Michael F. Cannon
Michael F. Cannon, Krit Chanwong, and Dominik Lett

Medicaid subsidizes medical care for low-income individuals and long-term care for many not-so-low-income individuals. After Social Security and Medicare, Medicaid is the nation’s third-largest government entitlement program. In 2025, states and the federal government are projected to spend $873 billion on Medicaid, exceeding discretionary funding for the Department of Defense.
States operate Medicaid with federal funding subject to federal rules. Those rules encourage states to expand their Medicaid programs’ enrollment, benefits, and spending, inflicting economic harm. Likewise, Congress expands Medicaid spending beyond what voters would prefer by financing its outlays with borrowing rather than taxes.
Along with Medicare, Medicaid is the main reason the federal government is hurtling toward a debt crisis. A debt crisis would trigger significant economic hardship and require drastic cuts to both programs. It is long past time for Congress to implement fundamental reforms to Medicaid.
Who Finances Medicaid and How?
The federal government contributes to every state’s Medicaid program by matching every dollar the state spends with anywhere from $1 to $9. Generally, poorer states get a higher Medicaid “match” than richer states.
Prior to Obamacare, Medicaid subsidized only low-income children, the disabled, pregnant women, and elderly individuals, with varying income requirements. The federal government matches every dollar states spend on these groups with up to three federal dollars. It determines the precise amount using the “Federal Medical Assistance Percentage” formula, or “the FMAP.”
Beginning in 2014, Obamacare allowed states to enroll all individuals earning below 138 percent of the federal poverty line (roughly $22,000 for a single adult and $44,000 for a family of four in 2025). That change expanded Medicaid eligibility chiefly to able-bodied, childless adults. Initially, the federal government covered 100 percent of those outlays. Today, it covers 90 percent: states get $9 from federal taxpayers for every $1 they spend on Obamacare’s Medicaid expansion.  » Read More
https://www.cato.org/blog/congress-must-cut-reform-medicaid