NCPA - National Center for Policy Analysis

Disparities In State Medicaid Spending

January 24, 2001

A study sponsored by the Robert Wood Johnson Foundation attempts to explain why spending on Medicaid varies so dramatically from state to state.

Researchers at Mathematica Policy Research looked at differences in both

  • "fiscal capacity," a measure of state wealth, and
  • "fiscal effort," a ratio of state spending to its capacity to spend.

They found differences in Medicaid spending parallel differences in per capita personal income. Thus most of the states with the highest Medicaid spending also rank high in per capita income. However, those with the highest spending don't necessarily rely on high taxation as much as allocating a greater share of their budget to Medicaid.

The fact that rich states make a greater effort to fund Medicaid coverage while poor states display less fiscal effort runs counter to federal payment incentives, researchers note. Under federal Medicaid policy, the government "matches" the amount of money spent by poorer states at a higher rate than in wealthier states.

The researchers say the matching formula "fails to account for the level of need for public coverage when re-distributing Medicaid and SCHIP [State Children's Health Insurance Program] dollars to states."

One way to even out disparities in state spending would be to adjust the formula according to the relative percent of population without private health insurance in each state.

Source: Christopher Trenholm and Susanna Kung, "Disparities in State Health Insurance Coverage: A Matter of Policy or Fortune," Mathematica Policy Research Inc., December 2000.


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