Fact Sheet: Medicaid — Cost-Effective Coverage that Works for KidsHealth
Medicaid is a public health insurance program, operated as a partnership between the federal government and the states, that provides health insurance coverage to very low-income children, people with disabilities, the elderly, and some low-income adults.
Medicaid was established as part of the Social Security Amendments of 1965 (P.L. 89-97), the same legislation that created Medicare. Prior to its passage, health care services for people living at or near the poverty level were provided primarily through a patchwork of programs sponsored by state and local governments, charities, and community hospitals. One of the main thrusts for initiating Medicaid was to lift the burden from states and localities, including local providers, who were shouldering the cost of providing care for the poor.
Medicaid provides health coverage with remarkable success to 84 million of our nation’s most vulnerable citizens, primarily covering children in very low-income families, adults with significant disabilities and/or low incomes, and elderly individuals who are cared for in long-term care facilities. In 2014, the Affordable Care Act (P.L. 111-148, P.L. 152) gave states the option to expand Medicaid to low-income adults who had not previously been eligible for coverage. With the passage of the ACA, all children up to 138% of the federal poverty level (FPL) — $30,305 for a family of three in 2021 — were eligible for Medicaid.
Medicaid is the largest insurer of children.
In 2020, Medicaid insured more than 35 million children. An additional 9 million children were enrolled in the Children’s Health Insurance Program (CHIP), which provides coverage for children just above the Medicaid eligibility threshold. Together Medicaid and CHIP serve 60% of children in the United States.
Despite Medicaid and CHIP’s enormous success in covering kids, more than 4 million children remained uninsured in 2020. In 2019, more than half of all uninsured children resided in six states (Texas, Florida, California, Georgia, Arizona, and North Carolina). In addition, Texas, Wyoming, and Arizona had the highest uninsurance rates for children in 2019. An additional 2.3 million children were eligible for Medicaid or CHIP in 2019 but were not enrolled.
Medicaid has drastically reduced the number of uninsured children, yet children remain vulnerable.
Working together, Medicaid and CHIP are responsible for notable increases in coverage for uninsured children. Between 2008 and 2016, the rate of uninsured children was cut in half, from 9.7% to 4.7%.
However, children in Medicaid remain vulnerable to policy changes from new administrations that can undermine their coverage. The uninsurance rate grew nearly a full percentage point from 4.7% in 2016 to 5.6% in 2020. Latino/Hispanic children had the greatest rate of uninsurance in 2020 at 9.5%. Actions taken by the Trump Administration, such as changes to the public charge rule, are widely thought to have had a “chilling effect” that deterred immigrant families from enrolling their eligible children in coverage.
Since 1965, Medicaid has consistently provided health coverage to the most vulnerable children and, at the same time, repeatedly exhibits its flexibility by responding to economic crises, natural disasters, and public health emergencies.
During times when there are high rates of unemployment, families that lose employer-sponsored coverage are often unable to afford the cost of private health insurance on their own and need Medicaid. During the 2008 recession, for every 1% increase in the unemployment rate, an additional 600,000 children became eligible for Medicaid and CHIP. In the aftermath of Hurricane Katrina, the federal government allowed displaced children to enroll in other state’s Medicaid programs where they had relocated, and eligibility levels increased to cover more children in need.
During the COVID-19 pandemic, Medicaid covered millions of children whose parents lost their jobs and provided them with essential healthcare coverage. From the pandemic’s start in March 2020 to February 2021, more than 3.2 million additional children enrolled in Medicaid.
Medicaid is a key source of coverage for children of color.
Medicaid serves as an important source of coverage for children of all races and ethnicities and is a primary source of coverage for many children of color. Overall, Medicaid covers almost one-third of white (32.8%) children, one-quarter of Asian and Native Hawaiian and other Pacific Islander (NHOPI) (25.5%) children, and more than half of Latino/Hispanic (54.7%) and Black children (57.1%), who are more likely to live in low-income families than white children.
Medicaid ensures access to comprehensive, child-specific services.
Through its Early and Periodic Screening, Diagnosis, and Treatment (EPSDT) program, Medicaid ensures that all children get the services they need to meet their unique health and developmental needs. EPSDT ensures coverage for developmental assessments for infants and young children, as well as well-child visits, vision, dental, and hearing services. It also allows access to medically necessary therapies to manage disorders and chronic illnesses that become more costly when left untreated.
Medicaid is a partnership between the federal government and the states.
The costs of operating the Medicaid program are shared between the federal government and the states. The amount of funding a state receives from the federal government for Medicaid is set by a formula that varies by state. This so-called federal matching percentage (or FMAP) ranges from 56%-84%, with Mississippi having the highest Medicaid FMAP.
Because of the COVID-19 pandemic, the federal government issued a maintenance of effort (MOE) that urged states to keep all Medicaid beneficiaries enrolled until the end of the public health emergency, despite any eligibility changes. To incentivize states to comply, Congress authorized a temporary 6.2% increase in each state’s respective FMAPs until the public health emergency ends.
Each state designs and operates its own Medicaid program within certain federal requirements.
Federal Medicaid guidelines set a minimum standard for what groups of individuals are eligible for coverage (e.g. children under the age of 1, pregnant women, etc.), and which medical benefits must be covered in order for a state to receive federal Medicaid matching payments. Outside of basic program requirements that set a floor for eligibility and benefits, states have significant flexibility to operate and finance their Medicaid programs. States can apply through a Section 1115 waiver for federal funding to change aspects of their programs, such as expanding benefits or eligibility.
Medicaid is an essential backstop for children with disabilities.
Medicaid ensures that families are not bankrupted when a child is born with, or develops, a life-threatening or chronic condition. In addition to medical treatment, Medicaid also covers in-home support, habilitative services, long-term care, and transportation for children with disabilities who have special health care needs. In 2018, 18.5% of children in the U.S. (approximately 14 million) had special health care needs; these children require medical and long-term care due to intellectual/developmental disabilities, physical disabilities, and/or mental health disabilities. Approximately 36% of these children are solely covered by Medicaid or CHIP, and 8% have Medicaid and CHIP coverage to supplement private insurance.
Medicaid supports cost-effective care coordination by providing a case-management benefit that coordinates services across state organizations and agencies for at-risk children. Case management can cut across programs, such as child welfare and mental health services, which are typically needed by the most vulnerable kids.
Medicaid is affordable for families.
Medicaid makes health care affordable for families by limiting out-of-pocket costs for services provided to children. States are generally prohibited from imposing premiums and cost-sharing for mandatory coverage of children in Medicaid. Children and pregnant women with incomes below 150% FPL are exempt from co-payments and premiums. Extensive research shows that high out-of-pocket costs prevent low-income children from receiving the care they need. Limiting cost-sharing and premiums helps to ensure that children can get the services they need to stay healthy, avoiding more costly emergency care down the road.
Medicaid spending on children is relatively small compared with spending on other populations.
Covering children through Medicaid is relatively inexpensive ($3,138 per child/per year in 2018), compared to much higher Medicaid costs for the elderly, the disabled, and those who use long-term care services. In FY 2017, children represented 40% of all Medicaid enrollees, but they account for only 19% of Medicaid expenditures.
Medicaid is cost-effective to operate.
Historically, Medicaid has maintained low administrative costs when compared with private insurance. Private health insurance has overhead costs that are, on average, more than twice the cost of Medicaid, 12.3% for private coverage compared with 4-5% for Medicaid. Medicaid accounted for 16% of national health expenditures in 2019, less than either Medicare (21%), or private insurance (31%).
Total Medicaid spending was $662 billion in FY 2020.
Of this amount, $446 billion was federal spending and $215 billion was state spending. Medicaid’s share of state budgets was 16.2% in fiscal year 2020. Federal spending on Medicaid increased during the COVID-19 pandemic due to the 6.2% increase in each state’s FMAP, along with the maintenance of effort that kept beneficiaries enrolled throughout the public health emergency.
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Medicaid continues its enormous success in providing cost-effective care to millions of children across the country. Together with the Children’s Health Insurance Program (CHIP), Medicaid covers more than 44 million children, including more than 80% of children living below the federal poverty level. From well-baby and well-child visits, to vaccines, cancer treatment, dental services, and speech therapy, Medicaid plays a significant role in keeping kids healthy, in school, and on track to becoming healthy and productive adults. Children are the least expensive beneficiary group in Medicaid, yet they have the most to gain from comprehensive and affordable Medicaid coverage. Children who receive Medicaid coverage are more likely to graduate high school, have better health outcomes, and pay more taxes as adults.
Cuts to Medicaid would have a devastating impact on our nation’s children and their futures. Congress must reject proposals that would impose arbitrary cuts to Medicaid, including per capita caps or block grants. Arbitrary cuts to Medicaid, especially when it comes to children, will only limit eligibility for coverage, reduce benefits and access, and increase the numbers of uninsured children – while producing insubstantial savings. Cuts would also limit Medicaid’s known ability to adapt to sudden economic, natural, or public health emergencies. As new drugs are discovered and new technologies are put into service, Medicaid needs consistent and flexible funding to ensure children can receive and access new, life-saving medical advancements.
More than a half-century ago, U.S. leaders made a commitment to care for those living in poverty. However, in recent years, Medicaid has been undermined and children have suffered and lost coverage. Uninsurance among children has been on the rise, but Congress can take action to reverse this trend by protecting and investing in Medicaid. Every family should have the peace of mind to know that if they face hard times, their children will still be able to get the essential care they need. We owe it to our children and to our nation’s future success to keep Medicaid strong.