Medicaid Prescription Rules

Not to be confused with Medicare, which is intended for those over the age of 65, Medicaid is a health insurance program in the United States designed for those in adverse income situations. One aspect of Medicaid is its prescription drug programs, which helps individuals and families covered under the insurance pay for necessary medication. A number of rules, both federally and state-enforced, govern this program.

Neediness

• Medicaid is a need-based entitlement program. According to ElderCare Online, an applicant's state determines his eligibility by comparing her income and assets against that state's minimum requirements. In order to understand different states' regulations for prescription drug coverage, it is necessary to understand how Medicaid classifies beneficiaries' need levels.

  There are two basic need groups: the "categorically" needy and the "medically" needy. Categorically-needy people include those who've been institutionalized, the elderly, blind and otherwise disabled people under the age of 21 who meet certain income requirements and single, pregnant mothers who earn less than 185 per cent of the federally-defined poverty level.

  Medically needy individuals tend to meet the same basic requirements as the categorically needy, although their incomes are too qualify to place them in the same benefits bracket.

Coverage

• According to the most-recent edition of the Congressional Research Service report on Medicaid, all states currently offer prescription drug coverage for individuals they deem categorically needy. Medically needy individuals, on the other hand, only receive coverage in about 75 percent of states. States including Oklahoma, Mississippi and Colorado exclude these individuals outright, while Texas specifies that it will extend benefits only to medically-needy "children and adults in families."

  Federal law does not, however, mandate that Medicaid pay for all drugs. According to Section 1927(d) of the Medicaid law, state Medicaid programs may opt not to pay for hair-growth treatments, fertility and erectile dysfunction drugs, regimens to aid people in quitting smoking and "drugs used to treat anorexia, weight loss or weight gain," among others.

Federal Upper Limit

• A "multiple source drug" is a drug available from multiple manufacturers or in multiple forms, such as a name brand or generic. Medicaid makes this distinction because multiple-source drugs fall under what is called the Federal Upper Limit (FUL).

  According to the Congressional Research Service report, Medicaid establishes the FUL not for each claim, but to manage large-scale drug spending on a statewide level. Each state may calculate the FUL differently, so long as this value signifies at least two-and-a-half times the "average manufacturer price" (AMP) of the cheapest available generic. The Congressional Research Service defines the AMP as "the average price paid to the manufacturer by wholesalers for drugs distributed to the retail pharmacy class of trade."

  The FUL is in place to provide a financial incentive for using more economically priced drugs. According to the Congressional Research Service, the program provides that pharmacies receive remuneration for generic-drug costs, even when they provide a Medicaid recipient with a brand name drug.