Medicaid is funded by both the federal government and individual states, with each paying a share of the cost

Medicaid is not paid for by a single source. The federal government and your state government split the cost together. The federal government always pays at least 50 percent of what a state's Medicaid program spends, and often pays more. Your state then covers the remaining share. This split means the amount of federal money varies by state — wealthier states receive a smaller federal share, while states with lower average incomes receive a larger one.

The money comes from tax revenue, not from a dedicated Medicaid tax or fee. Federal funding comes from general income taxes, payroll taxes, and other federal revenue sources. State funding comes from state income taxes, sales taxes, and other state revenue sources. You do not pay a separate Medicaid premium or enrollment fee to receive coverage, though some states charge small copayments when you use services.

Key Takeaways

  • The federal government and your state split Medicaid costs, with the federal share ranging from 50 to 83 percent depending on your state's income level.
  • Medicaid funding comes from general tax revenue at both the federal and state level, not from a dedicated Medicaid tax.
  • You do not pay premiums to enroll in Medicaid, though some states charge small copayments when you visit a doctor or fill a prescription.
  • States can choose to expand Medicaid coverage to more people, and the federal government pays a higher share of costs for expansion coverage.

How the federal and state cost split works

The federal government's share of Medicaid spending is called the Federal Medical Assistance Percentage (FMAP). This percentage changes each year and is calculated based on each state's average income compared to the national average. States with lower average incomes receive a higher FMAP — meaning the federal government pays more. States with higher average incomes receive a lower FMAP — meaning the state pays more.

The FMAP ranges from a minimum of 50 percent federal funding to a maximum of 83 percent. For example, Mississippi has one of the highest FMAPs at around 78 percent federal funding, meaning the state covers 22 percent. California has a lower FMAP at around 50 percent, meaning the state covers 50 percent. These percentages are set by Congress and recalculated annually based on income data.

When a state expands Medicaid to cover more people (usually adults earning up to 138 percent of the federal poverty level), the federal government pays an even higher share of expansion costs — currently 90 percent. This higher rate encourages states to expand their programs. Not all states have chosen to expand Medicaid, so coverage rules vary significantly by location.

What your state's Medicaid program actually costs

The total cost of a state's Medicaid program depends on how many people enroll and what services they use. Medicaid covers hospital stays, doctor visits, prescription drugs, mental health care, nursing home care, and other services. Some services cost more than others — a month in a nursing home costs far more than a routine doctor visit. The more people enrolled and the more services they use, the higher the total state spending.

States manage their Medicaid budgets differently. Some states use managed care organizations (private insurance companies) to deliver Medicaid services and control costs. Other states run Medicaid directly. Some states charge copayments or small premiums to certain groups of enrollees to help manage spending. These choices affect how much money flows through the system, but they do not change the basic federal-state cost split.

During economic downturns, Medicaid enrollment typically rises because more people lose jobs and income. This increases state spending at the same time state tax revenue often falls. The federal government sometimes provides temporary increases to the FMAP during recessions to help states manage this burden.

Where federal Medicaid money comes from

Federal Medicaid funding comes from the U.S. Treasury's general revenue. This includes income taxes paid by individuals and employers, payroll taxes (Social Security and Medicare taxes), corporate taxes, and excise taxes. Congress allocates a portion of this general revenue to Medicaid each year as part of the federal budget. The amount is not fixed — it grows or shrinks based on enrollment, service costs, and congressional decisions about funding levels.

The federal government does not collect a separate "Medicaid tax." Instead, Medicaid competes with other federal programs (defense, education, infrastructure, Social Security) for a share of total federal tax revenue. When Congress passes a budget, it decides how much money to allocate to Medicaid for that year. If Medicaid enrollment or costs rise unexpectedly, states must either increase their own funding or reduce services.

Where state Medicaid money comes from

States fund their share of Medicaid through state income taxes, sales taxes, corporate taxes, and other state revenue sources. The amount varies by state. Some states dedicate a specific portion of sales tax revenue to Medicaid. Others use general state funds. A few states have created dedicated Medicaid taxes or fees, though this is uncommon.

State Medicaid spending is often one of the largest line items in a state budget, sometimes second only to education. This means state budget crises directly affect Medicaid. When state tax revenue falls, states must either cut Medicaid services, reduce provider payment rates, or find new revenue sources. States cannot run budget deficits the way the federal government can, so they face real constraints on Medicaid spending.

Copayments and cost-sharing you might pay

While Medicaid itself is funded by taxes and does not charge premiums, some states charge small copayments when you use services. These copayments are typically $1 to $5 per doctor visit, prescription, or emergency room visit. The money from copayments goes back to the state's Medicaid program to help offset costs. However, copayments cannot be charged for preventive services like screenings and vaccinations, and states cannot charge copayments to pregnant women, children under 18, or nursing home residents.

Some states also charge small monthly premiums for certain groups of Medicaid enrollees, usually adults without dependent children. These premiums are typically $10 to $50 per month. If you cannot afford the premium, you cannot be disenrolled from Medicaid — the state must work with you on payment arrangements or waive the fee.

How Medicaid expansion changed the funding picture

When the Affordable Care Act was passed in 2010, it offered states the option to expand Medicaid to cover more low-income adults. States that chose to expand could cover adults earning up to 138 percent of the federal poverty level. The federal government initially paid 100 percent of expansion costs, then gradually reduced its share to 90 percent by 2020, where it remains.

Not all states accepted the expansion. As of 2024, 38 states and Washington D.C. have expanded Medicaid, while 12 states have not. This creates a coverage gap in non-expansion states — some people earn too much to may have access to for traditional Medicaid but too little to afford private insurance. The funding difference is significant: expansion states receive more federal Medicaid dollars because they cover more people, while non-expansion states receive less federal funding but also spend less state money.

Frequently Asked Questions

Does Medicaid cost me anything if I am enrolled?

Medicaid itself is free to enroll in — there are no premiums. Some states charge small copayments ($1 to $5) when you visit a doctor or fill a prescription, and a few states charge small monthly premiums ($10 to $50). Preventive services like vaccinations and screenings are always free with no copayment.

Why does Medicaid funding vary so much between states?

The federal government pays a different percentage in each state based on that state's average income. Poorer states receive more federal funding (up to 83 percent), while wealthier states receive less (as low as 50 percent). States also make different choices about whether to expand Medicaid and what services to cover, which affects total spending.

What happens to Medicaid funding if a state runs out of money?

States cannot reduce federal Medicaid funding — that is set by Congress. However, a state can reduce its own spending by cutting services, lowering provider payment rates, or reducing enrollment. States cannot deny Medicaid to people who meet the rules, but they can change what services are covered or how much they pay doctors and hospitals.

Does my tax money pay for other people's Medicaid?

Yes. Medicaid is funded by general tax revenue, so your federal and state taxes contribute to the program. This is how all government programs work — taxes are pooled and allocated to different purposes. If you enroll in Medicaid, your coverage is also funded by other taxpayers' contributions.

Can the federal government take away Medicaid funding from my state?

Congress can change the FMAP or reduce total federal Medicaid funding, but this would affect all states. The federal government cannot single out one state for punishment. However, states can choose to reduce their own Medicaid programs or not expand coverage, which effectively reduces the number of people served in that state.