Medicaid was established in 1965 with the passage of Title XIX of the social security act. It was created to provide insurance coverage for certain categories of low-income individuals. Funding for the program comes from a blend of state and federal matching dollars.[8] The federal government sets guidelines for administration of Medicaid, but each state is given authority to administer its own program. Implementing the federal guidelines is monitored by the Centers for Medicare & Medicaid Services. States have discretion in determining certain eligibility criteria above mandated levels, how providers are paid, coverage of some optional services, and whether beneficiaries will be enrolled in managed health plans. Although children and their parents constitute 75% of beneficiaries, they account for only 36% of program expenditures. Most of the costs of Medicaid result from services consumed by disabled individuals.

SCHIP was passed in 1997 as Title XXI of the Social Security Act. It provides federal funds to states seeking to expand insurance coverage to low-income children and willing to invest state resources to do so.[9] Similar to Medicaid, SCHIP is a federal-state partnership with administration of the program left to the states with federal oversight. Today, all 50 states and the District of Columbia participate in SCHIP. The goal of SCHIP was to expand insurance coverage to the nation's children, and evaluations done over the last few years suggest that this primary goal has been successful. In 2006, over 4 million children (or 5% of all children) were enrolled in the SCHIP program nationwide. Most of these SCHIP plans are similar to commercial managed health care plans with benefits similar to those provided in employer-based plans, typically less complete than Medicaid's Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) package. Thus the working poor families covered by SCHIP may be subject to significant out-of-pocket expenses for uncovered services. Most primary care pediatricians participate in these plans because they provide insurance for families and patients who would be otherwise uninsured. Of course, as with other managed care plans, the pediatrician needs to understand the provisions of the contracts thoroughly because they are often quite complex. Furthermore, pediatricians should encourage working poor families to enroll in these plans if they are eligible.

Twenty-two million (approximately 25%) of the nation's children are insured by Medicaid. Medicaid funds 1 in 3 births in this country. Primary care pediatricians have varying percentages of their patients covered by Medicaid, depending on practice locations. Nearly three fourths of uninsured children live in households with incomes that are less 200% of the federal poverty level (approximately $30,000 for a family of 3 in 2003), and two thirds of these children live in families with at least one full-time worker. Many of these uninsured children are eligible for either Medicaid or SCHIP.

Data compiled by the Urban Institute show that most uninsured children are eligible for publicly sponsored insurance, either Medicaid or SCHIP. If all uninsured children who were eligible for one of these programs actually participated in them, insurance coverage might be provided for nearly 98% of all children. Increasing participation in publicly sponsored insurance programs is therefore the key to reducing the rate of uninsured children. Two of the most important barriers to participation include (1) a lack of awareness that a low-income child is eligible for either Medicaid or SCHIP (the 2 main government-sponsored insurance programs), even if they do not receive welfare cash assistance, and (2) difficult and perplexing enrollment procedures.

In 2002, 51 million people were Medicaid beneficiaries; 50% were low-income children, 25% low-income parents, 16% disabled individuals, and 9% elders. Mandated covered services include inpatient and outpatient hospital services; nursing facility and home health care; physician, midwife, and certified nurse practitioner services; and laboratory, radiology, family planning, immunizations, and the EPSDT program. The EPSDT component requires states to screen Medicaid-eligible children periodically for illnesses and physically disabling conditions and to refer them for definitive treatment. In addition, with EPSDT, a federal requirement exists to provide outreach and case management services for Medicaid-eligible children.

Children eligible for Medicaid are divided into 2 groups. One group is eligible based on income and age and the other on participation in the Supplemental Security Income (SSI) program. SSI is an entitlement program under which a child who has a documented disability can receive substantially enhanced benefits such as extended eligibility for Medicaid and monthly cash allotments. Disability determination for SSI is generally made by the county social services department and can provide access to a wide array of services and benefits. Caring for SSI beneficiaries is costly because of their very high health care needs.

Together, Medicaid and SCHIP provide states with powerful policy levers for expanding coverage to uninsured low-income children. Income eligibility for Medicaid is lower than SCHIP, with the latter closing the gap between the Medicaid income criteria for each age group and 200% of the federal poverty line. For example, Medicaid offers coverage to 1- to 5-year-old children whose family's income is less than 133% of the federal poverty line, whereas, for the same age group, SCHIP covers children in the 133% to 200% of the federal poverty line for family income.