Medicaid is currently at the center of major healthcare policy discussions in the U.S. Recent budget proposals have raised questions about potential changes to the program, including funding levels, eligibility restrictions, work requirements (such as mandating employment to maintain coverage), and how states administer benefits. These developments have renewed national attention on Medicaid’s role, costs, and overall impact.
This article provides a high-level overview of Medicaid to help clarify the current policy conversation. It explains what Medicaid is and who it covers, outlines how the program is structured and funded, and describes how its name and administration vary across states. It also examines Medicaid expansion—what it is, how it works, and why it remains a central issue in debates over access, cost, and the future of the program.
Medicaid, established in 1965, is a public health insurance program that provides coverage for millions of low-income individuals and families. It is jointly funded by the federal government and individual states, and administered at the state level. As of 2025, Medicaid covers roughly 70 to 80 million people, or about one in five Americans. It is the largest health coverage program in the U.S., serving more people than both Medicare and private insurance.
Medicaid operates as an entitlement program, meaning individuals who meet eligibility criteria have a legal right to enroll and receive benefits. While federal law sets the core eligibility guidelines, states can choose to broaden access to additional groups, which leads to differences in who qualifies from state to state.
Eligibility varies by state, but the program generally serves:
Medicaid plays an important role for people with complex health needs: for example, it covers nearly 40% of all births in the U.S. and is the largest single payer for long-term care services, including nursing facilities and home-based care.
Each state has flexibility in how it designs and operates its Medicaid program, within federal guidelines, which leads to variation in coverage across the country.
Medicaid is financed through a partnership between the federal government and the states. The federal share is determined by the Federal Medical Assistance Percentage (FMAP), which typically ranges from 50% to over 75%, depending on a state’s per capita income.
Medicaid provides a mix of mandatory and optional services. Coverage varies significantly across states and populations.
| Inpatient hospital services | Outpatient hospital services |
| Rural health clinic services | Federally qualified health center services |
| Laboratory and X-ray services | Nursing facility services |
| EPSDT services | Family planning services |
| Physician services | Home health services |
| Nurse midwife services | Certified nurse practitioner services |
| Freestanding birth center services | Medication Assisted Treatment (MAT) |
| Routine clinical trial costs |
| Dental services | Prescription drugs |
| Prosthetics | Eyeglasses |
| Speech/hearing services | Hospice |
| Case management | Community First Choice Option |
| Physical/occupational therapy | Private duty nursing |
| Intermediate care (intellectual disabilities) | Home and community-based services |
| Health homes for chronic conditions |
Medicaid may be federally supported, but it is very much a state-driven program.
Medicaid services are typically delivered through one of two approaches: fee-for-service (FFS) or managed care. Under fee-for-service, states reimburse providers directly for each individual service given to a Medicaid enrollee. In contrast, managed care involves states contracting with Managed Care Organizations (MCOs), private insurers that receive a set monthly payment per enrollee to oversee and cover the cost of care. Today, most states rely on managed care for a majority of Medicaid beneficiaries, aiming to improve care coordination and manage program spending.
Medicaid expansion, made possible under the Affordable Care Act, allows states to extend coverage to more low-income adults, including those without children. While the federal government covers most of the cost, not all states have adopted expansion, leading to significant differences in coverage and access. The map below shows which states have expanded Medicaid and which have not.
Medicaid plays a central role in the U.S. healthcare system, not just as a source of coverage, but as a major driver of health spending. Because states have flexibility in deciding which populations and services to cover, how care is delivered, and how providers are paid, Medicaid spending and coverage levels vary widely across the country.
Nationally, Medicaid accounts for about 20% of total healthcare spending and over half of all long-term care spending. It also represents a significant portion of state budgets. Medicaid is one of the largest single line items in most state budgets, often accounting for over 25% of total spending (including federal funds). States balance cost containment with coverage needs, which is why decisions about expansion or managed care carry major financial stakes and are subject to debate.
As of mid-2025, Medicaid is once again a central focus of national policy discussions. Ongoing federal budget negotiations have raised the possibility of substantial changes to the program, including revisions to funding formulas, eligibility rules, and how states administer benefits.
The Congressional Budget Office (CBO) recently estimated that the proposed federal changes could lead to a significant reduction in Medicaid coverage over the next decade. However, the accuracy and implications of these estimates continue to be debated by policymakers, researchers, and advocacy groups.
As discussions continue in Congress and across state governments, Medicaid’s current structure and scope are actively being reconsidered. With a federal budget deadline set for July 4, 2025, decisions made in the coming weeks could shape how the program is funded, who qualifies, and what services are covered. While final outcomes remain uncertain, the direction of these negotiations will have meaningful implications for how Medicaid operates in the near term. The timing and extent of any changes will depend on the nature of the proposals advanced by members of Congress. Some proposals include more immediate or far-reaching changes to funding and eligibility, which could result in faster coverage disruptions, while others would lead to more gradual shifts that may delay major effects until later in the year or into the next presidential administration.
Associate Director, Research, Center for the Business of Health; UNC Kenan-Flagler Business School
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