How Does Medicaid Work?



  • Medicaid provides medical assistance to individuals and families with low incomes. Many of the individuals who qualify for this assistance include pregnant women, dependent children, seniors, and persons with disabilities who have no other health insurance. For those who are eligible for the program, Medicaid pays benefits directly to the medical provider. In some cases, individuals may qualify for Medicaid services even if they are not eligible for cash assistance.

The State's Role

  • Medicaid is an assistance program that operates on funds contributed by states, as well as the federal government. In order for a state to receive matching funds, each state Medicaid system is required to conform to guidelines set by the federal government. However, the formula used by the federal government differs from state to state. Those states, which have a higher percentage of families whose incomes fall below the Federal poverty level, receive more than the match received by other states. States also may differ in the amount of funding allocated for Medicaid services, the length of time for which recipients can qualify, as well as the types of services provided. It is not uncommon for a person who has been determined eligible to receive Medicaid services in one state not to qualify for the program in another state.


  • In recent years, Medicaid funding has become a major budgetary issue for most states, as medical costs continue to increase. Medicaid spending now consumes more of a state's annual budget with some states spending nearly 25% of the state's general funds each year financing the Medicaid program. Each state can determine the amount and for how long services will be offered. States also maintain the right to limit the number of physician visits or number of days allowed for a hospital stay.

Medical Services Covered

  • Services covered under the Medicaid program may include prenatal care, midwife services, vaccines for children, physician visits, hospital stays, diagnostic testing such as laboratory and x-ray services, home health care for eligible individuals, and nursing facility care for individuals who are age 21 or older. In certain cases, services such as physical therapy and rehabilitation, prescription drugs, and transportation to medical appointments may be covered.


  • Any health care providers who accept Medicaid must accept as payment in full whatever payment rates the Medicaid program offers for specific medical services. While individual states are responsible for setting the payment rates, the rates paid must be adequate enough so that a reasonable number of health care providers participate in the program. Payments generally are made on a fee-for-service basis, or prepaid to an HMO. In some states, Medicaid recipients other than children, pregnant women, or nursing home residents may be required to pay small deductibles or co-payments. Co-payments are not charged for Emergency Room care.

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