A Medicaid Primer: State and Federal Funding for Health Care

Medicaid is a jointly funded state-federal program that pays for health care services delivered primarily to low-income families and children, pregnant women, the elderly and persons with disabilities. In Texas, Medicaid is administered by the Texas Health and Human Services Commission (HHSC).

Medicaid is an “entitlement program,” in that neither the state nor the federal government can limit the number of persons who participate so long as they meet the eligibility requirements. The state‚Äôs Medicaid population is expected to grow substantially over the next decade, going from slightly more than 3.5 million in 2011 to more than 6.2 million by 2020, due in large part to federal health care reform legislation passed in March 2010 (Exhibit 1).

Exhibit 1

Texas Medicaid Enrollment, Fiscal 2000-2020

Texas Medicaid Enrollment, 2000-2020 - Federal health care reform means a jump of 3.5 million enrollees between 2012 and 2013.

Source: Texas Health and Human Services Commission

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Medicaid pays for acute health care — physician, inpatient, outpatient, pharmacy, lab and X-ray services — as well as long-term services for aged and disabled clients. Exhibit 2 shows the mandatory services all states must cover and the optional services Texas provides; the optional categories Texas offers are among those that states are allowed but not required to cover.

Exhibit 2

Services Covered by Texas Medicaid

Acute Care Services
Mandatory Optional Services
Covered in Texas

Inpatient hospital services

Outpatient hospital services

Laboratory and x-ray services

Physician services

Medical and surgical services provided by a dentist

Early and periodic screening, diagnostic, and treatment (EPSDT) services for individuals under 21

Family planning services and supplies

Federally qualified health centers

Rural health clinic services

Nurse midwife services

Certified pediatric and family nurse practitioner services

Home health care services

Prescription drugs

Medical care or remedial care furnished by other licensed practitioners:

  • Nurse Practitioners/ Certified Nurse Specialists
  • Certified Registered Nurse Anesthetists
  • Physician Assistants
  • Psychology
  • Licensed Professional Counselors
  • Licensed Marriage and Family Therapists
  • Licensed Clinical Social Workers
  • Podiatry
  • Chiropractic
  • Optometry, including eyeglasses and contacts

Rehabilitation and other therapies:

  • Mental health rehabilitation
  • Rehabilitation facility services
  • Substance use disorder treatment
  • Physical, occupational, and speech therapy

Clinic services:

  • Maternity service clinics

Hearing instruments and related audiology

Renal dialysis

Long-Term Services and Supports
Mandatory Optional Services
Covered in Texas

Nursing facility (NF) services for individuals 21 or over

Intermediate care facility services for persons with intellectual disability (ICF/ID)

Inpatient services for individuals 65 and over in an institution for mental diseases (IMD)

Home and community-based services

Targeted case management

Hospice services

Services furnished under a Program of All-Inclusive Care for the Elderly (PACE)

Source: Texas Health and Human Services Commission

Federal Share

The federal share of Medicaid is determined annually, based on a comparison of average state and U.S. per capita income. The federal share is called the federal medical assistance percentage (FMAP), and each state’s FMAP is different.

The Texas FMAP generally is about 60 percent, meaning that the federal government pays 60 percent of every dollar spent in Texas on Medicaid services. Due to the size of Texas’ Medicaid program, even small changes in the FMAP can result in the loss or gain of millions of dollars in annual federal funding.


Women and children account for the largest percentage of the Medicaid population. In fiscal 2010, 55 percent of Texas’ Medicaid population was female and 77 percent was under age 21. While non-disabled children made up the majority (66 percent) of all Texas Medicaid clients in that year, they accounted for a relatively small portion (32 percent) of spending on direct health-care services. By contrast, the aged, blind and disabled made up just 25 percent of clients but accounted for 58 percent of estimated expenditures (Exhibit 3).

Exhibit 3

Optional Coverage

Texas Medicaid covers a limited number of optional groups. For example, Texas has chosen to extend Medicaid eligibility to pregnant women and infants at up to 185 percent of the federal poverty level (FPL). The federal requirement for pregnant women and infants is 133 percent of the FPL. Another optional group Texas covers is the “medically needy,” children and pregnant women with incomes exceeding Medicaid eligibility limits who still lack the resources to meet their medical expenses.1

Due to federal health care reform, in 2014 all states will be required to provide Medicaid services for all citizens at or below 133 percent of FPL with Medicaid services. At present, Texas Medicaid does not cover childless adults, and has stiffer income requirements than 133 percent of FPL for some services. Exhibit 4 show current Medicaid eligibility categories as well as required changes for 2014.

Exhibit 4

Who's Eligibile for Mediciad in Texas?

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For fiscal 2010-11, Texas budgeted $49.4 billion for Medicaid, or just over 26 percent of the state’s total biennial budget (Exhibit 5).

Exhibit 5

Fiscal 2011 State Expenditures by Major Category, All Funds, by Percent Share

Source: Texas Comptroller of Public Accounts and Legislative Budget Board

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Children’s Health Insurance Program

HHSC also administers the Children’s Health Insurance Program (CHIP). Like Medicaid, CHIP is funded with both state and federal funds. CHIP covers health care services for children from low-income families earning up to 200 percent of FPL that are not covered by Medicaid. The federal match rate for CHIP is higher than for Medicaid, generally with an FMAP of 72 percent. The Texas Legislature appropriated more than $1 billion for CHIP in fiscal 2011.2

1Texas Health and Human Services Commission, “Chapter 1: Texas Medicaid in Perspective,” in Texas Medicaid and CHIP in Perspective, 8th ed. (Austin, Texas, January 2011), pp. 1-1 through 1-3, http://www.hhsc.state.tx.us/medicaid/reports/PB8/PinkBookTOC.html; and Texas Health and Human Services Commission, “Chapter 4: Medicaid Clients and Benefits,” in Texas Medicaid and CHIP in Perspective, 8th ed. (Austin, Texas, January 2011), pp. 4-5 through 4-6, http://www.hhsc.state.tx.us/medicaid/reports/PB8/PinkBookTOC.html. (Last visited January 20, 2011.)

2Texas S.B. 1, 81st Leg. Reg. Sess. (2009), pp. II-107-108.