While it is an optional benefit, all state Medicaid programs provide prescription drug coverage to their beneficiaries. Medicaid drug coverage accounts for 19 percent of total national drug spending. As a result of rising prescription drug costs, states have taken action to control costs, including creating preferred drug lists (PDLs), using utilization restrictions on certain medications, such as prior authorization, and negotiating rebates with pharmaceutical manufacturers. In addition, with the recent enactment of the Deficit Reduction Act (DRA), states can also use enforceable, higher co-payments for prescription drugs than they previously were allowed.

As part of the Medicare drug benefit, those receiving Medicare and Medicaid, called dual eligibles, had their drug coverage switched from Medicaid to Medicare at the beginning of 2006. Dual eligibles now receive subsidized drug coverage through one of the Medicare prescription drug plans provided by private insurers. Medicaid continues to wrap around Medicare's benefits for the dual eligibles. While they are no longer providing prescription drug coverage to the dual eligibles, the states are responsible for payments to the federal government to provide for the dual eligibles' drug coverage, called the "clawback."