What is Medicaid and CHIP coverage?

What is Medicaid?

Medicaid is a government-funded health insurance program that helps individuals and families with limited incomes gain affordable medical coverage. As of February 2026, Medicaid covers almost 68 million Americans¹.

Medicaid helps eligible individuals pay for a wide range of healthcare services, including:

• Doctor visits
• Hospital care
• Preventive services
• Prescription drugs
• Long-term care
• Nursing home services

States may charge limited premiums or cost-sharing amounts, although Medicaid costs are generally low to keep healthcare affordable for enrollees².

The federal government and state governments jointly fund the Medicaid program. While federal guidelines establish minimum Medicaid requirements, each state administers its own Medicaid program. Because of this, eligibility requirements, covered benefits, and enrollment rules can vary depending on where the individual lives.

How does Medicaid work?

Medicaid eligibility primarily depends on household income, family size, and certain personal circumstances. If approved, Medicaid coverage typically starts on the application date or the first day of the application month, depending on state rules. Some individuals may also qualify for retroactive coverage for up to three months before their application date if they would have been eligible during that period.

Medicaid beneficiaries must complete annual renewals to maintain their coverage and confirm ongoing eligibility.

Here’s a quick outline of Medicaid rules and eligibility in the sections below.

Medicaid eligibility requirements

While each state has its own rules, federal law requires states to at least provide Medicaid coverage to the following groups:

• Low-income adults and families
• Eligible pregnant individuals
• Eligible children
• Individuals receiving Supplemental Security Income (SSI)

Forty-one states, and Washington D.C., have expanded Medicaid under the Affordable Care Act (ACA).³ In states with Medicaid expansion, adults with household incomes up to 138% of the federal poverty level (FPL) may qualify for coverage⁴.

Financial eligibility

For most applicants, states use an individual’s modified adjusted gross income (MAGI) to determine eligibility for the Medicaid program. However, some may qualify based on age, disability, or blindness, regardless of income.

Non-financial eligibility

In addition to income, states may consider other factors such as:

• Age
• Household size
• Pregnancy status
• Disability status
• Residency

Lastly, applicants generally must be a resident of the state where they're applying, be a U.S. citizen or qualified non-citizen, and meet any other state-specific eligibility requirements⁵.

Medically needy program eligibility

Thirty-four states offer a medically needy program for individuals whose income exceeds Medicaid limits but who have significant healthcare expenses⁶. Under these programs, individuals can "spend down" their income by paying qualifying medical expenses until they reach their state's eligibility threshold. Once they meet that threshold, they may qualify for Medicaid coverage.

What is the Children’s Health Insurance Program (CHIP)?

The Children's Health Insurance Program (CHIP) provides low-cost health coverage for children and certain pregnant individuals whose household income is too high to qualify for Medicaid but too low to afford private health insurance⁷. As of early 2026, CHIP covers roughly 7.2 million individuals nationwide⁸.

Like Medicaid plans, CHIP is jointly funded by federal and state governments. States receive federal funding to help provide affordable healthcare coverage to their residents while retaining control over how they administer their programs.

CHIP commonly covers medical services such as:

• Routine doctor visits
• Hospital care
• Prescription medications
• Immunizations
• Dental care
• Vision care
• Laboratory testing and X-rays
• Emergency medical services

While all states must follow federal standards regarding eligibility, benefits, and cost-sharing, each state manages its own CHIP program and determines many of its specific rules.

States may choose to provide CHIP coverage for:

1. Children younger than age 19
2. Pregnant individuals
3. Unborn children through the federal conception-to-end-of-pregnancy (FCEP) option

How does CHIP work?

To qualify for CHIP, applicants must meet both financial and non-financial eligibility requirements. If they qualify, families can apply for CHIP at any time during the year through HealthCare.gov or their state's Medicaid and CHIP agency. After confirmation of eligibility, the state will provide the individual with enrollment instructions and coverage information. In many cases, health insurance coverage will begin shortly after approval.

Below is a brief outline of CHIP eligibility requirements and costs.

Financial eligibility

Like Medicaid, states generally use modified adjusted gross income (MAGI) to determine eligibility. Income thresholds vary by state, but CHIP eligibility commonly ranges from approximately 170% to 400% of the federal poverty level.

Because eligibility standards differ across states, a family that qualifies for CHIP in one state may not qualify in another.

Non-financial eligibility

Many CHIP programs are for children who don't otherwise have access to other comprehensive health coverage.

To qualify for CHIP, beneficiaries generally must:

• Be U.S. citizens or qualified non-citizens
• Reside in the state where they're applying for coverage
• Meet state-specific program requirements

CHIP coverage costs

CHIP’s goal is to keep healthcare affordable for families, meaning many preventive services, including routine checkups and vaccinations, are available at no cost.

Some states charge modest copayments or monthly premiums for certain families. However, federal requirements limit total out-of-pocket costs, so families generally won't pay more than 5% of their annual household income toward CHIP coverage and services.

Can an employee with Medicaid coverage participate in an ICHRA?

An ICHRA allows organizations to provide their employees with a tax-free monthly contribution to pay for individual health plan premiums. To participate in an ICHRA, eligible employees must enroll in qualifying individual health coverage.

While Medicaid qualifies as minimum essential coverage (MEC), the federal government doesn’t consider Medicaid to be individual health insurance eligible for the ICHRA. Because of this, employees enrolled solely in Medicaid can't participate in an ICHRA or receive tax-free premium payments through the benefit.

However, offering a newly eligible employee an ICHRA triggers a 60-day special enrollment period (SEP). This means that employees can potentially drop their Medicaid coverage and enroll in qualifying individual coverage outside the annual Open Enrollment window. Then, they can use their monthly ICHRA contribution to pay for their individual health plan premiums.

Employees considering dropping Medicaid to enroll in individual coverage through an ICHRA should confirm their state’s disenrollment process and ensure there’s no gap in coverage during the transition.

Can an employee with CHIP coverage participate in an ICHRA?

Like Medicaid, employees who have CHIP coverage only are ineligible for the ICHRA, as it doesn’t count as qualified individual coverage. However, in most cases, CHIP is primarily for children. Therefore, an employee’s child can enroll in CHIP, as long as the child meets the state's eligibility requirements. However, whether a child remains eligible for CHIP after an employer offers the employee an ICHRA depends on the affordability of the benefit.

In 2026, the federal government considers an ICHRA affordable if the employee's required contribution toward the lowest-cost silver health plan on their local exchange doesn't exceed 9.96% of their household income after applying the employer's ICHRA allowance.

If the ICHRA is affordable, the employee has access to affordable employer-sponsored coverage, which can affect a child's eligibility for CHIP. In this case, employees can use their ICHRA contribution to buy a qualified individual health plan for their families. They can enroll eligible dependents on their policy regardless of how the employer structures the ICHRA benefit. However, if the employer’s ICHRA plan design includes higher contributions for dependents (family size), the benefit can help offset the cost of covering family members as well.

If the ICHRA is unaffordable, the employee can opt out of the ICHRA and see if they qualify for subsidized health coverage through their state-based exchange or the federal Health Insurance Marketplace. Depending on their household income and state rules, their child may remain eligible for CHIP.

Employees with dependents on CHIP who are considering enrolling in ICHRA should contact their state CHIP agency for individual determinations.

Conclusion

Medicaid and CHIP play a crucial role in helping millions of Americans access affordable healthcare coverage. While both programs support individuals and families with limited financial resources, their eligibility rules and whether or not they can work alongside an ICHRA vary significantly.

If you want to give your employees the chance to enroll in an individual health plan instead of Medicaid or CHIP, a personalized ICHRA is the way to go. Contact Remodel Health to learn how our team can help you design and manage a compliant benefit that will meet the needs of your employees, regardless of their family size or financial constraints.

This blog article was originally published on October 4, 2024. It was last updated on June 26, 2026.

References

1. Medicaid.gov - February 2026 Enrollment Data

2. Medicaid.gov - Cost Sharing

3. KFF - Medicaid Expansion Enrollment

4. Healthcare.gov - Medicaid expansion

5. usa.gov - Documents to Apply for Medicaid

6. KFF - Medicaid Eligibility for Medically Needy Populations 2026

7. Children's Health Insurance Program (CHIP)

8. Healthcare.gov - Medicaid & CHIP coverage