving financial assistance, but in more recent decades it has expanded to include anyone who meets their state’s income threshold. Today, it covers more people than Medicare, helping people pay for hospital bills, routine care and emergency room visits, prenatal care, and prescriptions.

Depending on her state’s Medicaid laws, a person receiving Medicaid might not have to pay any deductibles or copays. In many states, even expensive procedures like surgery might be entirely covered, making Medicaid an extremely cost-effective alternative to commercial insurance for people who qualify. But it doesn’t just act as a form of health insurance: Medicaid also helps pay for nursing home care, even if the recipient also receives Medicare, and long-term care for people living with disabilities or illnesses like HIV and AIDS.

Medicaid is funded jointly by the states and the federal government, which contributes at least 50 percent. In Kansas, for example, Medicaid accounted for 21.7 percent of the state budget in 2016, of which 56.2 percent was paid for by the federal government. As a factor of overall health care spending, Medicaid only makes up a small fraction of the U.S.’s gross domestic product (GDP). No state is required to provide Medicaid coverage to its residents, but since 1982 every state offers some form of the program.

In 2010, President Barack Obama expanded access to Medicaid with the signing of the Affordable Care Act, commonly known as Obamacare. It raised the income eligibility threshold and ensured that tens of millions more people could enroll. Two years later, a Supreme Court ruling made Medicaid expansion optional, but a majority of states chose to do so anyway.

If you foresee health care expenses in the future, but you don’t qualify for Medicaid, you might consider opening a savings account.

Medicaid example

Tanya is a freelance writer living in Indiana. In 2015, she didn’t earn enough to afford commercial health insurance, but she did earn just a hair over Indiana’s income eligibility limit for Medicaid and didn’t qualify for that either. The following year, however, Indiana opted to expand Medicaid in accordance with Obamacare. Tanya enrolled as soon as she could and now pays just $1 a month for health coverage. However, uniquely to Indiana state law, she also has to make monthly contributions to a type of health savings account (HSA) called a Personal Wellness and Responsibility (POWER) account.

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