AI Article Synopsis

  • The federal Medicaid matching grant was meant to reduce state spending disparities, but significant inequities remain.
  • States often replace their own funding with federal money, leading to less financial incentive for low-income states to increase their spending.
  • A study using fixed-effects models showed that states tended to lower their tax revenue while spending more by relying on federal funds, highlighting issues in the grant structure that could affect future federal/state programs.

Article Abstract

Although the federal Medicaid matching grant was designed to decrease disparities in state Medicaid spending, significant inequities persist. A potential reason for this is that states substitute federal for state funds and therefore expenditures in low-income, low-spending states are not stimulated. This study uses a fixed-effects model on pooled state expenditure data for 1984-92 to examine the fiscal response of states to the federal Medicaid grant. Results indicate that states' responses to the grant were to raise fewer tax dollars but still spend more by using federal funds. Significant substitution was found during the study period. Findings have implications for deliberations on grant structures for Medicaid and other federal/state programs.

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