Past, Present & Future: The History of Medicaid

Alisa Lamal

Disclaimer: With Medicaid, VA, and insurance regulations frequently changing, past blog posts may not be presently accurate or relevant. Please contact our office for information on current planning strategies, tips, and how-to's.

In order to gain a better understanding of the Medicaid program itself, it is helpful to first realize how Medicaid has transformed over the years into the program it has become today. To do so, we will examine the early years of the Medicaid program exploring how this long-term care health plan was implemented as well as review the legislative changes over time that have transitioned the program to what we now know it to be.


Social Security Act of 1965:

When the concept for Medicaid was first signed into law by former President Lyndon B. Johnson, it looked much different than how we view it today. Included in the Social Security Act of 1965 was Title XIX, which explicitly created the Medicaid program itself. This Act created the first federal-state partnership program that would help lower-income citizens, authorized aliens, and Americans 65 years or older to gain access to affordable healthcare. Although federal regulation outlined the specific parameters that these programs should follow and provided funding for the program, each state maintained its discretion to manage the program as they saw fit. The intended beneficiaries of this original program were low-income families, single parents with dependent children, the aged, blind, and disabled, and other individuals who received various forms of welfare benefits.


Omnibus Budget Reconciliation Act of 1981 (OBRA ’81): 

A little over a decade later the program was redefined, specifically to reduce overall Medicaid spending by implementing new eligibility standards for the recipient coverage groups. The redefined eligibility standards were included in the Omnibus Budget Reconciliation Act of 1981, commonly referred to as OBRA ’81. Enacted by former President Ronald Reagan, OBRA ’81 reshaped the program’s operation efforts by reducing matching percentages, extending payment standards to inpatient hospitals, creating the waiver program, and requiring payment adjustments in states that served a high number of Medicaid and indigent patients. This overhaul of Medicaid spending imposed by OBRA ’81 changed the benefit capabilities the program was able to provide to recipients.


Medicare Catastrophic Coverage Act of 1988 (MCCA):

Shortly thereafter, the legislative intent of OBRA ’81 was redesigned with the passing of the Medicare Catastrophic Coverage Act of 1988, or MCCA. The goal of MCCA was to reduce the financial risk and strain associated with the costs of illness and long-term care for not only the elderly but their spouses as well. This Act was the first to take into account the financial impacts of paying for long-term care on the non-institutionalized spouse. Spousal impoverishment protections for ABD (aged, blind, and disabled) Medicaid recipients and regulations regarding the attribution of income and resources between the institutionalized spouse and the community spouse originated with the passing of MCCA.

Furthermore, this Act was the basis for the creation of a ‘lookback period.’ The concept of a ‘lookback period’ was to prevent fraud by assessing applicants who disposed of assets within the 30-months prior to submitting a Medicaid application a period of ineligibility. Additionally, many of the calculations and resource figures we have come to know today were a direct result of the passing of MCCA. This Act established the formula for determining the Community Spouse Resource Allowance (CSRA), Personal Needs Allowance (PNA), and the Community Spouse’s Monthly Maintenance Needs Allowance (MMNA). As such, a large portion of the income and asset framework of the Medicaid program we still use today was first generated and put into effect with the implementation of MCCA.

Learn More: Lookback Period vs. Penalty Period


Omnibus Budget Reconciliation Act of 1993 (OBRA ’93):

Following MCCA was a second Omnibus Budget Reconciliation Act, referred to as OBRA ’93. Passed and signed into law by former President Bill Clinton, this law completely redesigned the eligibility requirements and imposed strict limitations on individuals from rearranging or transferring their assets in order to comply with these new standards. OBRA ’93 made changes not only to Medicaid but to the Medicare program as well. The most notable policy change to the Medicaid program resulting from OBRA ’93 was the extension of the lookback period from 30 months to 36 months. OBRA ’93 further defined the structure for calculating the period of ineligibility assessed to applicants who improperly transferred assets to obtain eligibility. This framework for calculating an applicant’s period of ineligibility is still used today to calculate an applicant’s penalty period.

Another notable addition that was included in OBRA ’93 is the concept of estate recovery. This Act provided state Medicaid agencies the ability to recover benefits paid on behalf of the recipient for nursing home care and other long-term care services from the recipient’s estate. Since the ability to mandate estate recovery was federally instated, states were able to outline their own definition of “estate.” Individual states could determine whether to recover only from the recipient’s probate assets or include expanded recovery to recoup their reimbursement. The provisions of OBRA ’93 began to shift the emphasis of previous legislation from friendlier safeguards to prevent spousal impoverishment to stricter provisions on spousal transfers in order to limit fraud.

Learn More: What Happens When Someone Predeceases a Medicaid Compliant Annuity?


Deficit Reduction Act of 2005 (DRA): 

The most notable change to the Medicaid program came with the passing of the Deficit Reduction Act of 2005. This Act, often shortened to the DRA of 2005, was signed into law by former President George W. Bush. The DRA of 2005 allowed greater freedom to individual states to impose and modify their own state-specific Medicaid programs. However, most notably this Act expanded the lookback period to 60 months, redefined the start date of the incurred penalty period, and provided new instruction as to the treatment of annuities relating to eligibility determination. This revision of current Medicaid regulations also included revised rules on reverse mortgages, eliminated the option to “round down” fractional penalty periods, expanded the hardship waiver, and required proof of citizenship. Furthermore, it is the newly expressed treatment of deferred and immediate annuities as defined in this Act that resulted in the creation of the Medicaid Compliant Annuity.


Affordable Care Act of 2010 (ACA): 

The latest legislative action to impose new rules on the Medicaid program was the Affordable Care Act signed into law in 2010 by former President Barack Obama. In addition to standardizing the eligibility rules and application process for Medicaid enrollment, one of the primary acts of the ACA was to expand Medicaid benefits for people with disabilities to include all Americans younger than 65 whose income was at or below 133% of the federal poverty guidelines. This has led to an increase in enrollment of Medicaid and program spending in all states, a notable shift from the goals of prior legislation.

As we can see, the Medicaid program has slowly evolved to become what it is today. Often as the primary payer of long-term care benefits, Medicaid has quickly become a vital source of funding for many elderly applicants. As the current population continues to age and require more long-term care services, the Medicaid program will inevitably continue to expand.


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