Medicaid cuts explained: The history, changes and future of low-income health coverage

President Donald J. Trump and his Republican allies in Congress have put reducing the size and cost of federal programs as one of their top priorities. While Elon Musk’s DOGE effort has focused on “waste, fraud and abuse” any budget expert will tell you that to make real substantial cuts to federal spending would require addressing a few key areas of the budget: Defense, Social Security and federal health programs, namely Medicare and Medicaid.

According to media reports, Trump and company are focusing their efforts on Medicaid, a joint federal-state program that provides health care services mostly for low-income people.

What kind of cuts are they considering? Extensive ones. From the New York Times on Feb. 25, 2025: “Republicans are considering lowering the 90 percent share that the federal government is required to pay to states that enroll participants in the expansion. The change could generate $560 billion in savings over a decade, money that Republicans want to use toward extending Mr. Trump’s 2017 tax cuts, which are set to expire at the end of 2025.”

Trump said on Feb. 26 that Republicans "won't touch" Medicaid and will only focus on reducing fraud and waste. However, the spending bill passed by the House of Representatives on Feb. 25 calls for the committee that oversees Medicaid and Medicare to come up with $880 billion in savings.

Leading physician organizations oppose Medicaid cuts, saying: “Slashing already-low Medicaid payment rates will make it even harder for physicians to provide care to people covered under Medicaid and will ultimately increase health care costs as patients are forced to forgo vital preventive care.”

Medicaid has frequently been a political football. The program has more labyrinthine rules for both patients and providers and differing standards and rules that vary from state to state. It does not have the third rail status that cutting Medicare and Social Security do in American politics, and thus it is frequently on the potential chopping block for cuts or reforms, such as work requirements, conversion to block grants, and other changes.

This explainer details out the history of the Medicaid program, its reach and impact, and what it’s like for physicians to accept patients from Medicaid.

What is Medicaid?

Medicaid is a joint federal-state program that provides health insurance for individuals and families with low incomes, pregnant women, children, seniors and people with disabilities. Established alongside Medicare in 1965 under the Social Security Act, Medicaid has become one of the nation’s largest insurance programs.

As of the early 2020s, the number of Americans enrolled in Medicaid has surpassed 90 million — an all-time high — driven by factors such as the Affordable Care Act (ACA) expansion and the economic fallout of the COVID-19 pandemic. That number has fallen in recent years. As of October 2024, more than 79 million people were enrolled in Medicaid and CHIP.

Historically, enrollment hovered around 50 million to 60 million before 2010, then climbed steadily after the ACA offered states the option to broaden eligibility for low-income adults. During the pandemic, the federal government put policies in place that ensured continuous coverage for many beneficiaries, further boosting enrollment numbers. This growth has highlighted Medicaid’s role as a critical safety net for millions of individuals and families across the nation.

At the same time, the percentage of primary care physicians who accept Medicaid patients has seen gradual shifts over the years. Historically, lower reimbursement rates and complex administrative requirements kept some practices from participating. A study by the Kaiser Family Foundation found that around two-thirds of physicians accepted new Medicaid patients in the early 2010s — well below the acceptance rates for Medicare and private insurance.

However, slight increases in provider reimbursement in certain states, along with policy initiatives aimed at incentivizing participation, have led to moderate upticks in Medicaid acceptance among primary care providers. As more states have implemented or considered Medicaid expansion, these acceptance rates continue to evolve, reflecting both the growing need for services and efforts to address longstanding access challenges.

Medicaid funding and costs

Medicaid’s funding is shared by the federal government and individual states. The federal contribution, known as the Federal Medical Assistance Percentage (FMAP), varies by state based on per capita income. States with lower average incomes receive a higher federal match. States also have broad authority to shape eligibility criteria, benefits and payment rates within federal guidelines, making Medicaid programs differ widely from one state to another.

Medicaid spending continues to rise, with official projections showing significant costs at both the state and federal levels. According to the Congressional Budget Office (CBO) baseline published in 2023, federal outlays for Medicaid in fiscal year 2024 are expected to reach approximately $560 billion. When including state contributions, total Medicaid spending for 2024 could exceed $850 billion, reflecting ongoing enrollment growth, changes in eligibility policies and the continued effects of rising health care costs.

These figures are estimates and can shift based on economic conditions and policy decisions — such as states opting to expand or tighten Medicaid eligibility. For the latest data and updates, physicians should consult the CBO’s baseline projections and the Centers for Medicare & Medicaid Services (CMS) Office of the Actuary, which regularly release revised forecasts on national health expenditures.

Challenges for physicians

Billing for Medicaid or the Children’s Health Insurance Program (CHIP) can be notably more complex for physicians than billing for Medicare or commercial insurance plans. Much of that complexity stems from the joint federal-state structure of these programs, which grants states substantial flexibility to design benefits, set payment rates and establish administrative rules. As a result, practice managers and billing staff must navigate differing regulations, coverage details and reimbursement schedules, which can vary significantly from one state to another. The major challenges are:

• Varied state policies
  Each state’s Medicaid or CHIP agency may have its own enrollment procedures, fee schedules, formularies and documentation requirements. For example, some states require prior authorization for certain services, medications or durable medical equipment, while others may reimburse those items without extensive reviews. Additionally, deadlines for filing claims differ among states, and late submissions can result in denials or partial payments. Practices with patients who reside in multiple states—or that border other states—often face additional challenges managing separate policies and payment timelines.
• Managed care organizations
  Another layer of complexity arises when states contract with managed care organizations (MCOs) to administer Medicaid or CHIP benefits. In these arrangements, physicians bill the MCO rather than the state directly. Because each MCO can have its own claims processes, provider credentialing requirements and clinical guidelines, physicians who participate in multiple plans may need to master several different billing systems. This lack of uniformity increases the administrative burden and the potential for claim errors or delays.
• Reimbursement and payment issues
  Historically, Medicaid and CHIP have lower reimbursement rates than Medicare or private insurance. As a result, even small errors or billing inefficiencies can diminish already thin margins. Some states or MCOs may offer incentive payments, bonuses or increased rates for meeting specific quality metrics—requiring physicians to track and report detailed patient data. While these programs aim to improve outcomes, they also add another layer of complexity to the billing and reimbursement process.

Tips for navigating complexity
To manage Medicaid and CHIP billing effectively, many practices invest in robust billing software and dedicate staff to stay current with state guidelines and MCO policies. Regular training, participation in provider advisory groups and proactive communication with state agencies or MCO representatives can help avoid claim denials and delays. For physicians committed to serving low-income or vulnerable populations, mastering these administrative intricacies is essential to maintaining financial viability while delivering necessary care.

A brief history

Medicaid has evolved considerably since it was signed into law in 1965, reflecting shifting political priorities, economic pressures and evolving health care needs. Below is a decade-by-decade look at how Medicaid has changed, how it has been funded, and what challenges physicians and patients have faced along the way.

President Lyndon B. Johnson signed Medicaid and Medicare into law on July 30, 1965, as part of his “Great Society” initiatives. While Medicare was designed primarily for those 65 and older, Medicaid was meant to support low-income individuals and families. Over the decades, lawmakers have expanded Medicaid’s reach to cover additional groups such as children under the Children’s Health Insurance Program (CHIP) and certain low-income adults through the Affordable Care Act (ACA).

1960s: The inception

Medicaid was created under President Lyndon B. Johnson as part of the Social Security Amendments of 1965. It was designed to provide medical coverage for low-income individuals, families, children, pregnant women, seniors and people with disabilities. The federal government offered matching grants to states, which administered the program under federal guidelines. This partnership structure created early questions about states’ willingness to participate, but nearly all states joined by the end of the decade.

For physicians, Medicaid offered a new patient population but introduced immediate concerns about reimbursement rates. Early on, physicians grappled with whether to accept Medicaid beneficiaries, given the potential for lower payment compared to private insurance and Medicare.

1970s: Early expansions and growing pains

Throughout the 1970s, Congress enacted legislation that broadened Medicaid eligibility. The Supplemental Security Income (SSI) program, launched in 1972, led to automatic Medicaid eligibility for some disabled individuals. Funding continued through federal-state matching, but economic downturns created tension about state budgets. Some states struggled to match federal dollars, resulting in payment delays and inconsistent coverage.

Physicians found administrative challenges growing as states developed different policies and billing requirements. This discrepancy across state lines led to confusion and uneven participation from providers. Meanwhile, patients benefited from a gradually expanding safety net, but many reported difficulty finding physicians who accepted Medicaid.

1980s: Block grants, budget pressures and program tightening

The 1980s brought significant budget pressures at the federal level. The Reagan administration sought to contain costs by proposing block grants for Medicaid, which would give states a fixed sum to administer the program. While the block grant approach did not fully materialize, Congress did pass legislation that tightened eligibility criteria for certain adult beneficiaries. Funding remained a joint federal-state effort, but rising health care costs spurred debates over how to rein in spending.

Many physicians saw Medicaid reimbursement rates stagnate or decline relative to inflation and the growing cost of care. Some practices, especially in rural areas, continued to serve large Medicaid populations, often operating on thin margins. Provider advocates lobbied for higher payment rates, while some states experimented with managed care arrangements to control costs and improve care coordination.

1990s: Managed care growth and the birth of CHIP

In the 1990s, Medicaid expanded its reach, particularly for children and pregnant women. The Children’s Health Insurance Program (CHIP), established in 1997, provided federal funds to insure children whose families earned too much to qualify for Medicaid but not enough to afford private coverage. This move further blurred the funding lines between state and federal resources.

Simultaneously, states embraced managed care as a way to control spending and improve patient outcomes. Medicaid managed care organizations (MCOs) contracted with state agencies to provide benefits to enrollees for a set per-member, per-month rate. While this approach helped predict budgets, it also introduced new administrative layers for physicians, who had to learn managed care rules and adhere to utilization controls. Patients benefited from more coordinated care in some areas, but critics argued that managed care could limit provider choice and hamper access.

The Children’s Health Insurance Program (CHIP), created in 1997 under the Balanced Budget Act, is designed to provide affordable health coverage to children in families whose incomes are too high to qualify for Medicaid but too low to afford private insurance. Funded jointly by the federal government and individual states, CHIP operates under Title XXI of the Social Security Act. Its core mission is to ensure that children have access to necessary health care services such as regular checkups, immunizations, dental care and emergency services.

CHIP functions as a close companion to Medicaid, often filling gaps in coverage. Some states administer CHIP as part of their Medicaid programs, blending eligibility and benefits, while others maintain CHIP as a distinct plan with separate rules and enrollment systems. In both scenarios, the shared goal is to reduce the number of uninsured children and improve access to quality pediatric care. Because states have flexibility in how they structure their programs, coverage details such as eligibility thresholds, cost-sharing requirements and benefit packages can differ substantially across state lines.

From a physician’s perspective, CHIP presents many of the same administrative considerations as Medicaid—lower reimbursement rates compared to commercial insurers and sometimes complex billing processes. However, because CHIP covers millions of children from low- to moderate-income households, it serves as a vital link to preventive and routine care for a large pediatric population. As policymakers continue to debate the future of federal and state funding for safety-net programs, maintaining a robust CHIP remains central to broader efforts aimed at minimizing disparities in pediatric health care access.

2000s: Rising costs and policy experimentation

Health care costs continued to rise sharply in the 2000s, straining state budgets and federal matching obligations. Some states sought waivers from the federal government to experiment with different Medicaid models, such as consumer-driven health accounts or premium assistance programs. These waivers allowed states more flexibility in structuring benefits and payment mechanisms.

For physicians, Medicaid’s complex rules and varying reimbursement rates became an increasingly significant administrative burden. Some practices invested in electronic health records (EHRs) and other tools to streamline billing and track quality measures, hoping to qualify for incentive payments or improved reimbursements. Patients faced challenges related to eligibility “churn,” as small changes in income could render individuals ineligible or require them to re-enroll multiple times.

2010s: The Affordable Care Act and expansion debates

The Affordable Care Act (ACA), signed in 2010, dramatically reshaped Medicaid by offering states the option to expand coverage to more low-income adults. The federal government initially covered a high percentage of costs for newly eligible beneficiaries, gradually transitioning a portion of that expense back to states in subsequent years. Although some states took advantage of the expansion, others opted out or delayed participation due to concerns about long-term costs.

For physicians, Medicaid expansion often meant a larger patient base and, in some cases, higher reimbursement rates tied to primary care services, at least temporarily. However, administrative complexities persisted, and in non-expansion states, large coverage gaps remained. Patients in expansion states typically had better access to care and preventive services, while those in non-expansion states continued to struggle with eligibility thresholds.

2020s: Pandemic pressures and telehealth transformations

The COVID-19 pandemic placed unprecedented demands on Medicaid. Enrollment surged as millions lost jobs and employer-sponsored insurance. The federal government provided additional matching funds to help states manage costs. Temporary measures, such as continuous enrollment requirements and relaxed eligibility rules, helped maintain coverage during the crisis.

Telehealth services saw rapid adoption, supported by emergency regulations that allowed Medicaid programs to reimburse virtual visits. Many physicians pivoted to telemedicine to maintain patient access, especially for those with chronic conditions or limited transportation. As the pandemic’s emergency measures evolve, states are revisiting telehealth policies and grappling with how to fund and structure these services long-term.

Medicaid as a political football

During the past half-century, Medicaid policy has largely been shaped by differing perspectives within the two major U.S. political parties. Democrats generally champion a robust safety net, supporting expansions that broaden coverage and striving to enhance program funding. Republicans, meanwhile, have often focused on controlling costs and promoting state-level flexibility, arguing that local governments can more effectively tailor Medicaid to meet residents’ needs. While these positions have evolved over time and are not universally held within each party, they form the foundation of most debates about Medicaid’s future.

Democratic approach

Historically, Democrats have generally supported expanding and strengthening Medicaid. They have often viewed the program as a cornerstone of the social safety net, crucial for providing health care to low-income and vulnerable populations. Notable milestones include the passage of the Children’s Health Insurance Program (CHIP) in 1997 under the Clinton administration, which enjoyed bipartisan support but reflected a Democratic-led focus on covering children.

More recently, President Barack Obama’s administration championed the Affordable Care Act (ACA), which offered states the option to significantly expand Medicaid eligibility for adults with incomes up to 138% of the federal poverty level. This policy move aimed to reduce the number of uninsured Americans and make Medicaid more accessible to those caught in “coverage gaps.” Democrats have tended to favor measures such as increasing federal matching rates to incentivize states to expand coverage, raising reimbursement rates for physicians and streamlining administrative processes to improve patient access.

Republican approach

Republicans, meanwhile, have often focused on containing costs, increasing state autonomy and implementing market-oriented reforms. Over the decades, some Republican lawmakers have proposed block grants or per-capita caps, arguing this would grant states greater flexibility to innovate while controlling federal spending. Critics of these proposals say they could result in funding shortfalls during economic downturns or health crises.

Despite these concerns, many Republican-led states have adopted Medicaid managed care or waiver programs, which allow them to experiment with work requirements, cost-sharing or other policies aimed at encouraging personal responsibility. At the federal level, Republicans have historically expressed concern about Medicaid’s long-term sustainability and its impact on federal and state budgets, leading to debates over whether—and how—to restructure the program while still providing essential coverage.

Overall, while Democrats have more consistently supported the program’s expansion and funding increases, Republicans have leaned toward flexibility and cost containment. However, individual lawmakers and states can deviate from these broader party tendencies, resulting in a patchwork of policies and reforms. Throughout Medicaid’s history, a key takeaway has been the program’s adaptability, shaped by political priorities, federal-state negotiations and the changing realities of U.S. health care.

What’s at stake

The future of Medicaid will be decided in the coming months as Trump and his Republican allies continue to push for cuts, including to Medicaid. Democrats and physician groups oppose these changes, but it’s entirely unclear what will unfold.

Medicaid supporters say the stakes are high. Back in November, after Trump’s re-election, Dan Tsai, director of the Center for Medicaid and CHIP Services within CMS, was among the speakers in a Nov. 20 CMS Leadership National Call. It was to be the final call for CMS Administrator Chiquita Brooks-LaSure and her top deputies, who spent an hour describing the accomplishments of the last four years.

Tsai’s comments were the ones that sounded most like a dire prediction for Medicaid, a program now covering one in five adults and roughly half the children in the country.

“The vast majority of people that we cover, we will continue to say, are working individuals and families,” he said. “And for those folks without Medicaid coverage, families, parents are faced with unthinkable choices around what a family can afford and their kids’ health. We are leaving the program so much stronger today than when we started four years ago, but that progress is at risk. Things like adding work requirements for Medicaid or block grants to the program will add onerous red tape that none of us would accept for ourselves. … They're just plain bad policy, not backed up by facts and evidence. The cost would be people's lives and health across the country.”