Key Insights
Medicaid, a joint Federal-State program, provides health insurance coverage for more than 20 percent of Americans and is particularly important for certain populations, including low-income families, children, pregnant women, the elderly, and individuals with disabilities. Medicaid is jointly operated by states and the Federal government and comprises a large share of both state budgets and overall Federal health care expenditures. As program costs grow despite projected declines in enrollment over the next decade, Congress should consider opportunities for reform to put Medicaid on a sustainable financial trajectory and preserve vital benefits for tens of millions of Americans.
This Explainer provides a description of Medicaid expenditures and program financing; a brief history of the program; the role of states in Medicaid; Medicaid eligibility, benefits, and other program components; Medicaid’s impact; and opportunities for reform outlined by the Congressional Budget Office (CBO) to set Medicaid on sounder financial footing.
- Federal spending on Medicaid was $607 billion in 2024 and is expected to rise to $933 billion by 2034, even with a projected decrease in the number of Medicaid beneficiaries.
- Two separate factors, rising health care costs in the US and policy changes that have increased coverage and access to Medicaid services, have driven this increase in Medicaid expenditures, which contributes to annual deficits and puts pressure on the Federal budget.
- Medicaid was established in 1965, and eligibility was initially tied to receipt of Federal cash assistance for children, low-income families, the elderly, and individuals with disabilities. Reforms in the 1990s severed the link with cash welfare payments and legislation in the 2010s expanded coverage to more low-income adults.
- States have flexibility in designing their Medicaid programs within broad Federal guidelines, leading to wide variation in eligibility, services covered, and the delivery system used for Medicaid benefits.
- In general, Medicaid covers children, pregnant women, adults earning income below a certain level, individuals with disabilities, and individuals 65 years of age and older. Medicaid also has financial eligibility criteria that beneficiaries must meet, and Medicaid eligibility is typically redetermined on an annual basis.
- Medicaid offers comprehensive health care coverage and is the largest payor for long-term services and supports (frequently for the elderly), births, and behavioral health services in the US. State Medicaid programs have increasingly used managed care to deliver these health care benefits, and states have flexibility to develop benefit packages for targeted populations, including those with complex or chronic health care needs.
- Given Medicaid’s financial trajectory, policymakers should consider opportunities for reform, including caps on Federal Medicaid spending, limits on the use of state taxes on health care providers, and adjustments to Federal Medicaid matching rates. Innovative strategies such as value-based care and an emphasis on primary care, preventive care, and coordination of benefits can also assist in improving Medicaid’s fiscal outlook.
Key Insights
Medicaid, a joint Federal-State program, provides health insurance coverage for more than 20 percent of Americans and is particularly important for certain populations, including low-income families, children, pregnant women, the elderly, and individuals with disabilities. Medicaid is jointly operated by states and the Federal government and comprises a large share of both state budgets and overall Federal health care expenditures. As program costs grow despite projected declines in enrollment over the next decade, Congress should consider opportunities for reform to put Medicaid on a sustainable financial trajectory and preserve vital benefits for tens of millions of Americans.
This Explainer provides a description of Medicaid expenditures and program financing; a brief history of the program; the role of states in Medicaid; Medicaid eligibility, benefits, and other program components; Medicaid’s impact; and opportunities for reform outlined by the Congressional Budget Office (CBO) to set Medicaid on sounder financial footing.
- Federal spending on Medicaid was $607 billion in 2024 and is expected to rise to $933 billion by 2034, even with a projected decrease in the number of Medicaid beneficiaries.
- Two separate factors, rising health care costs in the US and policy changes that have increased coverage and access to Medicaid services, have driven this increase in Medicaid expenditures, which contributes to annual deficits and puts pressure on the Federal budget.
- Medicaid was established in 1965, and eligibility was initially tied to receipt of Federal cash assistance for children, low-income families, the elderly, and individuals with disabilities. Reforms in the 1990s severed the link with cash welfare payments and legislation in the 2010s expanded coverage to more low-income adults.
- States have flexibility in designing their Medicaid programs within broad Federal guidelines, leading to wide variation in eligibility, services covered, and the delivery system used for Medicaid benefits.
- In general, Medicaid covers children, pregnant women, adults earning income below a certain level, individuals with disabilities, and individuals 65 years of age and older. Medicaid also has financial eligibility criteria that beneficiaries must meet, and Medicaid eligibility is typically redetermined on an annual basis.
- Medicaid offers comprehensive health care coverage and is the largest payor for long-term services and supports (frequently for the elderly), births, and behavioral health services in the US. State Medicaid programs have increasingly used managed care to deliver these health care benefits, and states have flexibility to develop benefit packages for targeted populations, including those with complex or chronic health care needs.
- Given Medicaid’s financial trajectory, policymakers should consider opportunities for reform, including caps on Federal Medicaid spending, limits on the use of state taxes on health care providers, and adjustments to Federal Medicaid matching rates. Innovative strategies such as value-based care and an emphasis on primary care, preventive care, and coordination of benefits can also assist in improving Medicaid’s fiscal outlook.
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