Medicaid financing is a shared responsibility of the federal government and the states, with states receiving federal matching funds toward allowable state expenditures. The Medicaid statute permits states to raise their share of Medicaid expenditures through multiple sources, including state general revenue, contributions from local governments, and health care-related taxes. Because federal contributions match state spending on an open-ended basis, when state spending increases, so does federal spending.
This issue brief looks at the effect that state approaches to raising the non-federal share have had on federal funding to states. The analysis finds that when state use of legally permissible sources other than general revenue is taken into account, federal share increases by nationally about 5 percentage points. The effect at the state level likely varies from the national estimate due to variations in financing arrangements with providers and the allocation of taxing and financing responsibilities between the state and local governments.