The Medicaid program spends close to $1 trillion annually, with about 65% of that coming fom the federal government and the rest from state governnments. This is almost, but not quite, one-in-five dollars of total US health care spending. Medicaid is not quite as big as Medicare, which is about $1.2 trillion per year, but Medicaid alone is almost one-in-five dollars of total US health care spending. James Hamlette and Karen Kopecky offer a check check-in on the Medicaid program in “Who’s Driving Medicaid’s Enrollment Growth?” (Economic Commentary: Federal Reserve Bank of Cleveland, October 13, 2026). As they write about Medicaid:
[I]t finances primary and acute medical care and long-term care for eligible low-income individuals. The criteria for eligibility have changed over time, and today, eligible populations span a wide range, including children, pregnant women, low-income elderly and disabled individuals, and working adults in low-wage jobs. The program is jointly administered and funded at federal and state levels. It requires states to provide specific benefits—including inpatient and outpatient hospital services, physician services, nursing home services, mental health services, and preventative care for children—with the option to cover additional services such as prescription drugs, home- and community-based services, and dental care. Healthcare services have grown over time as a proportion of US consumption spending and gross domestic product, and Medicaid outlays per capita have reflected this trend (Congressional Research Service, 2026), increasing steadily in recent decades and reaching four times their 1990 level in 2024.
As the authors emphasize, the main driver behind Medicaid spending growth is that many more people are enrolled in the program. In 1990, about 10% of all Americans were in Medicaid: now, it’s approaching 30%. Indeed, average spending per person in Medicaid–adjusted for the overall rate of inflation–has barely budged since 1990.
Hamlette and Kopecky dig into the Medicaid enrollment details and show: “The main drivers of this coverage expansion have changed over time. Prior to 2000, enrollment growth was driven by an increase in coverage of children and their families. From 2000 to 2013, enrollment growth was driven by an increase in coverage of childless nondisabled and disabled adults,2 with similar increases in the number of working and nonworking adults on Medicaid. Since 2014, the Affordable Care Act (ACA) Medicaid expansion has driven growth, with expansion states extending coverage to adults earning up to 138 percent of the federal poverty level, and enrollment growth during this period has been driven primarily by working adults.”
But in thinking about Medicaid, it’s important to remember that different groups can have very different health care expenses. For example, the disable and the elderly together are 17.3% of the Medicaid population. but just over half of all Medicaid spending.
The main current proposals for holding down Medicaid costs seem to involve requiring that Medicaid recipients work. But given that Medicaid spending on non-disabled, non-elderly adults iis only about 15.8% of the total–and many of them are already working–the cost savings from this approach are likely to be limited. A more productive approach might be to dig into how different states have designed their Medicaid program. Mark Shepard and Jacob Wallace dig into these issues in “Understanding Medicaid Managed Care: The Procured Competition Model” in the Spring 2026 issue of the Journal of Economic Perspectives (where I work as Managing Editor). As they note in their abstract, they “discuss the key policy levers across procurement, competition, and consumer choice in this model. Throughout, we highlight open research questions, arguing that the enormous variation in how states design these programs—combined with limited evidence on what works—represents a promising area for high-impact scholarship.”
