Alternative Medicines

Alternative Medicine

How Is Medicaid Financed?

Funding for Medicaid comes from both federal and state governments. State participation in Medicaid is optional, but all 50 states have opted to join. In some states, localities are required to contribute funds.

States are reimbursed by the federal government for a portion (the federal share) of a state's Medicaid program costs. Each state's federal share is determined by a formula set in law that depends on a state's per capita personal income. A state receives a bigger portion if personal income is lower than the national average; the portion is less if personal income is higher than the national average. There is no upper limit or cap on federal reimbursements. The rate paid by the federal government can range from 50 percent to 83 percent of costs, depending on the state. The federal government, on average, pays 57 percent of the cost of the program.

Discussion

In many states the systems of financing and delivering health, mental health and substance use treatment and recovery services are highly fragmented. As a result, there may be limited incentives for the system responsible for mental health services to invest in services that reduce costs in the health care system, particularly if costs and savings appear in different budgets or even in different state or local government entities. This can make it challenging for program administrators or policy makers to link savings from reduced hospitalizations to investments in community mental health services.

Managed care financing and care delivery systems may offer opportunities and incentives to use Medicaid to pay for services that improve health outcomes and reduce avoidable hospitalizations or emergency room visits, and may provide some flexibility for health plans or provider networks to use capitates payments to cover some services that might not be reimbursed in a fee for ...