Medicaid was established in 1965 under President Lyndon B. Johnson as a federal-state program to provide health coverage for low-income individuals and families. It has since expanded coverage to additional groups like children, pregnant women, the disabled, and the elderly. States administer their own Medicaid programs within federal minimum guidelines for eligibility and covered services. Both the federal and state governments jointly fund Medicaid, with the federal contribution varying by state based on per capita income. Over time, Medicaid has grown to cover over 60 million Americans and account for a significant portion of state budgets.

3. History of Medicaid
President Lyndon B. Johnson passed Medicaid and Medicare into law in 1965
at the Truman Library in Independence, Missouri. Title XIX of the Social Security
Act, Medicaid is a federal and state entitlement program that pays for medical care
for a certain group of people that have limited resources and would not be able to
pay for their own medical care or insurance. This expanded and replaced the Kerr-
Mills Act of 1960. (Kaiser) In the 1970’s expansions were made to help cover the
disabled and the elderly. By 1972, all of the states in America had a Medicaid plan
with the only exception being Arizona; they would start their plan ten years later in
1982. In the 1980’s Medicaid was expanded to provide more assistance to pregnant
women and infants who were not ‘poor’ enough by the previous eligibility
requirements in an effort to improve infant mortality and health. (Yazici and

4. Kaestner, 1998) In this paper we will look very closely at these specific populations.
In Section 3 we will look at how Medicaid impacts specific populations. We
will examine the impact of SCHIP on low-income children in terms of increased
access, quality, and how SCHIP has impacted private insurance. We will also discuss
Medicaid's impact on the elderly through its coverage of long-term nursing home
care, and how Medicaid impacts nursing home access and quality. The Balanced
Budget Act of 1997 started the State Children’s Health Insurance Program, which
was for low-income children who would fall through the cracks of regular Medicaid
eligibility.
In Section 2 we will look at the other populations affected by
Medicaid. When talking about Medicaid you must talk about the effects on both the
people participating in the program and the physicians and hospitals that are
providing care for these people.
Medicaid currently covers about 1/6 of the nation’s population or 66.4
million people in 2010. (Kaiser) In 2005 state governments spent a combined 315
billion dollars on Medicaid, which was almost 21% of total spending by state
governments. In Section 1 this paper will look at the basic overview of the structure
of Medicaid such as eligibility, enrollment, financing, services, and cost sharing.
Medicaid is a very prevalent topic in modern society with many political
arguments and expansions going on about it. The Affordable Care Act will change
the effect and the structure of Medicaid greatly. In Section 4 of this paper will take a
look at the reforms and expansions going on as we speak.

5. Medicaid Eligibility and Enrollment
Medicaid programs are run by the individual states but are subsidized by the
federal government. Eligibility for Medicaid varies between states, usually by a
multiplier of the federal poverty level that is determined based on every state’s
characteristics along with some federal minimum requirements that every state
must follow. These percentages of poverty level also change for different age groups
within the state. For example, a state could set its multiplier at 300% of the federal
poverty level for older adults and have a rate of 150% for infants.
There have been many changes to the mandatory eligible groups since
Medicaid was established. Every individual who is eligible for Supplemental
security income is eligible for Medicaid as are children younger than 19 whose
family income is less than the federal poverty level, along with a few other select
groups. Most states, however, are more generous with their eligibility requirements
for Medicaid. Some states have set the percentage all the way up to 300% of the
federal poverty level, with the lowest percentage being 133%, which is still above
the federal minimum requirement for Medicaid.
The Deficit Reduction Act of 1984 expanded the eligibility for less poor
pregnant women in an effort to improve infant health. (Yazici and Kaestner, 1998)
This act made it a requirement for children under the age of five from AFDC eligible
families to be covered by a Medicaid program. The AFDC stands for Aid to Families
with Dependent Children, which is another federal and state program providing
financial assistance to these families. The individual states determine who is eligible

6. for AFDC, with the federal government providing an average of 55% of the funding
for this program. (Census Bureau) The Deficit Reduction Act of 1984 also provided
medical coverage for first time pregnant women in AFDC families and pregnant
women in households with two unemployed parents.(Kaiser) It is because of these
new eligibility requirements that Medicaid accounts for the care of about 40%
percent of all pregnancies in the United States and provides insurance for about
30% percent of all children in the country, Figure 1.1.
(Dave,Decker,Kaestner,Simon,2008)
Figure 1.1
In 2003 Medicaid covered nearly 43% of the poor non-elderly in the United
States. The Medicaid expansions in the 1980’s did have an effect on the overall
health of children in the United States since between 1980 and 2000, the infant
mortality rate for white and black infants had a steady decline.
(Dave,Decker,Kaestner,Simon,2008) Women and children make up most of the
population of Medicaid program beneficiaries but the disabled population of
Medicaid uses most of the funding as you can see in Figure 1.2. (chpp.org)
Figure 1.2, Disparity of enrollment and spending.

7. Medicaid Financing
Both the federal government and state governments fund Medicaid. Total
government spending on Medicaid programs was 414 billion dollars in 2011.
(chpp.org) In 2005, 1/6th
of states budgets were for Medicaid financing. (Martin et
al, 2007) The Federal Medical Assistance Percentage figures out how much the
federal government pays to the states for Medicaid. Every state has a different
percentage based on the average per capita income in that state. The average state’s
Federal Medical Assistance Percentage is 57%, while the percentage ceiling is 83%
and the floor is 50%. 82% is the federal ceiling but the poorest states are subsidized
about 73% at this time. (cbpp.org) These percentages are reevaluated every 3 years
for each state to account for the changing financial situation of the specific state.
(Medicaid.gov)
The federal government can choose to temporarily raise the percentages
paid to states, which usually happens in times of recession. The most recent
national increase in Federal Medical Assistance Percentages was during the 2007
Great Recession, which caused a base 6.2% increase for all states, Figure 1.3. The
American Recovery and Reinvestment Act of 2009 was responsible for the increases
of FMAP’s due to the Great Recession. As you can see in Figure 1.3 there was a rise
in the return of federal dollars per state dollar spent on Medicaid programs. States
that experienced higher unemployment rates due to this recession were given a
larger increase of 5.5%, 8.5% or 11.5% on top of the base 6.2% increase. These
increases were evaluated on a quarterly basis based on unemployment rates in each
state as compared to the normal 3 year reevaluation technique. Under this act,

8. normal drops to their FMAP based on the original FMAP formula did not affect
states. This act put an extra 87 billion dollars of federal funding in Medicaid
programs between the years of 2009 and 2011. (Lay et al. 2009) The federal
government also has the power to increase the FMAPs on an individual state basis.
This last increase occurred in Louisiana after Hurricane Katrina.
The FMAP is also a measure of a money multiplier in a state. If a state has a
FMAP of only 50%, it means that for every dollar the federal government
reimburses the state, the state has to match that dollar, which in a sense is a money
multiplier of 1. This is also taken into account when the FMAPs are calculated so
poorer states have more federal money pumped into their economy.
Figure 1.3
Medicaid Services and Cost Sharing
What services Medicaid covers is up to the individual state except for the list
of ‘mandatory services’ that the federal government requires states to cover. There
are fifteen required benefits from inpatient and outpatient services to tobacco
cessation treatment for pregnant women. The list of 33 optional services includes
dental care, eyeglasses, dentures, etc. (medicaid.gov) The amount, type, and
duration of care are also determined by the state within the federal guidelines for
mandatory services. A state needs to pay for hospital services but can limit how
many days they will pay for a person to be in the hospital. (cbpp.org)

9. There is also some cost sharing in Medicaid programs. These also vary from
state to state. Federal law makes it illegal to make children or pregnant women
enrolled in Medicaid to have to pay anything at all for most medical services.
Pregnant women are exempt from all services having to do with their pregnancy or
a condition that could affect the pregnancy. The most common place you will find
cost sharing in Medicaid is in prescription drug purchases. The average co payment
for prescription drugs is one dollar for generic drugs and three dollars for brand
name drugs. Let it be noted that three dollars is the federal limit for co payment of
prescription drugs.
However the Deficit Reduction Act of 2005 changed some of the rules about
cost sharing among Medicaid beneficiaries. The DRA allowed for there to be some
cost sharing involved for children if there was non-emergency use of emergency
services and prescription drugs in some cases. The DRA also allowed states to
invoke premiums and cost sharing on families that were enrolled in Medicaid but
were above the poverty line. Cost sharing also changed for adults under the DRA.
Most adults covered by Medicaid are exempt from cost sharing. Under the DRA
adults above the poverty line would se most of the cost sharing. If an adult is in
between 100 and 150 percent of the federal poverty line then they could be
responsible for up to 10 percent of the cost for most services, if they are above 150
percent of the FPL then they could have to pay up to 20 percent of most services.
The total cost of cost sharing for families could not exceed five percent of their
yearly income under the DRA. (Solomon, 2007)

10. There is a lot of discussion around the United States about the impact of cost
sharing and peoples use of medical services. The cost of co-payments may cause
some low-income people abuse the use of services that do not have cost sharing
applied to them, such as emergency room visits, instead of seeking the appropriate
medical service for their problem. As we saw the DRA allowed for more cost sharing
for situations like this. The DRA allows for cost sharing to be implemented in these
cases and non-preferred drugs for people who would normally be exempt for cost
sharing. A study conducted in Quebec showed that imposing copayments on
prescription drugs led filled less prescriptions on necessary drugs. There was a 78
percent increase in adverse events to these people, hospital admission, death, etc.,
seemingly due to the poorer health of people due to lack of medication. (Ku and
Wachino, 2005)