How Does Medicaid Benefit States?

Medicaid is the federal–state public health insurance program created in 1965 to expand access to health services and improve outcomes for people with low income. One in five Americans are enrolled in Medicaid, ranging from 30 percent of adults in New Mexico to 8 percent of adults in Utah. The program is a critical source of health care for children, pregnant women, and people with disabilities.

While the federal government and the states jointly fund Medicaid, each state runs its own program, subject to federal requirements. States commonly give their Medicaid programs a unique name like STAR and STAR+PLUS in Texas or BadgerCare Plus in Wisconsin. While Medicaid constitutes a significant investment by states, it’s one that reaps massive rewards for state economies, residents, and enrollees.

How does Medicaid impact state economies?

Medicaid makes up a sizable share of states’ budgets while providing critical financial support to the health care sector and stimulating local economies. The program accounts for an average of 30 percent of state expenditures, ranging from 14 percent in Wyoming to 40 percent in North Carolina. Medicaid spending has grown over time, but more slowly than other components of state budgets, like education.

Medicaid investment is shown to have a “multiplier effect,” meaning that every dollar spent generates over a dollar’s worth of economic activity. Medicaid drives employment in the health care sector; generates state and local tax revenue; and saves money for enrollees, allowing them to spend more on items other than health care.

At the same time, reductions in Medicaid funding can negatively impact state tax revenue, employment, and individual spending power. Experts estimate that if the Medicaid cuts proposed by Congress in March 2025 — totaling $880 billion over 10 years — came to fruition, the country’s gross domestic product (GDP) would decrease by $95 billion and tax revenue would decrease by $7 billion. The states likely to face the most significant economic losses include California, New York, Texas, Pennsylvania, and Ohio.

Medicaid’s economic impact is particularly apparent in states that have expanded Medicaid. Since 2014, 40 states and Washington, D.C., have expanded Medicaid eligibility to cover more people in exchange for additional federal funding, as allowed by the Affordable Care Act. Despite covering a higher number of people, expansion states have not seen significant increases in their state Medicaid spending and have even seen tax revenue increase and overall health care spending decline.

Medicaid expansion also can reduce state spending in other areas such as state corrections department spending, mental health and substance use programs, and uncompensated care for people who are uninsured. By covering mental health and substance use programs and shifting some costs of state corrections’ health care spending to Medicaid, expansion states have been able to cover services while generating Medicaid spending savings. In the first full fiscal year following expansion, Maryland saved $13.6 million on uncompensated care while also raising $26.6 million in new revenue.

How does Medicaid support the health of the workforce in each state?

Medicaid increases the number of people across the country who can access affordable health care. This contributes to positive health outcomes, an important factor in workforce retention: poor health is a notable contributor to unemployment and exit from the workforce. Disruptions to Medicaid would not only harm people’s health but also diminish the workforce.

Roughly 55 percent of Medicaid enrollees are working full or part time, and a number either aren’t eligible for health insurance through their jobs or can’t afford the coverage offered. It’s estimated that less than 60 percent of full-time and around 17 percent of part-time workers were eligible for employer-sponsored insurance in 2022. Many Medicaid enrollees are employed in industries or working at firms that may not be required to offer insurance, including contract or seasonal workers or those working in agriculture, manufacturing, or service industries.

Furthermore, part-time employees tend to be offered limited coverage or no coverage at all. Enrollees who are not employed are often unable to work due to a disability, caretaking responsibilities, retirement, or being in school.

Medicaid provides health care coverage that is greater or of equal level to no insurance or private insurance, and enrollees may face fewer financial barriers to care. Compared to people who are uninsured, adult Medicaid enrollees are more likely to have a usual source of care, more likely to have seen a doctor in the past year, and less likely to have delayed care due to costs. Rates are similar to those for people with private insurance.

However, compared to the privately insured, fewer Medicaid enrollees said they had medical debt they were paying off over time.

How can Medicaid boost employment in states?

Access to health care services ensures enrollees are able to gain employment and stay employed, as it can make it easier to find a job, help improve job performance, and more. State Medicaid programs can offer programs to achieve this goal. One example is supported employment services to help people with disabilities. These services may include job placements, helping enrollees negotiate with employers, job coaching, and more. Georgia, Minnesota, New Hampshire, and South Dakota had the highest uptake of these services.

Montana developed a voluntary workforce program for adult Medicaid enrollees, particularly the portion who are not disabled, are not employed, or working part time and are seeking full-time employment. The program increased workforce participation by 6 percent to 9 percent. It helped 32,000 enrollees receive employment services by 2019 and resulted in an average wage increase of $8,700.

“Community engagement” requirements — more commonly known as work requirements — have been proposed at the state level and are currently under consideration by Congress. They require some enrollees to demonstrate that they are working, volunteering, or participating in educational activities for a minimum number of hours per month to enroll in or maintain their health coverage.

But making employment a prerequisite for accessing health insurance has not been shown to increase employment among enrollees in the few states where it’s been tested. Instead, work requirements have led to coverage losses due to verification issues and complicated reporting processes — even among enrollees who are working or should be exempt from the requirements.

Broad cuts to Medicaid, like the proposed $880 billion in cuts over 10 years, could result in significant workforce reductions. In 2026, alone, it’s been estimated that these cuts will result in more than 1 million jobs lost, with California, New York, Texas, Pennsylvania, and Florida likely most affected.

How does Medicaid impact enrollees’ financial health?

Medicaid coverage helps lift enrollees out of poverty — more effectively, in fact, than federal tax credits. In states that have expanded Medicaid, enrollees have benefited from reductions in income inequality, evictions, and bankruptcies, as well as improvements in credit scores. One study found that less than two years after Michigan expanded Medicaid, the average amount of medical bills in collections for enrollees had dropped by over $500, enrollees were 11 percent less likely to be evicted, and they were 13 percent less likely to overdraw their credit cards than before expansion.

Medicaid also prepares future generations for economic success. More years of Medicaid coverage during childhood are associated with improved educational outcomes and higher earnings in adulthood. Children with Medicaid coverage during the first year of life in particular are likely to out-earn their parents later in life, indicating that Medicaid supports economic mobility and reduces intergenerational poverty.