TY  - JOUR
AU  - Clemens, Jeffrey
AU  - Ippolito, Benedic
TI  - Implications of Medicaid Financing Reform for State Government Budgets
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 23965
PY  - 2017
Y2  - October 2017
DO  - 10.3386/w23965
UR  - http://www.nber.org/papers/w23965
L1  - http://www.nber.org/papers/w23965.pdf
N1  - Author contact info:
Jeffrey Clemens
Department of Economics
University of California, San Diego
9500 Gilman Drive #0508
La Jolla, CA 92093
Tel: 858/534-5713
E-Mail: jeffclemens@ucsd.edu

Benedic N. Ippolito
American Enterprise Institute
1789 Massachusetts Avenue
Washington, DC 20036
E-Mail: benedic.ippolito@aei.org
M1  - published as Jeffrey Clemens, Benedic Ippolito. "Implications of Medicaid Financing Reform for State Government Budgets," in Robert A. Moffitt, editor, "Tax Policy and the Economy, Volume 32" University of Chicago Press (2018)

M3  - presented at "Tax Policy and the Economy", September 14, 2017
AB  - We analyze potential reforms to Medicaid financing through the lens of fiscal federalism.  Because substantial dollars are at stake, both the economic and political sides of intergovernmental transfers have high relevance in this setting.  We show that changes in Medicaid financing formulas can shift amounts exceeding several hundred dollars per capita from "winning" states to "losing" states.  In some cases, these amounts exceed 10 percent of states' own-source revenues.  States' balanced budget requirements imply that such changes would, if not phased in gradually, require significant budgetary adjustment over short time horizons.  We next show that alternative Medicaid financing structures have significant implications for states' exposure to budgetary stress during recessions.  During the Great Recession, an acyclical block grant structure would have increased states' shortfalls by 2--3.5 percent of own-source revenues relative to either an explicitly countercyclical block grant or the current matching system.  Finally, we assess the implications of several financing structures for the extent to which they subsidize states' decisions on both the "extensive" and "intensive" margins of coverage generosity over the short and long term.
ER  -