How Is Medicaid Funded?

The funding for the Medicaid program comes from the U.S. federal government and the individual state government. The federal government provides a specified percentage of funding to each state, and the states must provide funds to cover their share.

The federal government gives each state a specified percentage of its program expenditures, called the Federal Medical Assistance Percentage. This percentage is based on various criteria, primarily the per capita income of the state receiving assistance. The amount received can therefore differ widely between states, with the higher income states receiving 50 percent of their expenditures and the lower income states receiving 75 percent of their expenditures.

This amount is re-evaluated every three years to account for fluctuations in the economy, and the new distribution is published in the Federal Medical Assistance Percentage plan. The plan is published annually and is available through the federal register.

Under the plan, states must ensure they have the funds available to cover their share of Medicaid expenditures. These funds can come from permissible taxes and donations, legislative appropriations, intergovernmental transfers, certified public expenditures and other verified means of raising funds. These funding sources are determined and verified by the Medical Services Plan before federal funding can take place. Any amendment must also have its funding verified by the medical services plan before it can receive federal funding.