Medicaid

Key facts

Legal basis

Title XIX of the Social Security Act (1965)

Federal oversight

Centers for Medicare & Medicaid Services (CMS)

Financing

Shared federal and state; federal match (FMAP) is at least 50%

Adult expansion

Up to 138% of the federal poverty level, optional for states since 2012

Drug rebates

Medicaid Drug Rebate Program, Section 1927 of the Social Security Act

What is Medicaid?

Medicaid was created in 1965 alongside Medicare. Each state runs its own program under a state plan approved by CMS, so eligibility levels, optional benefits, provider payment rates and delivery systems differ from state to state. Some states use their own program names.

The federal government pays a share of each state's costs through the Federal Medical Assistance Percentage (FMAP), which is higher in states with lower per capita income and is never below 50%. Medicaid also covers long-term services that Medicare generally does not, such as long-term nursing home care.

Who qualifies for Medicaid

Federal law requires states to cover certain mandatory groups and lets them cover optional ones:

• Mandatory groups include low-income children, pregnant women, certain parents and caretaker relatives, and most people receiving Supplemental Security Income (SSI).
• The Affordable Care Act (ACA) expansion covers adults under 65 with incomes up to 138% of the federal poverty level. After the Supreme Court decision in NFIB v. Sebelius (2012), expansion became optional, and states have adopted it at different times.
• States can change eligibility and delivery through waivers, such as Section 1115 demonstrations and Section 1915(c) home and community-based services waivers.
• A 2025 federal budget reconciliation law added work and community engagement requirements for many expansion adults and more frequent eligibility checks, with implementation phased in over later years.

Why Medicaid matters

Medicaid touches drug pricing, provider finances and plan markets:

• Drug pricing: manufacturers that want their outpatient drugs covered must sign a Medicaid rebate agreement and pay rebates based on Average Manufacturer Price (AMP) and best price, which also requires them to participate in the 340B Drug Pricing Program.
• Provider finances: Medicaid often pays providers less than Medicare or commercial insurance, so a high Medicaid share affects facility margins and physician participation.
• Managed care: most states contract with private managed care organizations to cover many or most enrollees, so plan contracts and state rules matter as much as federal policy.
• Data: CMS publishes State Drug Utilization Data on outpatient prescriptions paid by Medicaid, by NDC and state.