Spending on Social Welfare Programs in Rich and Poor States. Final Report.. C. Medicaid


The site visits indicated that decisions about Medicaid were more likely than other social program areas to involve active and highly organized constituencies, especially service providers, and to engage the attention of elected officials, including legislators and sometimes governors and their staff or top appointees. Medicaid budgets and policies were thus highly salient to elected officials and often assessed as much for their economic effects on health industries and jobs as for their effects on clients. Our respondents singled out nursing homes and hospitals as having especially powerful lobbies in several of our states. Developmental disability programs were also viewed as having effective advocates among institutions as well as community-based providers. Doctors were typically seen as less effective, and their reimbursements were more likely to be cut or less likely to be increased. Drug companies, dentists, and others also became active from time to time in state legislatures if and when relevant cuts or expanded services were under consideration. Even child advocacy organizations in these states were more interested and active on CHIP and Medicaid issues than in other social programs; indeed, some were service providers themselves because many were directly involved in CHIP outreach.

  Hospital beds
per 100,000 population, 2001
Percentage of Nursing Facility Residents
Using Medicaid, 2001
Exhibit IV-10.
Indicators of Health Industry Size and Reliance on Medicaid in Six Poor States
Mississippi 430 82.3
Louisiana 396 79.1
West Virginia 384 73.0
South Carolina 271 74.5
Arizona 210 63.1
New Mexico 195 69.5

The direct involvement of service providers or industry representatives in the budget process might help account for some of the geographical differences found in state spending on payments to medical vendors. Southern and rural states have more hospitals and nursing homes per capita than other states, and the health industry plays a larger role in these states' economies. As Exhibit IV-10 demonstrates, Mississippi and Louisiana had about twice the hospital beds per unit population than did Arizona and New Mexico, and nursing home industries in southern states depended more on Medicaid patients than in the western states. The nursing home data suggest another important difference between poor southern and border states and others: although hospitals and other health care institutions in many states tend to split between some that rely heavily on Medicaid and many that do not, such divisions are less common among poor rural states (i.e., most institutions get substantial support from Medicaid). Most births, for example, are paid for by Medicaid in these states. In such states, Medicaid is more likely perceived as a universalistic program-one that helps many, if not most, communities and populations.

Political support for Medicaid was more than simply a matter of organized providers. It was also one of the few major programs where legislators knew some of the clients and viewed them sympathetically. Officials regarded many nursing home residents as coming from middle or working class families. Also, one legislative aide noted that experienced legislators in his state knew every one of the families in their districts who relied on the Continuum of Care program under Medicaid that paid for expensive and intensive services to families caring for dependents with multiple and severe problems. The prevalent view that these and other health-related problems were not the clients' fault, the fact that some clients relied so intensively on these programs that they often contacted legislators if problems occurred, and the widespread distribution of such cases throughout the state were all characteristics that enhanced political support in state legislatures, which often dominated budget decisions, especially in the southern states.

Federal requirements and incentives were also critical. Many of these poor states had minimal Medicaid programs, covering relatively few optional services and populations. Thus, increases in federal minimum requirements, which grew dramatically in the early 1990s, strongly affected these states. Also, unquestionably, the poor states are willing to spend money on Medicaid due to the high federal match rate for low fiscal capacity states and the ability of states to use a number of strategies to maximize their draw of federal dollars under Medicaid. The attractive "prices" of Medicaid in these states were indeed important factors in maintaining state support for the program, especially during a recession. Medicaid match rates, which were based on states' per capita personal income, ranged among these states from more than 3:1 for Mississippi to 2:1 for Arizona, and they were even higher for CHIP. Health care administrators and other advocates used these rates widely as arguments in budget battles that any cut in state spending produces a much larger cut in total spending.

But though the fiscal formula might prove a necessary condition for Medicaid's fiscal robustness, it seems to be an insufficient condition. The same match was available for child welfare programs, and the results were much less expansive. As a matter of fact, child welfare programs have had such problems obtaining state matching funds in recent years, some state administrators have used their discretion over the TANF block grant to support such programs, even though the fiscal price of TANF dollars was much higher. Attractive matching formulae would seem to exert a contingent effect on spending: they can constitute powerful political arguments in budget battles when the arguments are backed up by strong, organized constituencies.

That states, and especially poor states, support Medicaid strongly because they can use certain strategies to maximize their draw of federal resources might also be argued. Again, the site visits revealed that poor states employ these strategies, and they surely exert some impact on support for the program. The two most common methods of maximizing federal dollars among these states relied on Medicaid expenditures for disproportionate share hospital (DSH) programs and upper payment limit (UPL) programs (for details on these expenditure programs and their use in maximization strategies, see Coughlin and Zuckerman, 2002). For example, Louisiana has relied a great deal on DSH programs to increase its federal payments under Medicaid, while South Carolina has relied more on UPL. DSH and UPL programs have allowed states to make large Medicaid payments to health providers, payments which the state has in turn used to claim federal matching dollars. Sometimes these state payments to providers under DSH or UPL are made in response to large payments by providers to the state (through, for example, intergovernmental transfers or donations). In such instances, the health care providers are usually reimbursed for their donations or intergovernmental transfers by the state, while the state gets, in effect, a higher federal match rate as it uses its transactions with health care providers to pull down federal dollars.

Yet such strategies do not account for much of the Medicaid program in these states. Nor do they provide much help in explaining recent program expansions.

As Exhibit IV-11 demonstrates, DSH payments constitute a small part of the Medicaid budgets in most of these states. Only Louisiana and South Carolina rely more than the national average on DSH payments as a percentage of their total Medicaid expenditures, and some of the states receive little DSH money. Also, these payments have declined over the years as the federal government imposed limits on their use in the middle 1990s, so such strategies cannot account for the growth in spending among poor states on Medicaid in the late 1990s and early 2000s. Again, Medicaid maximization strategies might well contribute to the growth of the program, but by themselves they cannot explain its dynamics and widespread support. Such strategies are probably more powerful when they are backed up by more concrete motivations, such as important constituencies. For example, the extensive use of DSH in Louisiana might reflect formalized concerns about supporting parts of the state's health industry: Louisiana has a statutory provision that requires it to keep rural hospitals viable.

Exhibit IV-11.
DSH Payments as a Percentage of Total Medicaid Spending, Six Poor States and Average for All States, 1993-2003

DSH Payments as a Percentage of Total Medicaid Spending, Six Poor States and Average for All States, 1993-2003

Other factors might have increased support for Medicaid. In most of the states, the agencies that administered Medicaid were separated from those that administered welfare and non-health social services, and that separation insulated health programs from the often negative views about social service agencies held among legislators. As Exhibit IV-12 shows, the most consistent divide in agency responsibilities in these six states was between health programs and all non-health social services and income support programs. Only in West Virginia did the same agency that handled "welfare" also manage Medicaid.

  TANF Child Care Child Welfare Medicaid SCHIP
Exhibit IV-12.
Agency Responsibilities for Major Program Areas in the Six Poor States
West Virginia Department of Health and Human Services Department of Administration
Arizona Department of Economic Security Arizona Health Care Cost Containment System
Louisiana DSS and Governor's Office Department of Social Services Department of Health and Hospitals
Mississippi Department of Human Services Office of the Governor State and Public School Employees Health Ins Mgt Brd
New Mexico Human Services Department Children, Youth, and Families Department Human Services Department
South Carolina Department of Social Services Department of Health and Human Services Department of Social Services Department of Health and Human Services

Perhaps reflecting while also reinforcing the strong political support for health programs, political and administrative leadership were frequently more stable among health agencies and legislative committees dealing with health issues, while other human service agencies often saw rapid turnover. Sometimes, as in South Carolina, the decades-long involvement of a single senator was seen by respondents as a critical factor in ensuring stable support for Medicaid. But though that situation might not be the case in every state, such stability in leadership was much less common in other social program areas.

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