Medicaid Principles

On this page: Medicaid


Ensure Adequacy and Affordability—Medicaid should remain a vital safety net that guarantees adequate and affordable health care and long-term services and supports that meet the needs and preferences of beneficiaries and recognize and assist their family caregivers. Medicaid should also cover a range of home- and community-based services to allow individuals to live as independently as possible.

Ensure Quality, Efficiency, and Program Integrity—Medicaid should improve the quality and efficiency of care for beneficiaries and maximize value for the program. Program waste, fraud, and abuse should be identified and eliminated and the process should not unduly burden beneficiaries.

Provide Sufficient and Responsive Federal Funding—federal funding should be sufficient to account for the complex needs of beneficiaries and changes in state circumstances that affect program enrollment and costs.

Provide State Flexibility and Accountability—states, with federal guidance and oversight, should have flexibility to innovate and strengthen their programs in ways that do not cause harm to beneficiaries.

How the new health reform law affects Medicaid—the 2010 Affordable Care Act (ACA) contains numerous provisions for improving Medicaid, which are summarized below: Eligibility expansion—states may now choose to expand Medicaid coverage to adults without dependent children if they have incomes at or below 138 percent of the federal poverty level. States choosing to take up the expansion receive enhanced federal funds to pay for it.

This option eliminates an asset test for determining eligibility and uses a modified adjusted gross income (MAGI) standard to determine income eligibility. MAGI is defined as an individual’s or a couple’s gross income (for federal tax purposes), with adjustments that add back in foreign income and tax-exempt interest.

When individuals who are eligible for Medicaid under this option become eligible for Medicare, they are required to give up their Medicaid expansion coverage. However, some of them will be eligible for coverage under traditional Medicaid rules because they meet a state’s income and asset requirements. Others may be able to get help with their Medicare cost-sharing obligations through one of the Medicare Savings Programs (MSPs). (See this chapter’s section Health Care Coverage: Medicaid—Medicaid Assistance for Low-Income Medicare Beneficiaries.) Thus low-income individuals who are transitioning from the Medicaid expansion into Medicare must receive timely outreach and education so that they are aware of and gain access to these important benefits.

Legal immigrants—legal immigrants who have lived in the US for less than five years may only access Medicaid if they require emergency services or if the state pays 100 percent of their costs. The ACA allows legal immigrants who have not yet met that requirement to buy coverage and receive subsidies through the health insurance exchanges.

Selected US territories—in general, territories must operate Medicaid within broad federal guidelines and under federally approved plans. But American Samoa and the Northern Mariana Islands have federal waivers that exempt them from federal eligibility rules. The remaining territories have some leeway in how they cover their Medicaid populations. FMAP for the territories is set by statute at 50 percent. However, in the fourth quarter of fiscal year 2011 the ACA increased their FMAP to 55 percent.

Prevention—the ACA expands coverage to include certain clinical preventive services and recommended vaccines, and also allows states to choose to make such services available to Medicaid beneficiaries without cost-sharing. States that do so are eligible for a 1-percentage-point increase in their FMAP.

Health homes—the ACA also gives state Medicaid programs the option to enroll individuals with chronic conditions in a health home. Health homes are composed of a team of health professionals who provide a comprehensive set of medical services, including care coordination. To qualify, individuals must have at least two chronic conditions or have one chronic condition and be at risk for a second, or have one serious and persistent mental health condition.

Enrollment simplification—to address Medicaid enrollment barriers, the ACA requires states to:

  • create procedures that allow people to apply for, become enrolled in, or renew enrollment in Medicaid or a waiver program on a website that is linked to the state’s exchange website and the state’s Children’s Health Insurance Program (CHIP) website;
  • allow people to enroll or reenroll using an electronic signature;
  • create procedures for using the state’s website to enroll those who have been identified by the exchange as being Medicaid-eligible under a state plan or waiver, or as CHIP-eligible, without any further enrollment determination by the state;
  • ensure that applicants for Medicaid under the state plan or a waiver, along with those who apply for CHIP but are found ineligible, are screened for eligibility for a qualified exchange plan and any premium assistance;
  • ensure the use of a secure electronic interface that can make eligibility determinations for Medicaid, CHIP, premium assistance, or enrollment in a qualified health plan; and
  • conduct outreach to and enroll members of vulnerable and underserved populations who are eligible for Medicaid or CHIP.

Payment provisions forhealth care-acquired conditions—the ACA does not allow Medicaid payments for certain health care-acquired medical conditions that can be prevented by providers. Applicable rules set minimum conditions under which providers will not be paid for certain preventable conditions in inpatient hospitals and in other health care settings.

Disproportionate share hospital payments—the ACA reduces states’ disproportionate share hospital (DSH) allotments by amounts ranging from 25 percent to 50 percent once the state’s uninsured rate decreases by 45 percent. As the rate of uninsurance continues to decline, states’ DSH allotments will be reduced by corresponding amounts.

Medicaid and CHIP Payment and Access Commission—the ACA expands the duties of the Medicaid and CHIP Payment and Access Commission (MACPAC) to include coordinating with the Medicare Payment Advisory Commission (MedPAC), especially with respect to dually eligible beneficiaries. The ACA also changes the MACPAC’s reporting requirements and provides funding for the body.

Health Care Coverage: Medicaid

Coverage and participation

In this policy: FederalState

Federal and state governments should:

  • ensure that all people living at or below 138 percent of the federal poverty level are covered by Medicaid,
  • increase Medicaid participation among eligible people of all ages, and
  • ensure adequate provider participation in Medicaid (including participation by dental providers and providers of long-term services and supports (LTSS).

Efforts to restructure Medicaid should:

  • maintain and improve current federal and state consumer protections, and
  • adopt financing policies and payment strategies that enhance and improve access and quality.

Medicaid financing: block grants and per capita caps

In this policy: FederalState

Federal and state governments should maintain the entitlement nature of Medicaid funding so that all who qualify for Medicaid will be covered. AARP opposes all approaches to Medicaid financing that threaten its entitlement nature, such as block grants or caps (global and per capita); that place hard limitations on the availability of federal funding regardless of changes in enrollment, service costs, or service utilization; or that create incentives for states to limit or eliminate access to optional services, such as LTSS.

State option to expand Medicaid

In this policy: State

All states should elect the option to expand Medicaid to cover low-income uninsured populations.

Option to cover preventive services without cost-sharing

In this policy: State

To promote maximum use of preventive services, screenings, and immunizations, states should take up the option to provide recommended screening services, immunizations, and certain medical or remedial services to Medicaid beneficiaries without requiring cost-sharing.

Federal Medicaid funding including FMAP

In this policy: Federal

Congress should evaluate the federal funding formula for Medicaid programs operating within the US and its commonwealths and territories, in order to determine if the formula distributes federal funds to states equitably and in ways contemplated by the Title XIX Medicaid statute.

Congress should explore the feasibility of adopting alternatives to the current Medicaid funding formula that will be more responsive to the states’ changing financial circumstances.

The federal government should enact legislation so the FMAP will respond to state economic cycles on a permanent and ongoing basis.

Enrollment expansion and outreach

In this policy: FederalState

Enrollment and outreach activities must be tailored to meet the needs of the culturally diverse eligible population, including legal immigrants.


In this policy: Federal

To improve health care access for low-income people, Congress should:

  • ensure continuous Medicaid coverage for vulnerable people of all ages, including people with disabilities and the working poor;
  • require all states to have a Medically Needy program that provides full Medicaid benefits to people of all ages when they have exhausted their own financial resources for meeting their health care needs; and
  • take steps to ensure that states do not eliminate Medicaid’s optional eligibility categories or alter eligibility criteria to reduce the amount of their Medicare payments (known as a “claw-back” strategy) and thereby deny or withdraw needy beneficiaries’ access to important health benefits.

Expanding eligibility and services

In this policy: State

States should maximize all appropriate opportunities for Medicaid-eligible individuals to receive benefits and alternative coverage from all third-party sources.

States should use Medicaid’s significant market power to foster the highest quality of health care for vulnerable citizens at the most reasonable price.

States should exercise available options for expanding Medicaid eligibility and services by:

  • taking advantage of opportunities to expand Programs of All-Inclusive Care for the Elderly; and
  • covering optional dental services for adults.

To improve Medicaid participation among those currently eligible, states should:

  • conduct outreach activities and promote Medicaid and the state CHIP as a single, coordinated program of health insurance;
  • eliminate or refuse to adopt policies that create barriers to continued enrollment (e.g., require more frequent recertification periods);
  • monitor Medicaid participation rates and report enrollment rates on an ongoing basis, giving particular attention to underserved areas; and
  • develop action plans to ensure that Medicaid and CHIP coverage is appropriately maintained in geographic areas that either are underserved or have large numbers of people no longer eligible for welfare benefits.

Grievance and appeal rights

In this policy: FederalState

States and the federal government must ensure that all Medicaid beneficiaries have meaningful opportunities to exercise their statutory grievance and appeal rights.

States must ensure that the grievance and appeals rights of beneficiaries are clearly explained and that beneficiaries have access to easy-to-understand materials that are culturally competent and linguistically appropriate.

States and the federal government must ensure that beneficiaries receive access to needed services during appeals.

Legal assistance

In this policy: State

States should establish legal assistance programs for Medicaid beneficiaries who have trouble obtaining services, have trouble paying their medical bills, are inappropriately receiving medical bills, or believe a Medicaid claim was incorrectly processed or inappropriately denied.

Provider access

In this policy: FederalState

Federal and state governments should conduct annual reviews to ensure that Medicaid’s rules for paying providers and managed care plans do not threaten health care access.

While preserving access, states should contract with cost-efficient, high-quality hospitals, physicians, and other providers to serve Medicaid beneficiaries.

States should consider payment incentive systems that reward high quality and improvements in care.

States should ensure that beneficiaries have access to providers within reasonable geographic limits.

Cost and medical necessity

In this policy: FederalState

AARP opposes the use of cost as the principal or determinative criterion in findings of medical necessity for Medicaid coverage. Where cost is a factor, it should be taken into consideration that higher initial costs may result in future savings.

Transition from MAGI-related Medicaid into Medicare

In this policy: FederalState

The federal government should require states to have procedures in place (including notices to consumers) to reevaluate MAGI-related Medicaid beneficiaries for potential non-MAGI-related Medicaid coverage (including coverage of LTSS). Such procedures would be used when these individuals become Medicare eligible at age 65, or because they have a disability and have completed the two-year waiting period to become Medicare-eligible (see this chapter’s section Health Care Coverage: Medicare). This reassessment capability should include an evaluation of eligibility for full Medicaid benefits (including LTSS), MSPs, and the Medicare Part D low-income subsidy.