Has the Shift to Managed Care Reduced Medicaid Expenditures? Evidence from State and Local‐Level Mandates

From 1991 to 2009, the fraction of Medicaid recipients enrolled in HMOs and other forms of Medicaid managed care (MMC) increased from 11 percent to 71 percent. This increase was largely driven by state and local mandates that required most Medicaid recipients to enroll in an MMC plan. Theoretically, it is ambiguous whether the shift from fee‐for‐service into managed care would lead to an increase or a reduction in Medicaid spending. This paper investigates this effect using a data set on state‐ and local‐level MMC mandates and detailed data from the Centers for Medicare and Medicaid Services (CMS) on state Medicaid expenditures. The findings suggest that shifting Medicaid recipients from fee‐for‐service into MMC did not on average reduce Medicaid spending. If anything, our results suggest that the shift to MMC increased Medicaid spending and that this effect was especially present for risk‐based HMOs. However, the effects of the shift to MMC on Medicaid spending varied significantly across states as a function of the generosity of the state's baseline Medicaid provider reimbursement rates.     

The Medicaid Mandates of the 1980s: An Intergovernmental Perspective

Medicaid, the health care program for the poor, has undergone significant changes in the last fifteen years. Many of those changes relate to the intergovernmental nature of the program. Medicaid is jointly operated, with the federal and state governments sharing program costs. Despite a set of program guidelines dictated by the federal government, states have traditionally had substantial latitude in Medicaid decisions. However, a series of developments in the 1980s led to increasing constraints on state Medicaid discretion, including federal mandates to expand Medicaid coverage. This article examines the inception and effectiveness of the Medicaid mandates from the perspective of interstate equity of health care services for poor families.     

Privatizing Public Nursing Homes: Examining the Effects on Quality and Access

This study examines the effects of local government divestment on quality and access to care for Medicaid recipients in privatized nursing homes. The central hypotheses are concerned with the impact of new ownership on both aspects of organizational performance. The analysis indicates that privatization of nursing homes involves a complex set of trade-offs. Changing organizational ownership to for-profit increases the number of regulatory violations, decreases residents' quality of life, but does not influence Medicaid admissions. While no decline in quality is found among divested nonprofit facilities, access to care declines in the comparison groups of nonprofit homes. The author concludes that as counties minimize their roles as service producers, federal, state and local governments should enhance their regulatory capacity by improving quality assurance mechanisms and providing adequate reimbursement for low-income clients.     

THE STATES' ROLE IN HEALTH CARE COST CONTAINMENT*

Under the Social Security Act of 1935, the federal government expanded its involvement in maternal and child health care programs through grants-in-aid to state and local health departments. The Medicaid legislation of 1965 vastly enlarged federal expenditures, and state responsibilities. State performance was frequently criticized, especially in health care cost containment. Recently, the states have initiated several efforts to link cost containment and the quality of health care.     

The Influence of Federal Mandates on State Medicaid and AFDC Decision-Making

This article focuses on the influence of federal Medicaid mandateson state AFDC and Medicaid policy decision-making. The resultsconfirm certain concerns about federal mandates: the benefitsof federal Medicaid mandates (eligibility expansions to pregnantwomen and infants) appear to be offset by state reductions inAFDC and other Medicaid policy areas. In particular, federalMedicaid mandates had a negative effect on AFDC and MedicallyNeedy financial eligibility levels and Medicaid optional benefitcoverage—areas where states maintained discretionary power.A political-economic theory is used to test the impact of federalMedicaid mandates where a different political process is postulatedfor each policy dimension. The model is estimated using paneldata and a heteroskedastic, timewise autoregressive model.     

Medicaid in the 1990s: Trends, Innovations, and the Future of the "PAC-Man" of State Budgets

Rapidly escalating health-care inflation and congressionallymandated expansions have led to large increases in spendingfor Medicaid, the federal-state program of health care for thepoor. These increases came at a time when state budgets werealready under recession-induced stresses. In addition, 1991brought new pressures for Medicaid spending from the courtsand closer federal scrutiny and control over revenues used forthe program's state "match." Yet the Medicaid picture is farfrom bleak. Diversity, innovation, and an emerging stale policyrole also characterize the program in ways that epitomize thestrengths and weaknesses of the American intergovernmental system.     

Does the Federal Government Learn from the States? Medicaid and the Limits of Expertise in the Intergovernmental Lobby

State programmatic expertise is an important asset to federalsystems, but this expertise is not always informative to federaldecision-makers. I argue the degree to which state expertiseis informative to federal decision-makers depends on how wellthe policy interests of state and federal levels are aligned.I illustrate variation in these conditions using case studiesof congressional politics over the Medicaid program. I thenapply a statistical test, which demonstrates that states’programmatic expertise regarding Medicaid is less persuasiveto congressional committee members compared to other witnesseswho are equally knowledgeable. The results suggest a "failureof federalism," where the public good potential of state programmaticexpertise often is not realized in the federal system.     

The Federal Role in State Fiscal Stress

This article examines the extent to which the federal government'spolicies were responsible for the fiscal stress experiencedby most state governments in the early 1990s. Federal policieshave contributed considerably to recent state fiscal stress,particularly through the Medicaid program—the fastestgrowing part of state budgets—and the recession, whichdepressed revenue and increased welfare and Medicaid spending.Federal aid reductions have not been an important source ofrecent state fiscal stress. The real value of per capita federalaid other than for welfare programs fell considerably in the1980s, but the reductions were much greater for local governmentsthan for states. The largest reductions were in the early 1980s.Federal policies have affected state finances in several otherways—through tax policy, unfunded mandates, and the federalfailure to cope effectively with problems like health and poverty.Federal court rulings have also caused budget problems (as havestate court decisions). In some respects, state fiscal problemsare not a federal responsibility. Rising school enrollments,new corrections policies, and inelastic tax systems have createdfiscal stress for many states. Excessive state spending in the1980s has contributed to recent fiscal problems in some states,but not generally.     

Medicaid costs and birth outcomes: the effects of prenatal WIC participation and the use of prenatal care.

This study examines the effects of prenatal WIC participation and the use of prenatal care on Medicaid costs and birth outcomes in five states--Florida, Minnesota, North Carolina, South Carolina, and Texas. The study period is 1987 for Florida, Minnesota, North Carolina, and South Carolina and January-June 1988 for Texas. Prenatal WIC participation was associated with substantial savings in Medicaid costs during the first 60 days after birth, with estimates ranging from $277 in Minnesota to $598 in North Carolina. For every dollar spent on the prenatal WIC program, the associated savings in Medicaid costs during the first 60 days ranged from $1.77 to $3.13 across the five states. Receiving inadequate levels of prenatal care was associated with increases in Medicaid costs ranging from $210 in Florida to $1,184 in Minnesota. Prenatal WIC participation was associated with higher newborn birthweight, while receiving inadequate prenatal care was associated with lower birthweight.     

A political theory of intergovernmental grants

This paper formulates a political theory of intergovernmental grants. A model of vote-maximizing federal politicians is developed. Grants are assumed to buy the support of state voters and the ‘political capital or resources’ of state politicians and interest groups which can be used to further increase the support of state voters for the federal politician. The model is tested for 49 states. Similarity of party affiliation between federal and state politicians and the size of the Democrat majority in the state legislature increases the per capita dollar amount of grants made to a state. Likewise, increases in both the size of the state bureaucracy and union membership lead to greater grants for a state. Over time, the importance of interest groups (bureaucracy and unions) has increased relative to political groups (state politicians).     

Wealth-Transfer Taxes in U.S. Fiscal Federalism: A Levy Still in Need of Reform

Wealth-transfer taxes are federal and state levies on the valueof estates, inheritances, and gifts. Because the federal governmentallows a limited tax credit, repeal of the federal tax has implicationsfor state governments. This article discusses the economic justificationof taxing wealth transfers and provides data on the importanceof the tax from 1977 to 1997. We measure the degree of variationin the use of the tax among the states and pinpoint those statesfor which death taxation is most important. Wealth-transfertaxation needs reform but, repeal of the federal tax is inappropriate.Instead, the state levies should be abandoned. We conclude byproposing to repeal the state taxes and reduce the federal taxby an amount equivalent to the value of the federal tax-credit.The resulting revenues, however, would not to be garnered bythe federal government but returned as revenue-sharing fundsto the resident state of the decedent.     

The Bush Administration's Proposal for Credit Reform: Background, Analysis, and Policy Issues

Large recent and forecasted federal outlays to cover losses on deposit insurance and federally-assisted credit have increased concern in the executive and legislative branches about potential future liabilities of the federal government. These potential liabilities include federal credit; consequently, this renewed interest in federal credit reform. Credit reform would have to change the budgetary treatment of federal direct loans and federal guaranteed loans. Currently, the unified budget measures the cost of federal credit on a cash flow basis. Critics (including the Bush Administration) maintain that the appropriate budgetary measure of the costs of federal credit is the present value of the subsidies to credit recipients in the fiscal year that the credit is advanced. The Bush Administration's proposal for credit reform is presented in most detail in the Federal Credit Reform Act of 1989 (the Act), which was proposed but not enacted. The Act would have had federal officials estimate credit subsidies based on the equivalent interest rates in private credit markets. These subsidies would have been used to measure the budgetary cost of federal credit and would have required annual appropriations. Two credit revolving funds would have been established in the Treasury to finance credit flows. Many of these credit reform practices were included in the Omnibus Budget Reconciliation Act of 1990 though.     

Do intergovernmental grants create ratchets in state and local taxes?

A large literature on the ‘flypaper effect’ examines how federal grants to states at time period t affect state spending (or taxes) at time period t. We explore the fundamentally different question of how federal grants at time period t affect state tax policy in the future. Federal grants often result in states creating new programs and hiring new employees, and when the federal funding is discontinued, these new state programs must either be discontinued or financed through increases in state own source taxes. Government programs tend to be difficult to cut, as goes Milton Friedman’s famous quote about nothing being as permanent as a temporary government program, suggesting that it is likely that temporary federal grants create permanent (future) ratchets in state taxes. Far from being purely an academic question, this argument is why South Carolina’s Governor Mark Sanford attempted to turn down federal stimulus monies for his state. We examine both the impact of federal grants on future state budgets and how federal and state grants affect future local government budgets. Our findings confirm that grants indeed result in future state and local tax increases of roughly 40 cents for every dollar in grant money received in prior years.     

Learning from the States? Federalism and National Health Policy

In its 1993 report, the Winter Commission gave direction to the federal government in the area of health policy and Medicaid: lead, follow, or get out of the way. This article examines how the federal government responded to that advice, specifically asking what has happened in the allocation of responsibility in health policies between 1993 and 2006. In short, unlike the suggestion that there be a better‐defined direction in federal–state policy assignments in health, the ensuing years have resulted in more of the same. The authors examine what has happened, particularly focusing on vertical diffusion—where the states have acted first—and on the role of policy learning in federal decision making. They find little recognition of policy learning in recent federal health laws—even in areas in which state experience was extensive. The federal government is leading in some health policies—but it is leading without learning.     

Federal Highway Assistance Funds in the State Infrastructure Bank Programs: Mechanisms,Merits, and Modifications

In response to the declining financial resources for state transportation infrastructures, the National Highway System Designation Act of 1995 (P. L. 104–159) authorized the establishment of the State Infrastructure Bank (SIB) Pilot Programs. This paper shows how the federal assistance funds deposited into the SIB equity fund can maximize state highway resources through a simulation. From 1998 to 2003, one dollar of the federal funds augmented state highway expenditures by 5.24 dollars in a specific year in contrast to the original intention of perpetuating state highway spending. This study further suggests ways to modify and improve the current SIB mechanism.     

Medicaid matters: children's health and Medicaid eligibility expansions.

In the late 1980s, a series of federal laws were enacted which expanded Medicaid eligibility to more of the nation's children. States had a great amount of discretion in how fast and how far these expansions were implemented. As a result, there was great variation among the states in defining who was eligible for the program. This variation provides a rare opportunity to disentangle the effect of Medicaid from a child's socioeconomic status. Using data from the National Health Interview Survey, we address whether the Medicaid expansions improved the health and functional status of children. Econometric models were developed using fixed-effects regressions, and were estimated separately for white, black, and Hispanic children. White children experienced statistically significant reductions in acute health conditions and functional limitations. Black and Hispanic children showed some evidence of improved health conditions and functional status, but this evidence is inconclusive in the study sample. This may be due to differences in their access to appropriate health services or to the smaller sample size of minorities in each geographic area. The findings are also relevant to the implementation of the Children' Health Insurance Program (CHIP), the latest federal effort to expand access to health care to poor and near poor children. In many states, CHIP is being implemented in whole or in part through further Medicaid expansions.     

FINANCIAL INDICATORS AND TRENDS FOR LOCAL GOVERNMENTS: A STATE-BASED POLICY PERSPECTIVE

Recent federal reports, the projected "new" federalism, research in financial and economic trends, and the emerging consensus concerning local government distress have highlighted the fact that no comprehensive or systematic federal, state, or local policies exist to deal with the problems that have been identified. The purpose of this article is to perform a statebased study of financial patterns and trends in local governments that have implications for state policy. Included in the analysis were correlations between constant dollar financial indicators and an instability index for four data points. The results of the analysis and trends suggest that certain consistent patterns which have implications for state policy exist.     

Federal health care policy and the geographic diffusion of physicians: A macro-scale analysis

The federal government passed legislation in the 1960's and 70's to increase physician supplies and reduce spatial inequalities in access to physicians. A major policy was to aggressively continue increasing the overall supply of physicians on the assumption that market forces would eventually divert physicians from areas of high physician density to those of low density. Using state-level, annual data collected over a 21-year period, this paper investigates the macro-scale spatial diffusion of physicians as an essential element in evaluating this policy. The results provide evidence of the policy impacting locational trends relating to primary care physicians, but not specialists. They also indicate that the Medicaid/Medicare programs may have adversely affected the maldistribution problem.     

Parental Leave Legislation and Women's Work: A Story of Unequal Opportunities

U.S. federal and state family leave legislation requires employers to provide job‐protected parental leave for new mothers covered under the legislation. In most cases the leave is unpaid, and rarely longer than 12 weeks in duration. This study evaluates disparities in parental leave eligibility, access, and usage across the family income distribution in the United States. It also describes the links between leave‐taking and women's labor market careers. The focus is especially on low‐income families, as their leave coverage and ability to afford taking unpaid leave is particularly poor. This study shows that the introduction of both state and federal legislation increased overall leave coverage, leave provision, and leave‐taking. For example, the Family and Medical Leave Act (FMLA) leads to an increased probability of leave‐taking by nearly 20 percentage points and increased average leave length by almost five weeks across all states. The new policies did not, however, reduce gaps between low‐ and high‐income families’ eligibility, leave‐taking, or leave length. In addition, the FMLA effects on leave‐taking were very similar across states with and without prior leave legislation, and the FMLA did not disproportionately increase leave‐taking for women who worked in firms and jobs covered by the new legislation, as these women were already relatively well covered by other parental leave arrangements.     

Subsidizing the affluent: the case of medical education.

State and federal funds are important sources of revenue for medical schools, and a strong case can be made for public support for these institutions. Although the federal role is more widely known, the states in fact provide the bulk of direct support for medical training. The nature of aid from the two sources differs in significant ways. Most federal aid supports research or patient care, but much of state aid goes to support unconditional tuition subsidies. The primary beneficiaries of these subsidies are relatively affluent nonminority students who are beginning lucrative careers in the medical field--careers that would be lucrative even if no subsidies were provided. Nor does it appear that general subsidies are needed to attract poor and minority applicants. While targeted loans and scholarships to individuals may be justified, general tuition subsidies are not.