This Act may be cited as the Medicaid Financing Clarification Act of 2026.

(a) State plans for medical assistance Section 1902(a) of the Social Security Act (42 U.S.C. 1396a(a)U.S. Code — Title 42, Section 1396a(a)View official source on GovInfo) is amended in paragraph (2) by inserting, including public funds transferred from or certified by political subdivisions, after from local sources. (b) Definitions Section 1905 of the Social Security Act (42 U.S.C. 1396dU.S. Code — Title 42, Section 1396dView official source on GovInfo) is amended by adding at the end the following new subsections: (ll) Public funds For purposes of sections 1902(a)(2) and 1903(w), public funds means State and local funds in the possession of a political subdivision or public agency, including tax revenues, appropriations, fees, grants, earned interest, fines, sale or lease of public resources, legal settlements and judgments, revenue from bond issuances, tobacco settlement funds, and patient care revenues. Federal funds may not be used as public funds unless authorized by Federal law to be used as matching funds for other Federal funds. (mm) Political subdivision For purposes of subsections (cc) and (ll) of this section and subsection 1902(a)(2), a political subdivision is a separate legal entity of a State which has specific governmental functions. A political subdivision may include a county, city, town, village, district, non-State governmental entity, or other unit of local government in a State. (nn) Public agency For purposes of subsection (ll) of this section and subsections 1902(a)(2) and 1903(w), a public agency is a unit of government, including a State or any political subdivision thereof..