Since its inception, Medicaid has been fi nanced jointly by the federal and state governments. There are no caps on the federal government’s fi nancial obligations; federal funding is guaranteed as a share (known as a “match”) of all state expenditures that follow federal rules. Today, this open-ended funding model is being called into question. Republican congressional leadership and President Trump are seeking to replace the current matching system with a fi xed allocation of federal dollars paid through block grants or per capita caps.

Drawing on proposals advanced in recent years, this paper examines the factors that go into calculating the amount of federal dollars that would be allocated to each state in a capped funding model and considers how they might play out for the State of Texas. Because capped funding proposals generally provide states with greater fl exibility than the current Medicaid funding model, the paper also reviews the type of fl exibilities that might be available to Texas under such proposals.