Medicaid is a large entitlement program in the United States that represents an element of the welfare state. The states receive a portion of the funding for the program from the Federal government while having discretion over medical services received and eligibility for those services. Medicaid has become the largest category of state spending despite Medicaid expenditures per enrollee remaining relatively flat between 1992 and 2009. The increasing costs associated with the program are related to rising enrollments and increasing costs of pharmaceutical drugs. This study is interested in the effects of this spending on state financial condition as measured comprehensively by the measure developed by Wang, Dennis and Tu (2007), which considers the cash, budget, long-term and service solvency of the government. This has become an increasingly popular measure which was adopted by the Mercatus Center at George Mason University. Based on the results of the analysis, Medicaid spending per enrollee has a statistically significant and positive effect on state financial condition. However, when Medicaid spending per enrollee is interacted with median income and Census region the effects are significant and negative on state financial condition. Conversely, when Medicaid spending per enrollee is interacted with the unemployment rate, the federal matching rate and population the effects are significant and positive which may explain the positive effects the Medicaid variable has on state financial condition.