Federal requirements for state Medicaid programs are surveyed, and case law regarding Medicaid funding of sex reassignment surgery is reviewed. States have attempted to exclude sex reassignment surgery (SRS) from Medicaid coverage on various bases, concluding, for example, that the procedure constituted "cosmetic surgery." Judicial scrutiny of such exclusions has usually resulted in the state action being found violative of the federal Medicaid statute and accompanying regulations. In those cases upholding the state exclusion, the primary judicial obstacle to funding has been a determination that SRS is "not medically necessary" or is "experimental." The author explores the recent scientific literature concerning long-term outcomes following SRS and concludes that the procedure, for purposes of Medicaid funding, is neither "unnecessary" nor "experimental," and that the categorical exclusion of SRS from Medicaid coverage is therefore inappropriate. The author recommends case-specific determinations of eligibility for Medicaid funding, utilizing the standards of care promulgated by The Harry Benjamin International Gender Dysphoria Association.