The Political Economy of State Medicaid Policy

Abstract

We develop and test a market-based model to explain variations in states' welfare medicine policy decisions. The empirical results support the model of state policy outputs, indicating that states' spending efforts for welfare medicine are most sensitive to the supply of services within their borders. We learn in addition that spending effort declines with demand for services, indicating that the states spending the highest proportions of total personal income for the program are those who need it most and can afford it least. Measures of political system development affect spending effort positively and significantly, suggesting that ideology, diversity of interests, and administrative professionalism increase states' welfare efforts.