States’ Share of Medicaid Costs Remains Low but Is Set to Increase

In fiscal year 2022, states spent 12.9 cents of every state-generated dollar on Medicaid for low-income Americans—2.7 cents less than the 15-year average. As was the case in fiscal 2021, surging tax revenue and a temporary increase in federal funding contributed to the decreased share. But the share of state revenue dedicated to Medicaid is likely to show a rise for fiscal 2023 and beyond as federal pandemic aid expires and spending pressures grow.

Every state except Alaska spent a smaller share of its own dollars on Medicaid in fiscal 2022 than it had, on average, over the previous 15 years. Differences ranged from 6.6 percentage points in New York to approximately a quarter of a percentage point in New Hampshire.

States and the federal government share costs for Medicaid, which provides medical coverage for eligible children, adults, people with disabilities, and older Americans. Medicaid is most states’ biggest expense after K-12 education.

The Pew Charitable Trusts’ state Medicaid spending indicator excludes federal support, examining only the cost to states because this spending exerts pressure on state operating budgets, which rely on state-generated revenue.

Medicaid’s claim on each revenue dollar affects the share of state resources that is available for other priorities, such as education, transportation, and public safety. Federal law requires states to provide certain benefits for all eligible Medicaid enrollees, even during times of sluggish revenue growth. So policymakers have less control over growth in Medicaid costs than they do with many other programs.

In nearly 4 in 5 states, the share of state funds dedicated to Medicaid decreased in fiscal 2022 compared with the previous year. Nationally, this share dropped by 1.3 percentage points—a slightly smaller decline than the 1.7 percentage point drop from fiscal 2020 to fiscal 2021. State by state, the decreases ranged from 4.6 percentage points in Alaska to a tenth of a percentage point in Wyoming.

Two primary factors drove this decline. The first was enhanced federal aid to states for Medicaid in fiscal 2022 provided under a pandemic-era rule that increased the federal medical assistance percentage (FMAP) for Medicaid by 6.2 percentage points in exchange for states keeping beneficiaries continuously enrolled during the pandemic as authorized by the Families First Coronavirus Response Act (FFCRA).

Second was record state tax revenue collections in fiscal 2022. Together, these added income sources reduced the portion of own-source revenue that states needed to allocate to Medicaid, even as enrollment and total state Medicaid spending across federal and state funds rose from fiscal 2021 to 2022.

The share of states’ own funds spent on Medicaid is likely to rise in future fiscal years. Increased federal Medicaid funding began phasing out in March 2023 and had fully expired at the end of that year. Simultaneously, states’ tax collections have declined from their mid-2022 peaks. And although Medicaid enrollment has significantly dropped with the wind-down of the continuous enrollment period, the decline is probably not sufficient to offset other factors that will push up the share of state funds spent on Medicaid going forward.

State highlights

A comparison of the share of each state’s own-source revenue spent on Medicaid in fiscal 2022 with its average share over the previous 15 years shows that:

• Alaska was the only state that spent more of its dollars on Medicaid compared with its 15-year average. Specifically, in fiscal 2022, Alaska allocated 11.1% of its own revenue to Medicaid, which is 1.2 percentage points—or 1.2 cents per state-generated dollar—more than its average over the past 15 years. Although most states saw a decrease in Medicaid spending as a share of their own-source revenue because of better-than-expected tax revenue in fiscal 2020 and 2021, Alaska’s share increased. This increase was due not to higher Medicaid spending but rather to a significant drop in the state’s severance tax revenue, which is closely tied to oil prices. Recently, however, Alaska reported the largest decline in Medicaid spending as a share of its own-source revenue, a drop of 4.6 percentage points from fiscal 2021 to 2022, thanks to recovering oil prices boosting state revenue.
• Among the 49 states that had a decline in fiscal 2022, New York’s was the largest, at 6.6 percentage points, followed by Tennessee and Missouri (6.0 percentage points) and New Mexico (4.5).
• For the first time in more than 20 years, no state spent more than one-fifth of its own revenue on Medicaid in fiscal 2022. Pennsylvania had the largest share of any state, spending 19.8 cents of every state-generated dollar on Medicaid. The next-highest shares were in New York (19.4 cents), Rhode Island (16.7), New Hampshire (16.6), and Louisiana (15.8).
• The states that spent the smallest share of their own dollars on Medicaid in fiscal 2022 were Utah (4.9%), North Dakota (5.7%), New Mexico (5.8%), Hawaii and Alabama (6.6%), Oklahoma (6.9%), and Mississippi (7.1%).

Trend drivers

In fiscal 2022, states collectively allocated $249.6 billion from their own resources to support benefits for more than 89 million Medicaid recipients. This marked a 3.8% increase, or $9.1 billion in new spending, from fiscal 2021. But states’ own-source revenue grew even faster, leading to a drop in the portion of state funds dedicated to Medicaid coverage.

Medicaid spending by level of government

Medicaid is state administered, but the federal government covered 60.9% to 84.6% of states’ bills for the program in federal fiscal 2022, bringing the federal share of total Medicaid costs to 69.8%. Federal spending on Medicaid grew by 13.0% that year, from $512 billion to $578 billion—the third consecutive double-digit annual increase since temporary enhanced federal aid was provided in early 2020.

The federal government covered the highest portion of state Medicaid costs in New Mexico (84.6%), followed by Mississippi (84.0%), West Virginia (83.6%), Oklahoma (83.0%), and Arizona (82.7%). The lowest shares were in Wyoming (60.9%), Massachusetts (62.6%), New York (63.4%), and Connecticut and New Hampshire (both 63.9%).

Influence of federal policy changes

In recent years, changes in federal policies have significantly affected states’ financial responsibilities for Medicaid.

Because states were prohibited from removing individuals from their Medicaid programs as a condition of the enhanced FMAP, enrollment surged—from 71.4 million in February 2020 to 94.5 million by April 2023, a 32.4% increase. But the Consolidated Appropriations Act (CAA), which became effective March 31, 2023, marked the end of the continuous Medicaid enrollment requirement and allowed states to initiate unenrollment in April 2023. At least 24.8 million people had been unenrolled as of Aug. 1, 2024, according to the Kaiser Family Foundation. The CAA also initiated the phaseout of enhanced federal matching funds that concluded in December. The enhanced FMAP, which was initially set to end on April 1, 2023, instead phased out gradually through the 2023 calendar year, decreasing to 5% on April 1, 2.5% on July 1, 1.5% on Oct. 1, and zero on Dec. 31.

The federal government also previously provided extra dollars to states to help cover increased costs of higher Medicaid enrollment and declining state tax revenue associated with the 2001 and 2007-09 recessions. As the enhanced federal aid from the 2007-09 Great Recession tapered off between December 2010 and June 2011, states’ share of Medicaid costs spiked while their tax revenue was still recovering.

Since January 2014, the Affordable Care Act has also provided an opportunity for states to expand their Medicaid programs with enhanced federal support. The law initially required states to expand Medicaid eligibility to all adults under age 65 who earn up to 138% of the federal poverty level, a change that the U.S. Supreme Court later ruled was optional for states. For states that chose to expand their coverage to this broader population, the federal government agreed to reimburse 100% of the expansion costs through 2016, then 95% of costs in 2017, and ultimately 90% from 2020 onward. As of the end of fiscal year 2022, the time frame for this analysis, 38 states had expanded their programs in accordance with the ACA. Two additional states had done so as of June 2024.

States that have expanded Medicaid coverage have typically drawn from their general funds to cover their share of the bill, and some have been able to offset the added costs with related budget savings, such as reductions in behavioral health spending. Several states also report using new or increased provider taxes and fees to help fund the expansion.

In 2006, the federal government began relieving states of prescription drug costs for “dual eligibles”— people who qualify for Medicaid and the federal Medicare program. In return, states must share some of their savings with the federal government through annual “clawback” payments, which are included in this analysis as part of state Medicaid spending.

However, the amount of federal reimbursement that states receive is just one of several factors that influence the wide range in the share of state’s own revenue spent on Medicaid. Among the other drivers are state Medicaid policy decisions—the breadth of health care services covered, eligible populations, and provider payment rates—and each state’s personal income levels. States with lower per capita income have higher federal reimbursement rates, and vice versa. The variation across states also is a function of tax and other policy decisions that determine state revenue and factors outside of policymakers’ direct control, such as state economic performance, demographics, resident health status, and regional differences in health care costs and practices. (For more information, see “State Health Care Spending on Medicaid.”)

Why Pew assesses state Medicaid spending

State Medicaid spending has a significant impact on state budgets. As the largest expense for most states after K-12 education, Medicaid’s allocation from each revenue dollar directly influences the resources available for other key public services, such as education, transportation, and public safety. The federal government requires states to, among other things, provide matching funds to help cover the costs of Medicaid benefits for eligible enrollees, regardless of revenue conditions. This relative lack of state control over costs distinguishes Medicaid from many other programs and can be difficult for policymakers to navigate, especially when costs spike during economic downturns.

Justin Theal is a senior officer and Riley Judd is an associate on The Pew Charitable Trusts’ Fiscal 50 project.