Intergovernmental Influences on Medicaid Program Expenditures

The Medicaid program is an important component of the American welfare system. It is the major mechanism for financing health care for the poor in the United States. As such it accounts for a significant amount of domestic governmental spending. Indeed, only a small handful of programs (social security, Medicare, and unemployment insurance) exceed it in size. Surprisingly, however, little is really known about the factors which determine the exact amount of spending on this program. Given the importance of Medicaid, this is a glaring omission in understanding the policy-making process. The sheer magnitude of the Medicaid program makes it an important subject for research. But, it is also an interesting topic for several other reasons. First, it provides insights about the various levels of government in the development of public policy. Medicaid is a federal grant-in-aid program. The national government delineates, promotes, and monitors program developments: it establishes the general parameters of Medicaid policy, and it provides financial incentives to encourage state participation and compliance. Yet, the states have always exerted a great deal of control over important aspects of the program. ' The states specify the exact eligibility requirements, benefit levels, and provider reimbursement mechanisms, and they determine whether state or local governments implement the program. This intergovernmental "partnership" was designed to facilitate program development, but it often makes it difficult to tell which level of government is really responsible for Medicaid policy. Therefore, a systematic analysis should focus on the relative importance of these governmental levels. Second, public administrators have ample opportunity to influence Medicaid developments. This may be somewhat surprising since Medicaid is an "entitlement" program, and as such one might expect expenditure levels to be predetermined by legislative decisions which set the scope of program coverage. Thus, one might expect the classic distinction between politics and administration to hold true for Medicaid: the legislature makes the policy, and the bureaucracy simply implements it.2 However, this assumption is seriously misleading, because it ignores the discretionary authority of bureaucrats at various levels of government over important decisions about the allocation of program resources. This discretion must be taken into account if one is to obtain an accurate understanding of Medicaid policy making. Thus, a careful analysis of the Medicaid program should reveal important insights about the * Medicaid is a vital element of the government's strategy for assisting the poor. However, little is really known about the factors which affect program spending. This study looks at national, state, and local influences on state Medicaid expenditures for the period from 1975 to 1985. The analysis shows that incrementalism, local administration, and the Reagan presidency all have had profound impacts on Medicaid policy. The administrative structure of Medicaid implementation must be taken into account in order to explain program differences across states and across time.