Medicaid Financing: The Basics

(Authors: Elizabeth Williams, Alice Burns, Anna Mudumala, and Robin Rudowitz for The Kaiser Family Foundation Published: Mar 4, 2026)

Medicaid represents nearly $1 out of every $5 spent on health care in the U.S. and is the major source of financing for states to provide health coverage and long-term care for low-income residents. Medicaid is administered by states within broad federal rules and jointly funded by states and the federal government through a federal matching program with no cap. States are facing substantial Medicaid financing changes and historic reductions in federal funding following the passage of the 2025 reconciliation law, though the timing of the changes and the impacts vary by state. In addition, administrative actions related to financing and more aggressive oversight of potential fraud by health care providers, including withholding federal Medicaid operating funds, contribute to fiscal uncertainty for states. Amid federal policy changes, states are also experiencing a more tenuous fiscal climate due to slowing revenue growth and increasing spending demands. Medicaid is often central to state budget decisions as it is simultaneously a significant spending item as well as the largest source of federal revenues for states. This issue brief examines key questions about Medicaid financing and explores the impact of recent policy changes. Continue reading here…

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