How the Money Actually Flows: Medicaid & SNAP Plumbing, Before & After HR1
Money-Flow Diagram № 2 · Detailed Plumbing
HR1 / Public Law 119-21 · Step-by-Step
Federal–State Funding Mechanics

The actual plumbing—and where HR1 reroutes it.

Most explanations of HR1 talk about totals and percentages. This one shows the actual mechanics: who writes the check, who files the form, on what schedule, and which specific pipe the law pinches. Medicaid and SNAP have very different plumbing — so the law affects them in fundamentally different ways.

The first thing to know

Medicaid and SNAP work like opposite plumbing systems.

Medicaid is reimbursement. States pay providers first using their own money, then file paperwork with the federal government every quarter to get reimbursed. Federal dollars chase state spending after the fact.

SNAP is direct issuance. The federal government pre-funds an account that states draw against to load food benefits onto EBT cards. States never write a check for the food itself — they only handle administration. Money flows the other way: federal dollars arrive first, get spent, then USDA reconciles.

Because the two pipes work differently, HR1 had to attack them at different pressure points. For Medicaid, the law squeezes the inflow rate (FMAP) and limits how states fund their share. For SNAP, the law cracks open a brand new pipe — sending some of the cost back upstream to states for the first time in 60 years.

№ 01 Medicaid: A Quarterly Reimbursement Loop Health coverage · 78.5M people · ~$870B/yr total spending

Medicaid is jointly run by federal and state governments. The federal government doesn't send a lump sum — it reimburses states for what they've already spent, based on a matching rate called FMAP. The cycle repeats every three months, forever.

View the cycle
Watch the dollar particles flow. Solid lines = money, dashed = paperwork.
Money flow
Care/benefits delivered
Paperwork & reporting
New friction or burden
Reduced flow
The Medicaid quarterly cycle, before HR1
Pre-2026 baseline · how it worked for 60 years
№ 02 SNAP: A Federal Pre-Funded Spigot Food assistance · 42M people · ~$94B/yr in benefits

SNAP works completely differently. The federal government pre-funds the food benefits through a banking instrument called a letter of credit. The state's job is administrative: take applications, verify eligibility, transmit a daily file to the EBT processor (JPMorgan, FIS, or ACS) telling it which cards to load. Retailers swipe cards. The processor pulls federal dollars to pay them. States never touch the food benefit money — until HR1.

View the cycle
SNAP's pipe runs in the opposite direction from Medicaid's.
Money flow
Food benefits / EBT
Daily issuance file
New cost-share to USDA
Reduced reimbursement
The SNAP monthly cycle, before HR1
Pre-2027 baseline · how it worked since 1964
The bottom line

HR1 doesn't just cut funding — it rewires the plumbing.

For Medicaid: the law leaves the quarterly reimbursement cycle intact, but reduces the inflow at three key valves — capping how much of the state share can come from provider taxes, restricting state-directed payments, and forcing more frequent eligibility redeterminations that cause people to drop off the rolls (which lowers federal spending automatically).

For SNAP: the law installs a brand new pipe that didn't exist before. Starting FY 2028, states with high payment-error rates will send money back to USDA to cover 5–15% of their own residents' food benefits. It's a fundamental break with how SNAP has worked since 1964.

The shared theme: in both programs, HR1 reduces what flows to states and makes states pay more to keep services running. The difference is whether you call that "tightening a faucet" (Medicaid) or "drilling a new return line" (SNAP).

Glossary — terms used on this page

FMAP
Federal Medical Assistance Percentage. The percentage of Medicaid costs the federal government pays. Ranges from 50% (wealthier states) to ~77% (poorer states); 90% for ACA expansion adults.
FFP
Federal Financial Participation. The actual dollar amount the federal government pays a state for a given quarter, calculated as FMAP × eligible expenditures reported on the CMS-64 form.
CMS-64
The Quarterly Medicaid Statement of Expenditures. The state's accounting form filed within 30 days after each quarter, reporting actual spending. This is what triggers federal reimbursement.
CMS-37
The Medicaid Program Budget Report. Filed quarterly by states in advance to estimate the next quarter's spending. Used by CMS to issue the upfront grant award.
MBES/CBES
Medicaid Budget & Expenditure System / CHIP Budget & Expenditure System. The federal web app where states electronically file CMS-37 and CMS-64. Calculates FFP automatically.
Provider tax
A tax most states charge hospitals, nursing homes, or insurance plans, used to fund the state share of Medicaid. Was capped at 6% of revenue; HR1 lowers it to 3.5% for expansion states by 2032.
State-directed payment
A way states require Medicaid managed-care plans to pay providers (especially hospitals) at set rates. HR1 limits these payments, particularly to safety-net hospitals.
Letter of credit
A standing credit line USDA establishes with each state's Treasury account for SNAP. The state can draw against it to load EBT cards. States never see the cash directly — it's an authorization to spend federal money.
EBT processor
Private contractor that runs the technology behind EBT cards. Three companies do this nationally: JPMorgan, Fidelity National Information Services (FIS), and Affiliated Computer Services (ACS).
Daily issuance file
A file the state SNAP agency transmits to its EBT processor saying which cards to load with which amounts. The processor pulls federal funds from the state's letter of credit to back the loads.
Payment error rate
USDA's measure of SNAP benefits issued incorrectly — overpayments or underpayments, mostly from clerical mistakes. Not a measure of fraud. National rate is 10.93%. HR1 ties this number directly to state cost-share for the first time.
Eligibility redetermination
The state's process to verify a person still qualifies for Medicaid. HR1 requires this for expansion adults every 6 months instead of annually — doubling the paperwork.
Sources
HR1 / P.L. 119-21 statutory text · CMS Medicaid Budget & Expenditure System (MBES/CBES) documentation, Title 42 CFR Part 430.30 · USDA FNS SNAP Benefit Issuance & Letter of Credit procedures · Congressional Research Service R42505 (SNAP Primer) · KFF analyses of HR1 Medicaid & SNAP provisions, July 2025 · Form CMS-64 and CMS-37 documentation. Dollar figures: FY 2024 baseline; reductions phased in FY 2026–2034. The flow diagrams simplify reality — actual financial systems include Treasury draws, advance grant adjustments, and territorial & tribal variations not depicted here.