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The Medicaid program is the third largest source of health insurance in the United States - after employer-based coverage and Medicare. As the largest program in the federal "safety net" of public assistance programs, Medicaid provides essential medical and medically related services to the most vulnerable populations in society. The significance of Medicaid's role in providing health insurance cannot be overstated. Medicaid covered 12.0 percent of the total U.S. population in 1998, compared to 9.1 percent in 1978. The Medicaid program covers millions of low-income women, children, elderly people and individuals with disabilities.
The Medicaid program was enacted in the same legislation that created the Medicare program - the Social Security Amendments of 1965 (P.L. 89-97). Prior to the passage of this law, health care services for the indigent were provided primarily through a patchwork of programs sponsored by state and local governments, charities, and community hospitals.
Before 1965, federal assistance to the states for the provision of health care was provided through two grant programs. The first program was established in 1950 and provided federal matching funds for state payments to medical providers on behalf of individuals receiving public assistance payments. In 1960, the Kerr-Mills Act created a new program called "Medical Assistance for the Aged." This means-tested grant program provided federal funds to states that chose to cover the "medically needy" aged who were defined as elderly individuals with incomes above levels needed to qualify for public assistance but in need of assistance for medical expenses.
In 1965, Congress adopted a combination of approaches to improve access to health care for the elderly. The Social Security Amendments of 1965 created a hospital insurance program to cover nearly all of the elderly (Medicare Part A), a voluntary supplementary medical insurance program (Medicare Part B) and an expansion of the Kerr-Mills program to help elderly individuals with out-of-pocket expenses such as premiums, copayments, deductibles and costs for uncovered services. At the same time, Congress decided to extend the Kerr-Mills program - now the Medicaid program - to cover other populations including families with children, the blind and the disabled.
In general, Medicaid provides three types of critical health protection: (1) health insurance for low-income families with children and people with disabilities; (2) long-term care for older Americans and individuals with disabilities; and (3) supplemental coverage for low-income Medicare beneficiaries for services not covered by Medicare (e.g., outpatient prescription drugs) and Medicare premiums, deductibles and cost sharing. Since its inception in 1965, Medicaid enrollment and expenditures have grown substantially. In addition, the Medicaid program has evolved as federal and state governments balance social, economic and political factors affecting this and other public assistance programs.