Maryland Life and Health Insurance License Practice Exam

How is Medicaid primarily funded?

1. By private health insurance premiums

2. By endowments and donations

3. Funded by federal, state, and local taxes

4. By out-of-pocket payments from beneficiaries

The correct answer is: Funded by federal, state, and local taxes

Medicaid is primarily funded through a combination of federal, state, and local taxes. This program is a joint federal-state initiative, meaning that both levels of government share the financial responsibility. The federal government provides matching funds to states, which allows Medicaid to cover low-income individuals and families, ensuring they have access to necessary medical services. Each state has flexibility in setting its own program rules and determining eligibility, but the fundamental structure of the funding comes from tax revenue collected by governments. Private health insurance premiums are not a source of Medicaid funding, as Medicaid serves those who typically qualify based on income and needs rather than through insurance. Endowments and donations don't play a role in the operational budget of Medicaid; the program relies on government financing. Out-of-pocket payments from beneficiaries are minimal because Medicaid is designed to provide healthcare coverage for those unable to afford it, significantly reducing or eliminating costs that recipients would otherwise incur.