Medicaid financing is shared by states and the federal government with a guarantee to states for federal matching payments with no pre-set limit. The percentage of costs paid by the federal government (known as the federal medical assistance percentage or “FMAP”) varies across states, for specific services and types of enrollees, and depending on whether the costs are for medical care or program administration. Congress has enacted legislation to temporarily increase federal matching payments during economic downturns and, most recently, during the COVID-19 pandemic, because Medicaid is a counter-cyclical program. During economic downturns, more people become eligible and enroll, but states typically face declines in revenues that make it difficult to finance the state share of funding for the program.
The FMAP for services used by people eligible through traditional Medicaid, which includes individuals who are eligible as children, low-income parents, because of disability, or because of age (65+), is determined by a formula set in statute. The formula is designed so that the federal government provides a match rate of at least 50% and provides a higher match rate for states with lower average per capita income. The resulting FMAP varies by state and ranges from 50% (the FMAP “floor”) in ten states (California, Colorado, Connecticut, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Washington, and Wyoming) to 77% in Mississippi for federal fiscal year (FFY) 2027 (Figure 1).
There are special match rates for the Affordable Care Act (ACA) expansion group, administration, and other services. While the traditional FMAP applies to the vast majority of Medicaid spending, there are a few exceptions that provide higher match rates for specific services or populations, such as family planning and most notably people covered under the ACA Medicaid expansion. States that have implemented the expansion receive 90% FMAP for adults covered through the ACA Medicaid expansion. Administrative costs incurred by states are usually matched by the federal government at a 50% rate, but some functions such as eligibility and enrollment systems receive higher match rates. Medicaid administrative costs are about 4% of total Medicaid spending.
Unlike in the 50 states and D.C., annual federal funding for Medicaid in the U.S. territories is subject to a statutory cap and fixed matching rate. Once a territory exhausts its capped federal funds, it no longer receives federal financial support for its Medicaid program during that fiscal year. Over time, Congress has provided increases in federal funds for the territories broadly and in response to specific emergency events. Various pieces of legislation during the pandemic significantly increased the allotments for each of the territories and also raised the FMAP rates from the statutory level of 55% to 76% for Puerto Rico and 83% for the other territories. The 2023 Consolidated Appropriations Act extended the 76% FMAP for Puerto Rico through FFY 2027 and made the 83% match rate for other territories permanent.
To participate in Medicaid and receive federal matching dollars, states must meet core federal requirements. States must provide certain mandatory benefits (e.g., hospital, physician, and nursing home services) to core populations (e.g., low-income pregnant women, children, people with disabilities, and people ages 65 and older) without waiting lists or enrollment caps. States may also receive federal matching funds to cover “optional” services (e.g., adult dental care and home care, also known as home- and community-based services) or “optional” groups (e.g. people with income above the limits established for core populations). States also have discretion to determine how to purchase covered services (e.g., through fee-for-service or capitated managed care arrangements) and to establish provider payment methods and rates.
Both the federal government and states are responsible for promoting program integrity. Program integrity broadly refers to the proper management and function of the Medicaid program to ensure it is providing quality and efficient care while using funds–taxpayer dollars–appropriately, with minimal waste. Program integrity efforts, historically, have worked to prevent and detect fraud, waste, and abuse; to increase program transparency and accountability; and to work on corrective action plans and recover improperly used funds. Improper payments, which are often cited when discussing program integrity, are not a measure of fraud but payments that do not meet Centers for Medicare and Medicaid Services (CMS) program requirements. CMS’s Medicaid Payment Error Rate Measurement (“PERM”) program estimated the overall Medicaid improper payment rate was about 6% in 2025. Most improper payments (77% in 2025) are due to insufficient information (or missing administrative steps), not necessarily due to payments for ineligible enrollees, providers, or services (i.e. since they may have been payable if the missing information had been on the claim and/or the state had complied with requirements).
