Although the Centers for Medicare & Medicaid Services (CMS) is responsible for Medicaid program administration at the federal level, individual state Medicaid agencies establish many policies and manage their own programs on a day-to-day basis. Federal law requires each state to designate a single state agency to administer or supervise the administration of its Medicaid program. This agency will often contract with other public or private entities to perform various program functions. For example, most states contract with the private sector to operate their Medicaid Management Information Systems, which are used to process claims for payment to providers, determine eligibility, and perform a variety of other tasks (e.g., monitor service utilization and provide data to meet federal reporting requirements). In addition, state and local agencies, such as child welfare and mental health agencies, may be responsible for various aspects of a state’s Medicaid program.

CMS oversees the approval of state plan amendments, waivers, and demonstrations, and provides guidance to states through means that include State Medicaid Director and State Health Official letters. As a condition of receiving federal Medicaid funds, Section 1902 of the Social Security Act requires states to have a state plan on file with CMS that demonstrates an understanding of all federal Medicaid requirements. States are required to submit state plan amendments (SPAs) to CMS for review and approval prior to making program modifications. In addition to reviewing these SPAs, CMS works with state Medicaid agencies to review and approve applications for waivers of certain federal requirements.

Once states opt to participate in Medicaid, as all currently do, they are obligated to administer their programs within federal guidelines and requirements. The federal share for Medicaid administrative costs is generally 50 percent, but certain administrative functions receive a higher federal share. For example, upgrades to computer and data systems may be eligible for a 75 percent or 90 percent federal match if certain criteria are met. In recent years, state Medicaid program administration costs have grown at about the same rate as service costs and thus have remained a relatively constant share of total Medicaid spending, about 5 percent.1 Funding for CMS and other federal administrative activities related to Medicaid generally comes from annual appropriations.

As part of their administrative responsibilities, both states and the federal government undertake a variety of program integrity activities to detect and deter fraud, waste, and abuse in Medicaid. Ultimately these activities are intended to ensure that beneficiaries receive quality care and that taxpayer dollars are spent appropriately. Partly in response to concern about Medicaid’s vulnerability to significant financial losses and previously low levels of resources devoted to program integrity, Congress has added new requirements and funding for these activities in recent years.

Learn more about program administration:

Chapter 4 of MACPAC’s June 2014 report: Building Capacity to Administer Medicaid and CHIP

Chapter 4 of MACPAC’s March 2014 report: ACA Eligibility Changes: Program Integrity Issues

Chapter 4 of MACPAC’s June 2013 report: Update on Medicaid and CHIP Data for Policy Analysis and Program Accountability

1MACPAC analysis of CMS-64 Financial Management Report net expenditure data. This figure excludes administrative activities that are exclusively federal, such as program oversight by CMS staff.