Medicaid eligibility has evolved over the years. Originally, it was supposed to assist the so-called “deserving poor,” those medically needy people who were aged, blind, disabled, or families with dependant children, or falling into some other status of poverty where assistance was favored. Not every person whose income falls below the poverty line qualifies for Medicaid, and this has always been true of the program.

Medicaid recipients have historically been divided into the “categorically needy,” persons who were eligible for Supplemental Security Income (SSI) benefits for disability, for Aid to Families with Dependant Children (AFDC) benefits, or had been eligible for other government benefit programs; and the “medically needy,” persons whose income exceeds financial standards for the above programs but who incur regular medical expenses that, when deducted from their income, bring their income down to the eligibility level for financial assistance. Technically, these categories no longer exist under the current Medicaid system, but state programs that expand Medicaid coverage beyond the traditional categorically needy are still known as “medically needy” programs. Typically these “medically needy” programs cover nursing home and other long-term care.

Currently the program covers the following groups as “categorically needy.” For definitional purposes, the poverty level was $8,350 for an individual, and $17,050 for a family of four as of the year 2000:

• Medicaid must cover all pregnant women with incomes of up to 133 percent of the poverty level.
• Medicaid must cover all children under the age of six with family incomes below 133 percent of the poverty level and children under age 19 born after 1983 in families with incomes up to 100 percent of the poverty level.
• Medicaid must cover the Medicare premiums and cost-sharing obligations for “Qualified Medicare Beneficiaries” whose income does not exceed 100 percent of the poverty level. It must also cover Medicare Part B premiums for “Specified Low-Income Medical Beneficiaries”, persons whose income is between 100 percent and 120 percent of the poverty level. Medicaid also covers nursing home costs for persons below a certain income level or asset level set by the state, and provides outpatient drug coverage for some qualified Medicare recipients.
• Medicaid covers disabled persons whose income falls below a certain level, including children eligible for SSI disability benefits. Coverage of other adult disabled recipients is generally mandatory if they receive SSI and are at 74 percent of the poverty level, although some states have been waived in at lower levels than this, and one state, Mississippi, does not cover SSI benefit recipients at all. Many states provide home and community-based care for disabled utilizing Medicaid funds as well.

Medicaid funds also help finance health coverage in several states for persons below a certain income who otherwise would not qualify for Medicaid. In general, states have much leeway in terms of coverage with Medicaid funds. Nearly two-thirds of all Medicaid spending is attributable to optional benefits and services.