	Introduction

Medicaid is a means-tested entitlement program that finances the delivery of primary and acute medical services as well as long-term services and supports. Medicaid is a federal and state partnership. The states are responsible for administering their Medicaid programs, and Medicaid is jointly financed by the federal government and the states. This report provides an overview of Medicaid's financing structure, including both federal and state financing issues. The " Medicaid Expenditures " section of the report discusses Medicaid in terms of national health expenditures, trends in Medicaid expenditures, economic factors affecting Medicaid, and state variability in spending. Medicaid Financing

The federal government and the states share the cost of Medicaid. The Federal Medical Assistance Percentage

The federal government's share of most Medicaid expenditures is established by the federal medical assistance percentage (FMAP) rate, which generally is determined annually and varies by state according to each state's per capita income relative to the U.S. per capita income. The Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended) included a couple of FMAP exceptions, such as the newly eligible federal matching rates and the expansion state federal matching rates. However, with the exceptions to the FMAP added by the ACA, the federal share of Medicaid expenditures has increased. As a result, there is significant variation from state to state in funding sources. Medicaid and National Health Expenditures

In 2014, Medicaid represented 16% of national health expenditures; in that same year, private health insurance and Medicare accounted for 33% and 20% of national health expenditures, respectively. For the other services, in 2014, Medicaid accounted for a smaller share of the national expenditures, with Medicaid paying 13% of durable medical equipment, almost 11% of physician and clinical expenditures, 9% of prescription drugs, 9% of dental expenditures, and 7% of other professional expenditures. Trend in Medicaid Expenditures

Over time, much of Medicaid's expenditure growth has been due to federal or state expansions of Medicaid eligibility criteria, and the ACA Medicaid expansion is expected to significantly increase Medicaid expenditures over the next few years. In FY2014, Medicaid spending on services and administrative activities in the 50 states, the District of Columbia, and the territories totaled $494 billion (see Table A-1 for state-by-state expenditures for FY2014). Per-Enrollee Medicaid Expenditures

In Medicaid, there are four main eligibility groups: children, adults, the aged, and individuals with disabilities. Factors Affecting Medicaid Expenditures

Medicaid expenditures are influenced by economic, demographic, and programmatic factors. Economic factors include health care prices, unemployment rates, and individuals' wages. Some of the state variation in Medicaid per-enrollee expenditures is due to demographic differences across states. Medicaid constitutes a significant portion of the federal budget, and federal Medicaid expenditures are expected to increase significantly over the next 10 years due to the ACA Medicaid expansion. As a result, Medicaid could be a focus of potential deficit reduction or other legislative proposals affecting the federal budget. Medicaid Expenditures by State

 Table A-1 provides the most recent Medicaid expenditures for each state, including both the federal and state shares of spending on benefits, administrative services, and total Medicaid expenditures.
Medicaid is a means-tested entitlement program that finances the delivery of primary and acute medical services as well as long-term services and supports. Medicaid is a federal and state partnership that is jointly financed by both the federal government and the states.
The federal government's share for most Medicaid expenditures is called the federal medical assistance percentage (FMAP). Generally determined annually, the FMAP formula is designed so that the federal government pays a larger portion of Medicaid costs in states with lower per capita incomes relative to the national average (and vice versa for states with higher per capita incomes). Federal Medicaid funding to states is open ended.
The federal government provides states a good deal of flexibility in determining the composition of the state share (also referred to as the nonfederal share) of Medicaid expenditures. As a result, there is significant variation from state to state in how the state share of Medicaid expenditures is financed.
In 2014, Medicaid represented 16% of national health expenditures; in that year, private health insurance and Medicare accounted for 33% and 20% of national health expenditures, respectively. Medicaid is a significant payer in the categories of health spending that include long-term services and supports and hospital expenditures. For the other services (such as durable medical equipment, physician and clinical services, prescription drugs, and dental services), Medicaid accounts for a smaller share of the national expenditures.
In FY2014, Medicaid expenditures totaled $494 billion, with the federal government paying $299 billion, or about 60% of the total. Over the next few years, Medicaid expenditures are expected to increase significantly due to the Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) Medicaid expansion. The federal government is paying the vast majority of the costs associated with the ACA Medicaid expansion due to the enhanced federal matching rates available to states that choose to implement the ACA Medicaid expansion.
Spending on managed care and long-term services and supports comprises more than half of Medicaid expenditures on benefits. Per-enrollee Medicaid expenditures for individuals with disabilities and the elderly are significantly higher than per-enrollee expenditures for adults and children, due in part to the higher utilization of long-term services and supports among individuals with disabilities and the elderly.
Medicaid expenditures are influenced by economic, demographic, and programmatic factors. Economic factors include health care prices, unemployment rates, and individuals' wages. In addition, state-specific factors, such as programmatic decisions and demographics, affect Medicaid expenditures and cause Medicaid spending to vary widely from state to state.
Medicaid constitutes a significant portion of the federal budget, and federal Medicaid expenditures are expected to increase significantly over the next 10 years due to the ACA Medicaid expansion. As a result, Medicaid could be a focus of any potential deficit reduction or other legislative proposals affecting the federal budget.
This report provides an overview of Medicaid's financing structure, including both federal and state financing issues. The "Medicaid Expenditures" section of the report discusses Medicaid in terms of national health expenditures, trends in Medicaid expenditures, economic factors affecting Medicaid, and state variability in spending.