Yes, Medicaid is government funded. It is paid for jointly by the federal government and the states, with no premiums from private insurers involved. In fiscal year 2023, total Medicaid spending reached roughly $900 billion; the federal government covered about $620 billion and states paid the remaining $280 billion.1Medicaid and CHIP Payment and Access Commission. Spending As of early 2026, the program covered more than 68 million people.2Medicaid.gov. January 2026 Medicaid and CHIP Enrollment Data Highlights
The split between Washington and the states is not the same everywhere. It follows a formula, it has floors and ceilings, and it changes depending on which group of enrollees the money is spent on.
How Much the Federal Government Pays
The federal share of each state’s Medicaid costs is set by the Federal Medical Assistance Percentage, or FMAP. The formula, in Section 1905(b) of the Social Security Act, compares a state’s per capita income to the national average.3Social Security Administration. Social Security Act 1905 – Definitions Lower-income states get a larger federal contribution; wealthier states get less.
By law, the federal share can never fall below 50 percent or rise above 83 percent for any state.4Office of the Law Revision Counsel. 42 USC 1396d – Definitions So even in the wealthiest states, the federal government picks up at least half the cost. Some states sit right at that 50 percent floor. States with lower average incomes can see federal reimbursement above 70 percent. The territories run on separate rules, with Puerto Rico at 76 percent through fiscal year 2027 and the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa at 83 percent.
FMAP is recalculated every year on updated income data, and each state’s rate is published in the Federal Register, typically in late November for the following fiscal year.5Federal Register. Federal Financial Participation in State Assistance Expenditures Federal Matching Shares
A Richer Match for Medicaid Expansion
The Affordable Care Act opened Medicaid to adults under 65 with household income up to 138 percent of the federal poverty level, and 41 states plus the District of Columbia have adopted the expansion.6Medicaid and CHIP Payment and Access Commission. Medicaid Expansion to the New Adult Group For this expansion group, the federal government covered 100 percent of costs from 2014 through 2016, then stepped down to 90 percent by 2020, where the rate remains under current law.5Federal Register. Federal Financial Participation in State Assistance Expenditures Federal Matching Shares Expansion states pay just 10 cents of every dollar for those enrollees, compared with anywhere from 17 to 50 cents per dollar for people who qualify under traditional Medicaid categories.
Where States Get Their Share
States have to put up their portion before federal dollars flow. The structure works like a reimbursement: a state spends first, then the federal government pays back its FMAP percentage. If a state stops spending, the federal money stops too.
General fund revenue, mostly income and sales taxes, covers most of the state share in most states. But general funds rarely cover the whole thing, so states use a few other mechanisms:
- Health care provider taxes. Many states tax hospitals, nursing homes, or other provider classes and use the revenue for Medicaid. Federal rules currently let these taxes bring in up to 6 percent of a provider class’s net patient revenue without extra scrutiny.7eCFR. 42 CFR 433.68 – Permissible Health Care-Related Taxes
- Intergovernmental transfers. County hospitals or other local government agencies move public funds to the state Medicaid agency, which uses them as the state matching share.
- Certified public expenditures. When a government-run provider such as a county hospital delivers Medicaid services, its actual costs can count toward the state match without any cash changing hands. At least 40 percent of the state share has to come from the state itself; up to 60 percent can come from local government sources.
These arrangements are audited. If the Centers for Medicare and Medicaid Services questions whether a state expenditure qualifies for federal reimbursement, it can defer the federal payment while it investigates, and a deferral can become a permanent disallowance that the state has to swallow.
What Federal Medicaid Dollars Won’t Pay For
Government funding comes with limits. Two long-standing federal restrictions block Medicaid dollars from covering certain services even when a state would otherwise pay.
The first is the Institution for Mental Diseases exclusion. Since Medicaid began in 1965, federal law has barred Medicaid payments for care provided to adults between 21 and 64 who are patients in an “institution for mental diseases,” defined as a psychiatric hospital or residential treatment facility with more than 16 beds.3Social Security Administration. Social Security Act 1905 – Definitions States can seek waivers for short-term psychiatric stays, but the underlying rule still stands.
The second is the Hyde Amendment, renewed annually through the federal budget process since 1976, which bars federal Medicaid funds from covering abortions except in cases of rape, incest, or a life-threatening pregnancy. Roughly 19 states use their own funds to cover abortion for Medicaid enrollees; in the other states, the federal restriction effectively eliminates that coverage.
What’s Changing in 2025 and After
The federal reconciliation bill signed into law on July 4, 2025 tightens several rules that affect how Medicaid is funded and who stays enrolled. Three changes stand out for the funding picture:
- Starting in January 2027, adults aged 19 to 64 who are not otherwise exempt will have to document at least 80 hours per month of work, job training, schooling, or community service to keep Medicaid eligibility. States that fail to enforce the requirement risk losing federal funding for the affected enrollees.
- Beginning in federal fiscal year 2028, the 6 percent safe harbor for health care provider taxes will start dropping by half a percentage point. States that lean heavily on hospital and nursing home assessments to generate their matching share will have to find replacement revenue or cut spending.
- New limits cap supplemental payments that states direct to Medicaid managed care organizations, holding them to 100 percent of published Medicare rates in expansion states.
The basic FMAP formula and the 90 percent expansion match rate stay in place. What changes is the machinery around them: how states raise their share, what they can pay providers, and who remains eligible. The full financial impact will play out across federal fiscal years 2027 through 2033 as the different provisions take effect on staggered timelines.