States get roughly a third of their revenue from the federal government—funding that pays for health care, schools, roads, public safety, and other programs. Federal grants to states are about 42 percent higher than they were when the Great Recession began in 2008, after adjusting for inflation. However, federal support has varied significantly by program, with grants for health care rising 73 percent in real terms from 2008 to 2018, while other areas saw a decrease or nominal increase.
Federal policies have helped to shape the divergent trend in health versus nonhealth grants. (See Figure 1.) A provision in the Affordable Care Act allowed states to expand their Medicaid programs to cover some previously ineligible low-income adults, with federal funding covering 100 percent of the costs through 2016, then gradually dropping to 90 percent by 2020. In part because of this expansion, Medicaid spending has increased by 73 percent since 2008 and has been the main driver of growth in federal health grants and in all federal funds to states. (See "Medicaid Makes Up Most Federal Grants to States.") In particular, Medicaid funds flowing to states rose sharply in fiscal year 2015, the first full year of implementation for most states that expanded Medicaid. As of the end of fiscal 2018, 31 states and the District of Columbia had expanded the program.
By contrast, nonhealth grants increased by only 1 percent from 2008 to 2018. Until recently, policy decisions such as statutory limits on discretionary spending set by the Budget Control Act of 2011 resulted in negative growth in most of the nonhealth program areas compared with 2008. However, higher spending limits under the Bipartisan Budget Act of 2018 contributed to increases in federal outlays for income security and “everything else” as well as smaller decreases in transportation and education than in previous years.