Created by the U.S. Congress in 1965 and established by the Texas Legislature in 1967, the Texas Medicaid program is expected to cover some 3 million Texans over the 2008-09 biennium who are determined to be eligible for Medicaid by virtue of their condition (for example, the aged, blind, and disabled, along with pregnant women and children) and their income, which varies by eligibility category. To provide services to these 3 million Texans, the legislature appropriated $39.6 billion to Medicaid for 2008-09.

As the graph above illustrates, Medicaid spending has increased steadily from one biennium to the next. In 1988-89 (not shown) the state spent $4.5 billion on Medicaid, which grew to $21.5 billion in 1998-99, and will now approach $40 billion for the current biennium. As state Medicaid spending has almost doubled in the last ten year, Medicaid has become the second single largest item in the state budget behind public education.