Three Papers Toward a Better Understanding of State Medicaid Programs and Program Efficiency

Brian C. Blase

Major Professor: Thomas Stratmann, PhD, Department of Economics

Committee Members: Alexander Tabarrok, Len Nichols, Robert Book

Carow Hall, Conference Room
April 29, 2013, 09:30 AM to 07:30 AM


The federal government provides an uncapped reimbursement of state Medicaid spending.  In theory, states can use the federal Medicaid funds as a replacement for state funds or the federal funds, which take the form of a matching grant that reduces the relative price of Medicaid, can increase (or stimulate) spending on Medicaid with state-raised tax revenue.  In my first dissertation paper, Subsidizing Medicaid Growth: The Impact of the Federal Reimbursement on State Medicaid Programs,I use a state panel data set from 1992 to 2006 to assess the impact of the federal reimbursement on the size of state Medicaid programs.  I found that a one point increase in a state’s Medicaid reimbursement percentage increases state per capita Medicaid spending between $4 and $12 and increases the percentage of the state’s population receiving Medicaid benefits by 0.04 percent to 0.29 percent. 

The first paper also utilizes a case study to show that Alaska’s Medicaid program grew significantly when its effective federal Medicaid reimbursement increased 50 percent between 1998 and 1999.  The large growth in Alaska’s Medicaid program after this increase bolsters the evidence that states respond to large increases in the federal Medicaid subsidy in a stimulative manner by increasing spending with state-raised revenue.  The results in this paper are consistent with the hypothesis that decentralization in the form of intergovernmental matching grants increases the size of government.  In this paper, I also found that states with wealthier and more liberal populations tend to have larger Medicaid programs and that states with Democratic legislatures tend to have more Medicaid beneficiaries than states with Republican legislatures. 

Since 2008, states have experienced significant budgetary pressure; in large part, because of rising Medicaid enrollment due to the recession and weak recovery.  Between 2009 and 2011, many states enacted health care provider taxes as a way to bring in additional revenue through the federal Medicaid reimbursement.  Provider taxes are generally supported by health care providers since states often give providers an implicit or explicit guarantee of a return of at least as much funding through higher payment rates or supplemental payments.  In the second dissertation paper, Impact of Hospital and Nursing Home Taxes on State Medicaid Spending, I assess the impact of the two largest provider taxes, the hospital tax and the nursing home tax, on state Medicaid expenditures using a panel dataset of 42 states from between 2007 and 2011.  I found significantly larger Medicaid spending growth for hospitals in states that added hospital taxes and significantly larger Medicaid spending growth for nursing homes in states that added nursing home taxes within the first two years of the enactment of the tax.  I also found that states with hospital taxes in place in 2007 were able to grow their total Medicaid spending significantly more than states without hospital taxes during the economic downturn and initial recovery period.  This paper also contains evidence that nursing home taxes diverted Medicaid spending from home and community based services to nursing homes. 

In the third dissertation paper, Statewide Health Impact of Tennessee’s Medicaid Expansion, I utilize a quasi-experimental approach to assess the impact of a large statewide public health insurance expansion on access to health care services, health care utilization, and health outcomes.  In 1994, Tennessee expanded its state Medicaid program, called TennCare, by about ten percent of the state’s population.  Along with a major Medicaid expansion, Tennessee increased government subsidies for individuals to purchase health insurance coverage and emphasized managed care.  Using a difference-in-difference methodology with Tennessee’s neighboring states as controls, I found that TennCare’s impact on utilization was mixed as blood pressure and cholesterol checks increased but regular physician check-ups decreased relative to the surrounding region.  Surprisingly, both self-reported health and mortality rates were less favorable in Tennessee relative to the control states after TennCare.  Ultimately, the evidence in this paper suggests that health reform built around a significant public insurance expansion is likely to result in minimal, if any, overall health gains measured in the entire population, at least in the short run.