Flow of Medicaid Funds: From the Federal Government to a Local School District


Funds are appropriated annually at the start of the fiscal year and go to the U.S. Department of Health and Human Services.

U.S. Department of Health and Human Services

Dollars are received at the U.S. Department of Health and Human Services, are administered by the Centers for Medicare and Medicaid, and are put in the state's account at the federal level.

  • Funds are allocated to each state to match state expenditures for the cost of medical assistance (i.e., Medicaid is a federal–state matching system).
  • Medicaid's federal matching rates, or Federal Medical Assistance Percentages (FMAPs), are determine by a formula tied to state per-capita income.1


The state draws down the funds as needed.2

  • If schools do participate, a system for billing is established (e.g., state regional agency, private vendor, local education agency).
  • States are not required to return all money generated by the schools back to the schools. It depends on state laws and regulations. (For example, a state may retain a percentage for administrative costs; a private vendor may retain a percentage.)

Local School Division

Medicaid revenue received is placed into the school budget and allocated as per state and/or local policy. Some states have specific requirements for how a local district must use funds.

  • Some states place restrictions on how local school districts may use Medicaid revenue. Examples: may only be used for educational purposes and shall not be made available to local communities for purposes other than education; may not be used to supplant funds currently being spent on health and social services; must be used within the special education program; may not be transferred to the district's general fund.

1 According to the Kaiser Commission on Medicaid and the Uninsured, on average the federal matching rate is 57% of the costs of Medicaid benefits (Medicaid Resource Book, July 2002)

2 State may or may not require LEAs or school districts to bill for Medicaid services.

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