Medicaid Program — How America's Largest Health Coverage Program Works

Medicaid is the federal-state partnership that provides health coverage to approximately 77 million Americans (Medicaid plus CHIP, September 2025; down from a post-COVID PHE peak near 94 million after the 2023-2024 unwinding) — low-income adults, children, pregnant women, elderly people, and people with disabilities — making it the largest health coverage program in the United States by enrollment, larger than Medicare. The federal legal framework is established in Title 42, Chapter 7, Subchapter XIX of the U.S. Code (42 U.S.C. §§ 1396–1396w-5), which Congress enacted in 1965 alongside Medicare. Unlike Medicare, which the federal government operates directly, Medicaid is administered by the states through federally approved "state plans" — meaning your specific benefits, eligibility levels, and covered services depend heavily on which state you live in. What's consistent across all states is that the federal government pays a share of every dollar spent, and in exchange the states must meet minimum federal requirements for who is covered and what services are provided.

Current Law (2026)

Legal Authority

• 42 U.S.C. § 1396a — State plans for medical assistance: The central provision; requires each participating state to submit and operate a federally approved state plan meeting dozens of minimum requirements including statewide operation, fair hearing rights, provider payment rates sufficient to ensure adequate access, and coverage of mandatory populations
• 42 U.S.C. § 1396b — Payment to states: The federal matching formula; the federal government reimburses states quarterly at the Federal Medical Assistance Percentage (FMAP) rate for qualifying medical assistance expenditures; 75% reimbursement for skilled professional medical personnel costs; 50% for nursing aide training programs
• 42 U.S.C. § 1396c — Operation of state plans: The Secretary of HHS may reduce or terminate federal matching payments if a state plan falls out of compliance with federal requirements; states must receive notice and an opportunity for a hearing
• 42 U.S.C. § 1396d — Definitions: Establishes the core terms including "medical assistance" (the services Medicaid covers), "Federal medical assistance percentage" (the FMAP formula), and the list of mandatory and optional benefit categories
• 42 U.S.C. § 1396n — Compliance with state plan and managed care: Authorizes key flexibility mechanisms including managed care arrangements and waivers; allows Secretary to waive federal requirements for research and demonstration projects
• 42 U.S.C. § 1396o — Use of enrollment fees, premiums, deductions, cost sharing: Sets limits on how much states can charge Medicaid enrollees; prohibits premiums and most cost-sharing for children under 18, pregnant women (for pregnancy-related services), emergency services, family planning, and people in nursing facilities
• 42 U.S.C. § 1396 — Medicaid and CHIP Payment and Access Commission (MACPAC): Establishes the independent advisory commission that reviews Medicaid and CHIP payment and access policies and makes annual recommendations to Congress, HHS, and states
• 42 U.S.C. § 1396u-2 — Managed care provisions: Sets federal standards for Medicaid managed care organizations (MCOs), the private health plans that most states now use to deliver Medicaid benefits
• 42 U.S.C. § 1396u-6 — Medicaid Integrity Program: Establishes CMS's authority to contract with Medicaid integrity contractors to audit states' Medicaid programs and identify fraud, waste, and abuse
• 42 U.S.C. § 1396p — Liens, adjustments, recoveries, and asset transfers: Governs how states can seek repayment of Medicaid costs from deceased beneficiaries' estates (Medicaid estate recovery) and how asset transfers before applying for Medicaid are treated

How the Federal-State Partnership Works

Medicaid is not a fully federal program. It is a federal grant-in-aid program: Congress appropriates funds, but states choose whether to participate (all 50 states do), design their programs within federal minimums, and administer the day-to-day operations. Here's how the structure works:

State plans: Every participating state must submit a comprehensive Medicaid state plan to CMS for approval. The plan describes who is eligible, what benefits are provided, how providers are paid, and how the program is administered. State plan amendments must be approved by CMS when states want to change their program. The plan must be in effect in all political subdivisions of the state — counties and cities cannot opt out.

The FMAP — how federal matching works: The Federal Medical Assistance Percentage is the share of Medicaid expenditures the federal government reimburses. It is calculated based on each state's per-capita income relative to the national average, with a minimum of 50% federal share and a historical maximum of about 77% for the poorest states. Wealthier states like Connecticut get 50 cents of federal money for every $1 spent; poorer states like Mississippi get closer to 77 cents. For the Medicaid expansion population created by the Affordable Care Act (adults up to 138% of the federal poverty level), the FMAP is a flat 90% federal, 10% state for all states that expand — a much more favorable rate designed to encourage expansion.

Fair hearing rights: The law requires every state to give Medicaid applicants and enrollees the right to a fair hearing if their application is denied or benefits are terminated or reduced. This is an individual due process right built directly into the statute.

Who Medicaid Covers — Mandatory and Optional Populations

Federal law divides Medicaid-eligible populations into mandatory (states must cover them) and optional (states may cover them). The mandatory categories include:

• Children and pregnant women with family incomes below set thresholds (varies by state; ACA requires coverage to at least 133% FPL for children)
• Adults under 65 with incomes up to 133% of the federal poverty level in expansion states (the ACA expansion)
• People who receive Supplemental Security Income (SSI)
• Elderly and disabled individuals who qualify under earlier poverty-level standards
• Children in foster care and some former foster youth

Optional populations states may cover include higher-income pregnant women, people with disabilities who don't meet SSI requirements, and the "medically needy" — people whose incomes are too high to qualify for Medicaid until they "spend down" medical expenses to a qualifying threshold.

What Services Medicaid Must Cover

Federal law requires states to cover a list of mandatory services in their state plans. Mandatory services include:

• Inpatient and outpatient hospital services
• Physician services, laboratory, and X-ray services
• Nursing facility services for people 21 and older
• Home health care for people entitled to nursing facility care
• Rural health clinic services
• Family planning services and supplies
• Nurse midwife services
• FQHC (federally qualified health center) services
• Early and Periodic Screening, Diagnosis, and Treatment (EPSDT) for children under 21 — the most comprehensive benefit, requiring states to provide any medically necessary service to children even if it's not part of the adult benefit package

States can add optional services including prescription drugs, dental care, vision, physical therapy, hospice, and many others. Almost all states now cover outpatient prescription drugs, which technically remain optional under federal law.

Cost-Sharing: What You Don't Pay

Section 1396o sets meaningful protections against states imposing fees on vulnerable enrollees. The law flatly prohibits states from charging premiums or cost-sharing to:

• Children under 18 (and at state option, up to 21)
• Pregnant women for pregnancy-related services
• Anyone in an inpatient nursing facility, hospital, or care institution who spends all but a minimal personal-needs amount on care costs
• People receiving emergency services
• People receiving family planning services
• Native Americans receiving services through or referred by Indian Health Service facilities

For adults above the poverty line, states can charge limited cost-sharing, but total out-of-pocket costs cannot exceed 5% of a family's income. This 5% cap is enforced across the whole Medicaid household.

Managed Care — How Most People Actually Get Benefits

Today, the majority of Medicaid enrollees receive their benefits through managed care organizations (MCOs) — private insurance companies that contract with states to provide all or most Medicaid services for a fixed monthly payment per enrollee (capitation). Section 1396u-2 establishes the federal framework for these arrangements, requiring MCOs to:

• Maintain adequate provider networks
• Meet quality assurance and performance standards
• Provide timely access to care
• Operate grievance and appeal systems

States choose which populations go into managed care and which remain in fee-for-service. Long-term care, mental health and substance abuse treatment, and complex chronic conditions are often handled through specialized managed care plans or carved out of standard MCO contracts. The shift to managed care has been one of the major structural changes in Medicaid over the past 30 years, aimed at controlling costs and improving care coordination.

Waivers — State Flexibility Beyond the Standard Plan

The waiver system is how states get permission to run programs that differ from standard federal requirements. Two key waiver types:

Section 1115 research and demonstration waivers allow states to waive almost any Medicaid requirement for a "demonstration project" — in practice, this is the mechanism states have used to add work requirements, expand eligibility to new populations, test new payment models, and restructure benefits. The Secretary of HHS has broad discretion on whether to approve 1115 waivers, and different administrations have used this authority very differently.

Section 1915 waivers — particularly the (c) home and community based services (HCBS) waivers — allow states to provide long-term services and supports to elderly and disabled individuals in their homes or communities rather than nursing facilities. These waivers have waiting lists in most states because they are capped programs, unlike standard Medicaid which is an entitlement.

Program Integrity and Fraud

Medicaid's size makes it a major target for fraud. The Medicaid Integrity Program (§ 1396u-6) authorizes CMS to hire contractors to audit state programs, identify improper payments, and recover misspent funds. States share in recovered funds. The federal share of fraud recoveries goes back to the Treasury; states can keep their portion. Separately, the False Claims Act allows private individuals (relators) to file qui tam lawsuits on the government's behalf against Medicaid providers who submit false claims.

How It Affects You

State Variations

Medicaid variation across states is enormous. Expansion states cover all adults up to 138% FPL; non-expansion states (Texas, Florida, and others) have much narrower adult eligibility that can leave low-income working adults in a coverage gap. Benefit packages vary: some states offer comprehensive dental and vision; others do not. Provider payment rates — set by each state — determine whether doctors and specialists accept Medicaid, and rates vary widely. Some states have very robust behavioral health coverage; others have significant gaps.

See our related page on Medicaid expansion status for a state-by-state breakdown of who has expanded and who hasn't.

Implementing Regulations

• 42 CFR Part 435 — Eligibility in the States and DC: defines every mandatory and optional Medicaid coverage group in detail. Key mandatory coverage provisions:

  • § 435.110 — Parents and caretaker relatives: states must cover parents and caretaker relatives with household income up to the state's established standard (minimum: April 1987 AFDC standard); this is the foundation coverage group predating the ACA expansion
  • § 435.116 — Pregnant women: states must cover pregnant women with income at or below 133% FPL (minimum); most states cover at higher levels (144-200%+ FPL) under the option to expand; pregnancy itself is sufficient basis for eligibility regardless of categorical requirements
  • § 435.117 — Deemed newborns: a child born to a Medicaid-enrolled mother is automatically deemed eligible for Medicaid from birth through the first birthday — no separate application required; coverage is immediate and continuous regardless of subsequent changes in the mother's eligibility; the state must maintain the child's coverage even if the mother loses eligibility
  • § 435.118 — Children under 19: states must cover children under 19 with income up to at least 133% FPL; in practice, most states provide CHIP coverage up to 200-300% FPL on top of the Medicaid floor; income is measured using MAGI (modified adjusted gross income) methodology
  • § 435.119 — ACA expansion group (effective January 1, 2014): the regulation implementing the Affordable Care Act's Medicaid expansion — states must provide Medicaid to non-pregnant adults age 19–64 with household income at or below 133% FPL (effectively 138% FPL after the 5% income disregard); this group is the basis of expansion coverage for the approximately 20 million adults who gained eligibility under the ACA; the Supreme Court's decision in NFIB v. Sebelius (2012) made this expansion effectively optional for states, resulting in ongoing coverage gaps in non-expansion states
  • § 435.120 — SSI recipients: states must cover individuals receiving Supplemental Security Income (SSI); for most states this means automatic Medicaid enrollment for SSI recipients; 209(b) states (11 states that applied pre-ACA eligibility rules) may use more restrictive criteria than SSI

• 42 CFR Part 430 — Grants to States for Medical Assistance Programs (43 sections — CMS rules governing the relationship between CMS and state Medicaid agencies: the state plan process, federal financial participation (FFP), waivers of state plan requirements, and the hearing procedures when CMS proposes to withhold or reduce federal matching funds):

  State Plan Requirements (§§ 430.10–430.25):

  • § 430.10 — The State plan: each state must have a CMS-approved Medicaid state plan — a comprehensive written statement describing the state's Medicaid program, including eligibility criteria, covered services, provider payment methodologies, and administrative arrangements; the plan is the contract between the state and the federal government specifying what the state will do in exchange for federal matching funds
  • § 430.12 — Submittal and amendments: states submit plan amendments (SPAs) to their CMS Regional Office; SPAs describe proposed changes to the program and must be submitted before the change takes effect to preserve federal matching for the changed services; CMS has 90 days to act on an SPA; if CMS does not act, the SPA is deemed approved
  • § 430.14 — CMS review: CMS regional staff reviews SPAs for compliance with federal requirements; if a SPA is incomplete or raises questions, CMS may request additional information, which tolls the 90-day clock; if CMS finds the SPA does not comply with federal law, it disapproves it and must provide the state with a written explanation and the opportunity to submit a corrected SPA
  • § 430.15 — Basis for action: CMS may approve, disapprove, or conditionally approve a SPA; the grounds for disapproval are limited to non-compliance with statutory or regulatory requirements — CMS may not disapprove a SPA because it disagrees with the state's policy choice within permissible discretion
  • § 430.20 — Effective dates: an approved SPA is generally effective as early as the first day of the calendar quarter in which it was submitted, provided it was approvable as of that date; this retroactive effective date rule allows states to make policy changes retroactively binding (and eligible for federal matching) from the beginning of a quarter even if CMS approval takes longer
  • § 430.25 — Waivers: states may apply for waivers of state plan requirements that would otherwise prevent them from implementing innovative coverage models; the most significant waiver types are Section 1115 Research and Demonstration Waivers (allowing broad departures from standard Medicaid rules for approved demonstrations, such as work requirements, premium requirements, or novel delivery system reforms) and Section 1915 waivers (for home and community-based services and managed care arrangements)

  Federal Financial Participation Hearings (§§ 430.30–430.104):

  • § 430.30–430.35 — Withholding of FFP: when CMS determines that a state's practices or procedures are not in substantial compliance with federal requirements, it may withhold or disallow federal matching payments; CMS must give advance notice and an opportunity to comment before withholding; withholding is distinct from a SPA disapproval — it applies to ongoing expenditures rather than prospective policy changes
  • §§ 430.71–430.104 — CMS-State hearings: states have the right to a hearing before an independent hearing officer when CMS withholds FFP or takes other adverse financial actions; the hearing is on the record (administrative), with pre-hearing exchange of exhibits and witness lists; posthearing briefs may be required; the presiding officer (or CMS Administrator for significant matters) issues a decision; final decisions are subject to judicial review under the APA

  The state plan and SPA process is one of the most consequential federal administrative mechanisms in domestic policy. Major Medicaid expansions, eligibility simplifications, and delivery system reforms all require SPA approval. The 1115 waiver process has become the primary vehicle for Medicaid policy experimentation — from work requirement proposals (challenged and generally enjoined under Biden; reconsidered under Trump) to integrated managed care arrangements for complex populations. CMS's SPA review and waiver approval timelines significantly shape when states can begin claiming federal matching funds for new programs.

• 42 CFR Part 433 — State Fiscal Administration (65 sections — the operational rules governing how federal matching dollars flow between CMS and state Medicaid agencies; covers FFP rates, IT system matching, and third-party liability requirements):

  • § 433.10 — Rates of FFP for program services: establishes the base Federal Medical Assistance Percentage framework; the standard FMAP applies to medical assistance services; states receive between 50% and approximately 77% federal reimbursement depending on per-capita income, with FMAP published annually in the Federal Register for each state
  • § 433.11 — Enhanced FMAP for children: states that meet child CHIP-enrollment performance standards receive the enhanced FMAP (EMAP) for certain children's coverage — typically 93–100% federal share for CHIP-funded children, substantially higher than the regular Medicaid FMAP
  • § 433.112 — FFP for IT system design and development: states receive 90% federal reimbursement for the design, development, installation, and enhancement of mechanized claims processing and information retrieval systems (MMIS — Medicaid Management Information Systems); this elevated match rate reflects CMS's policy priority in getting states to modernize legacy claims systems; to qualify, the state must submit an Advance Planning Document (APD) and receive CMS approval before development begins
  • § 433.116 — FFP for IT system operation: once a claims processing system is operational and approved by CMS, states receive 75% federal matching for ongoing operation and maintenance — the standard enhanced administrative match for IT operations; CMS conducts periodic reapproval reviews to verify systems continue meeting performance standards; systems that fail reapproval lose the 75% rate and revert to the 50% standard administrative match
  • Third-party liability (Subpart D, §§ 433.135–433.154): Medicaid is the payer of last resort — the state must identify and pursue third parties (insurance companies, liable parties) before Medicaid pays; states must obtain assignment of beneficiary rights to pursue third-party recovery; insurers receiving information from a state that a claimant is Medicaid-enrolled cannot deny, limit, or delay payment solely because of Medicaid enrollment; recovered amounts are split between the state and federal government in FMAP proportion

  Part 433 is the financial backbone of state Medicaid operations. The 90%/75% IT match structure under §§ 433.112 and 433.116 has been one of CMS's most significant policy levers — states have received billions in enhanced federal funding to build and maintain modern Medicaid eligibility and claims systems, with CMS using the reapproval process (§ 433.119) to enforce performance standards on legacy systems that might otherwise continue on 1980s-era infrastructure.

• 42 CFR Part 436 — Eligibility in Guam, Puerto Rico, and the Virgin Islands (75 sections — parallel eligibility rules for U.S. territories that operate Medicaid programs; the territories are subject to fundamentally different Medicaid financing than states because Congress has capped their federal matching under fixed block grants rather than the open-ended FMAP formula that applies to the 50 states and DC):

  • § 436.1 — Purpose and applicability: establishes that Guam, Puerto Rico, and the U.S. Virgin Islands have distinct eligibility rules reflecting their different statutory treatment; territory Medicaid programs must comply with Part 436, not Part 435 (the states-and-DC eligibility rules), though many provisions parallel the main rules
  • § 436.100 (Subpart B) — Categorically needy coverage: territory plans must cover individuals receiving cash assistance under OAA, AFDC, AB, APTD, or AABD (the legacy welfare assistance categories); individuals who would be eligible except for a requirement that doesn't apply in Medicaid (§ 436.111); and families with children who lost cash assistance due to increased earnings (§ 436.116) — these mandatory groups are largely the same as in Part 435
  • §§ 436.1001–436.1006 — Federal financial participation in territories: FFP is available for medical assistance to territorial Medicaid beneficiaries, but the per-quarter caps established in the Social Security Act (not in Part 436 itself) limit total federal contributions; once a territory exhausts its annual cap, it pays 100% of additional Medicaid costs from its own resources; the caps are set by statute and adjusted annually — they are far below what the territories would receive under open-ended FMAP

  The fundamental inequity of territorial Medicaid is not visible in Part 436's text but in what Part 436 cannot change: the statutory caps. Puerto Rico's Medicaid FMAP, if calculated the same way as states, would be approximately 83% based on its per-capita income — but instead it operates under a statutory cap that has historically provided far less. Congress has periodically increased the territorial Medicaid caps (most recently in 2021-2022 COVID relief legislation), but the underlying structural disparity between territorial and state Medicaid financing remains one of the most persistent equity issues in U.S. health policy.

• 42 CFR Part 431 — State Organization and General Administration (state plan requirements, single state agency, fair hearings, third-party liability, fraud and abuse, managed care procurement; 120 sections)

• 42 CFR Part 440 — Services: General Provisions (62 sections — the definitional catalog of every mandatory and optional Medicaid benefit, establishing which services states must cover for which beneficiaries and how CMS defines the scope of each service category; a service not defined here as Medicaid-coverable cannot receive federal matching payments):

  • § 440.10 — Inpatient hospital services: acute care hospital admission services furnished by a Medicare-certified hospital, excluding institutions for mental diseases (IMDs); the IMD exclusion (also applicable under §§ 440.140) is one of Medicaid's most consequential coverage limitations — states generally cannot receive FFP for care provided to patients aged 22–64 in free-standing psychiatric hospitals
  • § 440.20 — Outpatient hospital services and rural health clinic services: preventive, diagnostic, therapeutic, rehabilitative, or palliative services furnished by a hospital outpatient department or rural health clinic; states must cover RHC services as an optional mandatory service, and RHCs are subject to special Medicaid payment rules under § 447.321
  • § 440.40 — Laboratory and X-ray services: diagnostic and therapeutic services ordered by a licensed practitioner; states must cover these services as mandatory benefits for categorically needy beneficiaries
  • § 440.50 — Nursing facility services: skilled and intermediate nursing care in a state-licensed nursing facility (not IMD); coverage is mandatory for individuals age 21 and older; nursing facility coverage is one of Medicaid's largest cost drivers — approximately 20% of total Medicaid spending
  • § 440.60 — Physician services: services furnished by a licensed physician within the scope of practice under state law; physician services are mandatory for all categorically needy beneficiaries; states set their own physician fee schedules subject to the adequacy standards at § 447.204
  • § 440.70 — Home health services: part-time or intermittent nursing care, home health aide services, and medical supplies and equipment for beneficiaries confined to the home; mandatory for any beneficiary entitled to nursing facility services who is 21 or older; a physician must certify the need for home health services and establish a plan of care
  • § 440.100 — Dental services: diagnostic, preventive, or corrective dental services are an optional benefit for adults (states may choose to cover or not cover adult dental); however, dental services are mandatory as part of the EPSDT (Early and Periodic Screening, Diagnostic, and Treatment) benefit for beneficiaries under age 21 — EPSDT requires states to cover all medically necessary dental care for children regardless of whether the state covers dental for adults
  • § 440.120 — Prescribed drugs: optional benefit for adults; mandatory under EPSDT for children; states that choose to cover prescription drugs (all 50 states do) must operate a drug benefit meeting the requirements at 42 CFR Part 456 Subpart K; managed care and pharmacy benefit managers operate drug programs under increasingly detailed CMS guidance
  • § 440.150 — ICF/IID services (Intermediate Care Facility for Individuals with Intellectual Disabilities): residential care and active treatment in a certified facility for individuals whose primary need is services for intellectual disability or related conditions; ICF/IID is an optional benefit, but states that choose to cover it must meet federal certification standards and active treatment requirements — simply housing individuals in a facility without active treatment does not qualify; approximately 37,000 individuals receive ICF/IID services nationally
  • §§ 440.180–440.182 — Home and community-based (HCBS) waiver services: long-term services and supports (personal care, day programs, respite, supported employment, residential habilitation) delivered outside of institutions; these services are covered under §§ 440.180 through 440.182 only through specific waiver authority under § 1915(c) of the Social Security Act, not as regular state plan services; HCBS waivers allow states to offer services unavailable under the standard state plan to avoid or delay institutionalization

  Part 440 is the coverage lexicon — but knowing whether a specific service is covered in a specific state requires checking the state plan, since most Part 440 benefits are optional for adults. The EPSDT benefit (§§ 440.40, 440.100 etc.) operates as a mandatory full-coverage guarantee for children under 21: if a service is medically necessary for a child, the state must cover it even if the state has not elected that service category for adults.

• 42 CFR Part 441 — Services: Requirements and Limits Applicable to Specific Services (EPSDT requirements, family planning, abortion exclusions, freedom of choice waivers, home and community-based services, sterilization consent, hospice; 139 sections)

• 42 CFR Part 447 — Payments for Services (Medicaid provider payment rate policy — the operational rules that determine how and how much states pay providers, and what federal law prohibits; 71 sections). Key provisions:

  • § 447.10 — Prohibition on assignment of provider claims: providers may not assign their right to receive Medicaid payments to a third party (with narrow exceptions for factors directly related to delivering care, such as billing agents who remit payment directly to the provider); this prevents outside entities from capturing Medicaid revenue streams through financial arrangements that don't benefit patients
  • § 447.15 — Acceptance of payment as payment in full: every Medicaid state plan must require that participating providers accept the Medicaid payment as payment in full — providers cannot balance-bill Medicaid patients for the difference between their billed charge and the Medicaid rate; this is one of the most significant protections for low-income patients and a key condition of provider participation in Medicaid
  • § 447.200–447.203 — Medicaid payment rate methodology requirements: state plans must comprehensively describe the methods and standards used to set payment rates for each service category; the state must maintain documentation of payment rates and access-to-care data, available to HHS on request; rates must be consistent with efficiency, economy, and quality of care — and sufficient to enlist enough providers to give enrollees access to care comparable to that available to the general population in the geographic area
  • § 447.204 — Medicaid provider participation and access to care: payments must ensure that eligible individuals have access to covered services in adequate volume, with reasonable geographic accessibility, and within reasonable wait times — the access adequacy standard that CMS uses to evaluate whether state rate-setting is compliant with the statute
  • § 447.205 — Public notice before changing payment rates: a state must give advance public notice — including notice to beneficiaries and providers — before adopting a new statewide methodology or standard for setting payment rates, or before implementing a rate change that significantly affects payments; this public comment requirement applies to both rate increases and rate cuts
  • § 447.26 — Prohibition on payment for provider-preventable conditions: Medicaid does not pay for the additional costs of treating provider-preventable conditions — the Medicaid equivalent of Medicare's "no pay for hospital-acquired conditions" rule; states must require providers to report provider-preventable conditions as a condition of participation; covered conditions include healthcare-acquired conditions from CMS's Medicare list, as well as certain other provider-preventable conditions that states may define
  • §§ 447.250–447.257 — Hospital and long-term care facility payment methods: states must provide publicly available descriptions of the methodology for setting hospital and nursing facility rates; CMS approves state plan amendments to payment methods; federal matching payments (FFP) are not available for hospital or long-term care payments that exceed certain upper payment limits — the mechanism that prevents states from gaming the federal match through supplemental payment arrangements that cycle Medicaid dollars back to state government

• 42 CFR Part 455 — Program Integrity: Medicaid (60 sections — the operational rulebook for state Medicaid fraud detection, provider disclosure requirements, and the provider enrollment screening system; Part 455 translates the statutory Medicaid Integrity Program (42 U.S.C. § 1396u-6) into state plan requirements and compliance obligations):

  Provider disclosure requirements (Subpart B, §§ 455.100–455.107):

  • § 455.2 — Definitions: "fraud" means intentional deception or misrepresentation to obtain an unauthorized benefit; "abuse" means practices inconsistent with sound fiscal, business, or medical practice that result in unnecessary costs or improper payments; the distinction matters because fraud triggers criminal referral while abuse triggers administrative action
  • § 455.104 — Ownership and control disclosure: states must require every Medicaid provider to disclose all individuals and entities with 5% or more ownership or controlling interest; nursing facilities must disclose additional information on "additional disclosable parties" with operational control; states must check disclosed owners against federal exclusion databases
  • § 455.105 — Business transactions disclosure: providers must disclose annually all business transactions with subcontractors and related entities totaling $25,000 or more within the preceding 12 months; disclosure must identify the nature of the transaction and the amount paid; designed to expose arrangements that cycle Medicaid money to related parties
  • § 455.106 — Criminal conviction disclosure: before entering a provider agreement or renewing one, the state must require the provider to disclose any person with an ownership or management interest who has been convicted of a criminal offense related to Medicare, Medicaid, or Title XX programs; providers with such convictions may be excluded
  • § 455.107 — Affiliation disclosure: providers must disclose current and prior affiliations with entities that have been excluded, debarred, or had billing privileges revoked; affiliation with a sanctioned entity is a basis for enhanced screening or denial of enrollment

  Fraud detection program (Subpart A, §§ 455.12–455.23):

  • § 455.13 — States must have methods and criteria for identifying suspected fraud cases, investigating them, and referring criminal cases to law enforcement; the methods must include analysis of billing data for unusual patterns (high volume, duplicate claims, services billed for deceased beneficiaries)
  • § 455.14–455.16 — Preliminary and full investigation procedures: preliminary investigation upon complaint or anomaly detection; full investigation when preliminary findings suggest fraud or abuse; full investigations continue until legal action is taken or the case is closed for insufficient evidence; states must report investigation statistics to CMS
  • § 455.18 — Claims form certification: all Medicaid provider claims forms must carry a boldface statement that the claim is true, accurate, and complete, and that the provider understands that false statements may be prosecuted under applicable federal and state laws

  Provider screening and enrollment (Subpart E, §§ 455.400–455.470):

  • § 455.410 — Provider risk categorization: all Medicaid providers are assigned to one of three risk levels: limited risk (individual practitioners with low fraud potential), moderate risk (facilities and suppliers with some oversight history), and high risk (categories with high levels of documented fraud — home health agencies, DME suppliers, personal care attendants in some states); risk level drives the intensity of enrollment screening
  • § 455.414 — Site visits: states must conduct pre-enrollment site visits for all high-risk providers and may conduct unannounced site visits for any provider; site visits verify that the provider is operational, the location is accurate, and key personnel are present; failure to allow or pass a site visit is grounds for denial or revocation
  • § 455.416 — Database checks: states must check all provider enrollment applications against the Medicare exclusion database, the GSA System for Award Management (SAM) debarment list, the Social Security Administration Death Master File, and state license databases; enrollment of an excluded provider triggers repayment of all claims paid while excluded
  • § 455.450 — Revalidation: all providers must revalidate enrollment every 5 years (or every 3 years for high-risk providers); revalidation requires re-submission of disclosure information and updated screening; failure to revalidate results in automatic deactivation

  Part 455's program integrity requirements operate in parallel with the Medicaid Fraud Control Units (MFCUs) that all states are required to maintain — MFCUs are state-level law enforcement agencies (typically housed in the state attorney general's office) that investigate and prosecute Medicaid fraud. Part 455 governs the civil/administrative side (enrollment, screening, suspension), while MFCUs handle criminal prosecution. CMS's Center for Program Integrity (CPI) coordinates federal oversight and operates the national Fraud Prevention System that screens Medicare and Medicaid claims for anomalous patterns.

• 45 CFR Part 95 — General Administration: Grant Programs (Public Assistance, Medical Assistance, and CHIP) (44 sections — HHS rules governing the financial and administrative procedures states must follow when claiming federal financial participation (FFP) under Medicaid, CHIP, and related public assistance programs; last significantly updated by 89 FR 80071 (2024)):

  Subpart A — Time Limits for Claiming FFP (§§ 95.1–95.34):

  • § 95.1 — Scope: establishes a 2-year time limit for states to file claims for FFP (15 months for certain prior-period adjustments); states must identify, calculate, and submit claims for Medicaid expenditures within this window or forfeit federal matching — this rule enforces fiscal discipline and prevents states from submitting stale claims years after the expenditure
  • § 95.13 — Quarter of expenditure: an expenditure is "made" in the quarter when the state actually pays the provider, not when services are rendered; this cash-basis rule determines which quarter's FMAP rate applies and when the 2-year filing window starts
  • § 95.19 — Exceptions: time limits may be waived for "good cause" — circumstances genuinely beyond the state's control (natural disasters, system outages, federal data errors); the standard is narrow — inability to process claims does not qualify if the state's own administrative failures caused the delay
  • § 95.22 — Good cause defined: good cause means circumstances the state could not have reasonably anticipated or controlled, and where the state acted promptly once the problem was identified; the 2024 update (89 FR 80071) clarified standards for electronic system failures

  Subpart E — Cost Allocation Plans (§§ 95.501–95.519):

  • § 95.507 — Requirement: states must have CMS-approved cost allocation plans (CAPs) describing how indirect and administrative costs are distributed across federal grant programs; a state cannot claim FFP for administrative costs unless it can demonstrate through an approved CAP that those costs are properly allocated to Medicaid
  • § 95.519 — Amendments: states must submit CAP amendments whenever cost allocation methodologies change; CMS reviews amendments for compliance with OMB cost principles; retroactive adjustments are limited

  Subpart F — ADP Systems and Services (§§ 95.601–95.629):

  • § 95.605 — Advance planning: before designing, developing, or acquiring any automated data processing (ADP) system using federal funds, states must submit an Advance Planning Document (APD) to CMS for approval; the APD describes the system, its costs, the development timeline, and the contractor procurement plan; unapproved systems do not qualify for enhanced FFP (90% for development, 75% for operations under 42 CFR § 433.112/433.116)
  • § 95.611 — Requirements for approval: ADP systems receiving FFP must meet CMS standards for security, interoperability, modularity, and procurement; CMS has progressively strengthened these requirements to push states toward modern, cloud-based, interoperable Medicaid IT platforms; systems that fail to meet standards may lose their enhanced FFP rate
  • § 95.615 — Ownership: software developed using federal funds belongs to the state (or is to be licensed to other states), not the contractor; this provision prevents vendor lock-in and enables states to share IT components — a key driver of the Medicaid modular IT initiative under the CMS Medicaid Enterprise Certification Toolkit (MECT)

  The 45 CFR Part 95 administrative rules are the behind-the-scenes infrastructure of Medicaid financing. Every dollar of state Medicaid spending flows through a claims submission, cost allocation, and FFP claiming process governed by Part 95. The 90% development / 75% operations enhanced matching for Medicaid IT systems (§§ 95.611 / 433.112) has been one of the most consequential federal-state financing provisions in health IT — it has funded billions of dollars in MMIS (Medicaid Management Information Systems) modernization over the past decade, with states expected to transition to CMS's modular, API-driven Medicaid IT architecture by 2027.

Pending Legislation

As of 2026, several significant Medicaid changes are under active debate in Congress:

• Work requirements: The current administration's budget proposals include authorization for states to impose work/community engagement requirements on non-elderly, non-pregnant adult enrollees. Courts have repeatedly blocked 1115 waivers that impose work requirements; federal legislation would provide clearer statutory authority
• Block grants or per-capita caps: Proposals to convert Medicaid's open-ended matching structure to a capped amount per enrollee, which would shift financial risk to states
• Funding reductions: Budget reconciliation proposals in 2025-2026 include significant reductions in federal Medicaid spending, potentially affecting both the expansion FMAP rate and base program funding
• Continuous eligibility for children: Federal law already requires 12-month continuous eligibility for children enrolled in Medicaid and CHIP; proposals exist to extend this to adults
• HR 2447 — Repealing the Trump Sick Tax Act: would undo parts of Public Law 119-21 to restore prior Medicaid cost-sharing rules and the orphan drug exemption in Medicare drug-price negotiations. Status: Introduced.
• HR 2410 — Medicaid Bump Act: would give states a 90% federal match for increased Medicaid behavioral health spending above a 2019 baseline to expand services, raise rates, and stabilize providers. Status: Introduced.
• HR 2279 — Protect Medicaid and Rural Hospitals Act: would repeal recent Medicaid provider-tax and state-directed payment changes and add $10B/year (FY2031-2035) to boost rural hospital funding. Status: Introduced.
• HR 2069 — Stabilize Medicaid and CHIP Coverage Act: would extend 12-month continuous enrollment to all Medicaid/CHIP enrollees (not just children), reducing coverage churn. Status: Introduced.
• HR 2085 — Postpartum Lifeline Act: would require 12 months of continuous, full Medicaid and CHIP coverage after pregnancy to prevent postpartum coverage gaps. Status: Introduced.
• HR 2077 — Expanded Coverage for Former Foster Youth Act: would expand Medicaid to more former foster youth through age 26 and require state outreach programs. Status: Introduced.
• HR 2149 — HEAL Act: would open Medicaid, CHIP, ACA subsidies, and Medicare to many immigrants and let states cover people without lawful presence. Status: Introduced.
• HR 2286 — State-Based Universal Health Care Act: would let states run universal health plans under budget-neutral federal waivers with a 95% coverage target within five years. Status: Introduced.
• HR 2084 — Medicare and Medicaid Dental, Vision, and Hearing Benefit Act: would add dental, vision, and hearing benefits to Medicare and set a 90% Medicaid match for adult services. Status: Introduced.
• HR 2064 — Helping Tobacco Users Quit Act: would require Medicaid/CHIP to cover counseling and drugs for tobacco cessation with no cost-sharing and a temporary 90% federal match. Status: Introduced.

Recent Developments

• COVID unwinding complete (2024): The Medicaid "unwinding" process — redetermining eligibility for all enrollees (peak ~94 million) after the COVID continuous enrollment period ended — was largely complete by mid-2024. Approximately 22 million people were disenrolled nationwide; independent analysis found roughly half were disenrolled for procedural reasons (returned mail, outdated contact info) rather than genuine ineligibility. CMS took corrective action against several states with high procedural disenrollment rates. Enrollment has partially recovered as disenrolled individuals enrolled in Marketplace plans or were re-enrolled in Medicaid.
• 2025 reconciliation and Medicaid cuts: The One Big Beautiful Bill Act (OBBBA, Pub. L. 119-21, signed July 4, 2025) included significant Medicaid changes that advocates estimated would reduce federal Medicaid spending by $600 billion–$900 billion over 10 years. Key provisions included: statutory authorization for states to impose work/community engagement requirements (12+ hours per month of work, education, or community service) on non-elderly, non-pregnant adults; per-capita cap option allowing states to choose a capped federal contribution per enrollee; reduction in the ACA expansion FMAP from 90% to 88% (increasing the state cost share); and new state verification requirements for non-citizen eligibility. The legislation's Medicaid provisions faced significant opposition from governors of both parties who feared budget impacts on their state programs.
• Work requirement waivers: The Trump administration CMS resumed approving § 1115 work requirement waivers — reversing the Biden administration's position that work requirements don't "promote Medicaid's objectives." Arkansas, which previously had a work requirement struck down by federal courts, reapplied. Multiple states submitted new work requirement waiver applications. Federal court challenges to approved waivers under the APA remain the key legal battleground.
• Medicaid and non-citizens: The 2025 reconciliation legislation included provisions tightening eligibility verification for non-citizens and limiting coverage to lawful permanent residents and qualified immigrants (potentially cutting coverage for some immigrants currently eligible under state options). Several states that cover broader immigrant populations faced budget decisions about whether to fund coverage with state-only dollars.