Medicaid Overview

December 11, 2013

Often called an afterthought to the Medicare program, Medicaid was signed into law under Title XIX of the Social Security Act. Unlike Medicare, which was created to provide health care coverage to those over the age of 65, Medicaid’s intent was the provision of care for individuals of any age who were financially limited. In 1966, Medicaid provided health insurance to 10 million beneficiaries.1 Currently with approximately 57 million people enrolled, Medicaid has evolved into the largest health insurance provider in the United States.2 

This policy brief will provide an overview of the Medicaid system, its budget implications at the state and federal levels, and the implications of the Patient Protection and Affordable Care Act (ACA) for states’ Medicaid programs. 

What is Medicaid? 

Medicaid is a government health insurance program providing coverage to individuals who are limited in their ability to pay for medical care. The program is run by the states using federal cost sharing dollars. Though state participation in Medicaid is voluntary, all 50 states and the District of Columbia participate. Each state, using federal matching funds, establishes and administers its own Medicaid program. As long as a state follows federal guidelines, it has the flexibility to determine the type and scope of services provided. Additionally, each state has the option of charging enrollees’ premiums and establishing out-of-pocket spending requirements such as copayments, coinsurance, and deductibles. 

Although Medicaid eligibility varies dramatically from state to state, in order to qualify for federal funding each state must provide coverage to limited income families with children as well as individuals who are aged, blind, or disabled (see the percentage breakdown in figure 1 on the next page).3 

Though the income threshold varies by state, an individual or family applying for Medicaid cannot exceed a certain income threshold, which is calculated in relation to a percentage of the Federal Poverty Level (FPL). Today, the FPL ranges from $11,490 for a family of one to $39,630 for a family of eight.5 For example, consider a pregnant woman comprising a family of one and fitting categorically into one of Medicaid’s mandatory eligibility groups. In 2013, the median (across 50 states and the District of Columbia) Medicaid threshold for this individual was 185 percent of the FPL.6 Therefore, she would be eligible for Medicaid if she earned less than $21,257. 

It is important to note that states may offer a greater number and additional types of services offered that go above and beyond what is mandated by the Department of Health and Human Services (HHS). Through Section 1115 of the Social Security Act, the federal government has encouraged states to tailor the Medicaid program to their unique political and economic environments.7 Building upon Section 1115 of the Social Security Act, the Health Insurance Flexibility and Accountability (HIFA) demonstration initiative gives states enhanced “waiver flexibility to streamline benefits packages, create public-private partnerships, and increase cost-sharing for optional and expansion populations covered under Medicaid.” 8 Contingent on approval by the HHS Secretary, leaders are empowered to develop a unique program that meets their states needs. 

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Freedom and Entrepreneurship: New Evidence from the 50 States

April 17, 2012

Research Findings (download the summary as PDF)

  • Humans are entrepreneurial by nature. We desire to improve our material well-being, which drives us to innovate, often through new business creation. Despite the ever-present tendency toward entrepreneurship, public policy can have a significant impact on the incentives for entrepreneurial activity. Economists often call these incentives the “rules of the game.” 


  • When making the decision to take on a new business, entrepreneurs must weigh the risks against the potential payout. Policy makers have the power to raise the cost of starting a new business by raising taxes or increasing regulatory costs, and they have the power to lower the cost by pursuing stable and consistent public policy initiatives consistent with economic freedom, such as low, broad-based taxes and prudent regulation. 


  • Previous research has demonstrated that “rules of the game” favoring lower taxes and limited regulation—as measured by economic freedom indices—encourage entrepreneurship. Studies have found similar results both in comparisons across the states and in comparisons across countries. “Freedom and Entrepreneurship: New Evidence from the 50 States” uses an index of freedom, the Mercatus Center at George Mason University’s Freedom in the 50 States by Will Ruger and Jason Sorens. The study confirms earlier results: economic freedom permits higher levels of entrepreneurship, as measured by the creation of new businesses. 


  •  Freedom in the 50 States includes measures of both economic and personal freedom. Personal freedom had not previously been studied as a factor in the entrepreneurship level, and this study found that it did not in fact have a significant impact on business creation. Only economic freedom appears to have a positive impact on entrepreneurship, although personal freedom is of course important for other reasons. 


  • This additional evidence that economic freedom is correlated with entrepreneurship should encourage policy makers to pursue changes that increase their states’ economic freedom. The evidence suggests that by increasing economic freedom, policy makers have significant power to improve their states’ climate for new business creation. For example, if policy makers in Ohio— which currently ranks 32nd in the Freedom in the 50 States’ Economic Freedom index—increased the state’s ranking to the level of Nevada, which ranks 23rd, Ohio residents could expect to see a 33 percent increase in new business creation. Lower tax rates, lower regulatory burdens, and lower barriers to trade can all encourage citizens to pursue their drive toward entrepreneurship. 
View the full paper as a PDF

Attempts to Control Medicare Spending: A Sisyphean Task?

September 12, 2011

Various reform efforts have been attempted to control the cost of Medicare, only to see cost-growth problems return. The reforms resemble the fate of Sisyphus, a king in Greek mythology who was punished by the gods to roll a giant boulder up a hill only to watch it roll back down and to repeat this task with similar results for all eternity.

While a multitude of research studies could be conducted on Medicare expenditures, this paper focuses solely on those related to hospital and physician payments. Individually, these two forms of payment accounted for nearly 66 percent of all Medicare expenditures in 2009.

Tax Rates and Migration

August 8, 2011

The term “millionaire tax” does not necessarily mean a tax imposed only on individuals earning more than a million dollars per year. Depending on the state, landing in the top income tax bracket could require earning more than $1 million (New Jersey, Maryland, and California) or as little as $200,000 (Hawaii and Ohio) or even $150,000 (Arizona). Recent attention has focused on New Jersey, which increased its (former) top income-tax rate by more than 14 percent (from 8.97 percent to 10.25 percent) in 2009 for individuals making more than $500,000 and added a new 10.75 percent tax bracket for those earning more than $1 million.

Binge Thinking

November 22, 2010

How does your state control alcohol?  This paper answers questions regarding the government control of alcohol, providing specifics about which states control alcohol and how they do it.  It also considers the effects of state-controlled alcohol sales: is there less drinking, and are there fewer alcohol-related fatalities?