Medicaid is administered as a partnership: the federal government sets minimum rules and pays a share of the cost, while each state designs and runs its own program within those rules. The Centers for Medicare and Medicaid Services (CMS) approves each state’s plan, audits performance, and disburses the federal match. A designated state agency in every state writes the plan, sets provider payment rates, decides which optional benefits to cover, processes applications, and pays claims. That split is why Medicaid looks different depending on where you live, even though a federal floor of protections applies everywhere.
The legal foundation is Title XIX of the Social Security Act, which created this cooperative arrangement in 1965.1Medicaid.gov. Program History and Prior Initiatives Participation is voluntary for states, but every state participates, and each one agrees to meet the federal minimums in exchange for federal funding.
What the Federal Government Does
CMS, part of the U.S. Department of Health and Human Services, oversees every state Medicaid program.2Federal Register. Agencies – Centers for Medicare and Medicaid Services Its job is to enforce the federal rules and hand out the federal share of the money.
Federal law requires states to cover certain groups: low-income parents and caretaker relatives, pregnant women, children, infants, newborns of enrolled mothers, and most people receiving Supplemental Security Income.3eCFR. 42 CFR Part 435 Subpart B – Mandatory Coverage Federal law also requires certain benefits, including hospital care, physician services, lab work, and home health services.4Office of the Law Revision Counsel. 42 USC 1396a – State Plans for Medical Assistance
CMS reviews each state’s plan and any amendments to it, conducts audits, and monitors performance. When a state falls short of federal standards, CMS can withhold a portion of federal matching funds. CMS also runs the Section 1115 demonstration waiver process, under which the Secretary of Health and Human Services can waive specific federal Medicaid requirements to let a state test a pilot project that is likely to promote the program’s objectives.5Social Security Administration. Social Security Act Section 1115 States have used those waivers for everything from work-related requirements to coverage of populations not normally eligible.
What Each State Does
Every state must designate a single state agency to run or supervise its Medicaid program.6eCFR. 42 CFR 431.10 – Single State Agency That agency writes the State Plan, a formal agreement with CMS that spells out who the state covers, what benefits it offers, how it pays providers, and how it handles applications. Any change to the program requires a State Plan Amendment approved by CMS.
Above the federal floor, states decide a lot. They set the exact income thresholds for each eligibility group within federal boundaries. They choose whether to offer optional benefits like adult dental care, physical therapy, optometry, or prescription drugs. They set their own provider payment rates, which vary widely from state to state and directly affect how many doctors and hospitals accept Medicaid patients. States can also cover “medically needy” individuals whose income is over the regular limit but whose medical expenses effectively drop their available resources below a state-set level.
The Affordable Care Act added an additional lever. States can extend Medicaid to nearly all adults with household income below 138 percent of the federal poverty level, and the federal government pays 90 percent of the cost for that expansion group.7HealthCare.gov. Medicaid Expansion and What It Means for You Most states have adopted the expansion; some have not, which is why adult eligibility looks so different across state lines.
Provider Enrollment
Before any doctor, hospital, or clinic can bill Medicaid, the state agency must screen and enroll it. Federal rules require states to verify each provider’s license, check federal databases for exclusions and prior fraud, and revalidate the enrollment at least every five years.8eCFR. 42 CFR Part 455 Subpart E – Provider Screening and Enrollment Higher-risk providers may face site visits, fingerprinting, and criminal background checks. A provider with a fraud-related conviction in the past ten years will generally be denied or terminated.
Eligibility Renewals
Enrollment is not permanent. Each state must redetermine every beneficiary’s eligibility once every 12 months.9eCFR. 42 CFR 435.916 – Regularly Scheduled Renewals of Medicaid Eligibility The state must first try to renew coverage automatically using data it already has, such as tax and wage records. If that data is not enough, the state mails a pre-filled renewal form and gives you at least 30 days to respond. In-person interviews cannot be required. If you miss the deadline and lose coverage, you generally have 90 days to return the form and have your case reconsidered without starting a new application.
How the Money Flows
Federal and state governments share Medicaid’s cost through the Federal Medical Assistance Percentage (FMAP). FMAP is calculated from each state’s per capita income relative to the national average, so lower-income states get a higher federal match.10Office of the Assistant Secretary for Planning and Evaluation. Federal Medical Assistance Percentages By statute the federal share cannot fall below 50 percent or exceed 83 percent.11Office of the Law Revision Counsel. 42 USC 1396d – Definitions Adults covered through the ACA expansion are matched separately at 90 percent. Administrative costs are generally matched at 50 percent, with higher rates for specific activities like fraud prevention and information systems.12Medicaid and CHIP Payment and Access Commission. Matching Rates
Medicaid is an open-ended entitlement. As long as a state spends on covered services for eligible people, the federal government must pay its matching share. States front their share, then submit detailed expenditure reports to draw down federal funds. Inaccurate reporting can trigger financial penalties or clawbacks of funds already sent.
Medicaid Pays Last
An important administrative rule is that Medicaid is the payer of last resort. If you have private insurance, Medicare, or TRICARE alongside Medicaid, those pay first and Medicaid picks up what remains. States must take reasonable steps to identify any third party legally responsible for a beneficiary’s medical costs.13Medicaid.gov. Coordination of Benefits and Third Party Liability Handbook A narrow set of federal programs, including the Ryan White Program and Indian Health Services, are exceptions by their own statutes and pay after Medicaid.
How Services Reach Enrollees
States deliver care through two main models, and many use both.14Medicaid and CHIP Payment and Access Commission. Provider Payment and Delivery Systems
- Under fee-for-service, the state pays providers directly for each covered service delivered to a beneficiary. It is the traditional model, and it puts claims processing and network building on the state.
- Under managed care, the state contracts with private managed care organizations and pays each one a fixed monthly amount per enrolled member, called a capitation rate. The MCO builds its own network and manages care.
Managed care is now the dominant model in most states because it gives budgets more predictability and shifts administrative work to the plans. Both models still have to meet federal access standards. States that use MCOs must set and enforce network adequacy rules, including maximum appointment wait times: no more than 15 business days for a routine primary care visit and no more than 10 business days for outpatient mental health or substance use disorder services.15eCFR. 42 CFR 438.68 – Network Adequacy Standards
What This Means for You
If your application is denied, your benefits are cut, or a service you were getting is stopped, you have the right to a fair hearing. Every state must offer it and must notify you in writing of the specific reason for the action, your right to appeal, and how to do so.16eCFR. 42 CFR Part 431 Subpart E – Fair Hearings for Applicants and Beneficiaries For reductions or terminations, the notice must go out at least 10 days before the effective date. You can represent yourself or bring a lawyer, relative, or friend. At the hearing you can review your file, present evidence, bring witnesses, and cross-examine anyone testifying against you.
If a service is being cut and you want it to continue while you appeal, you generally have to file within 10 days of receiving the notice.17eCFR. 42 CFR Part 438 Subpart F – Grievance and Appeal System If you meet that deadline and other conditions, such as the service having been previously authorized and the authorization period not yet expired, benefits continue until the final decision. If you lose, the plan may try to recover the cost of services delivered during the appeal.
One boundary worth knowing: for people who were 55 or older when they received nursing facility care, home and community-based services, or related hospital and drug services, federal law requires the state to seek reimbursement from the estate after death.18Office of the Law Revision Counsel. 42 USC 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets States may go further and recover for any Medicaid services in that age group. About half of states limit recovery to probate assets; the rest reach non-probate assets like living trusts and joint tenancy property. Recovery does not occur while you or a surviving spouse are alive, and states must waive it in cases of undue hardship.19Office of the Assistant Secretary for Planning and Evaluation. Medicaid Estate Recovery Because the details depend on your state, an elder law attorney familiar with your state’s program is the right person to ask.