“The federal government provides broad guidelines to states regarding allowable funding sources for the state share (also referred to as the nonfederal share) of Medicaid expenditures. However, to a large extent, states are free to determine how to fund their share of Medicaid expenditures. As a result, there is significant variation from state to state in funding sources.
“States can use state general funds (i.e., personal income, sales, and corporate income taxes) and other state funds (e.g., provider taxes,53 local government funds, tobacco settlement funds, etc.) to finance the state share of Medicaid. Federal statute allows as much as 60% of the state share to come from local government funding.54 Federal regulations also stipulate that the state share not be funded with federal funds (Medicaid or otherwise).55 In state fiscal year 2017, on average, 72% of the state share of Medicaid expenditures was financed by state general funds, and the remaining 28% was financed by other state funds.56“
Source: U.S. Congressional Research Service. Medicaid: An Overview (R43357; June 24, 2019). https://crsreports.congress.gov/product/pdf/R/R43357