Buying Inefficiency: Federal $ and State Medicaid Spending
By Bryan Caplan
Brian Blase, my former RA, presents some edifying facts about Medicaid at National Review Online.
The nearly $1 trillion stimulus bill making
its way through Congress includes a little bit of everything, but if
the bill passes as is, a large chunk of the money will go toward
relieving state budget shortfalls by increasing federal subsidies for
Medicaid is the second-largest component of
state spending, after education. Medicaid spending is growing
rapidly–it nearly quadrupled between 1990 and 2004–and represents over
20 percent of the average state budget. The little-known secret behind
this increase: Federal subsidies largely caused it.
Reagan presidency, overall federal grants to states shrank
substantially. Medicaid grants did not shrink, however, so the program
became the main method by which states could get money from the federal
government. The federal subsidy for the wealthiest states is 50 percent
of Medicaid spending; for poorer states, the number can rise above 75
percent. Put another way, even wealthy states get a dollar from the
federal government for every dollar they spend, and poorer states can
get more than $3.
I strongly suspect that as far supporters of federal grants are concerned, the rise in state Medicaid spending is a feature, not a bug. But economists should be ultra-skeptical. Externalities might justify subsidies to fight contagious disease, but that’s only a small fraction of spending. In any case, the health benefits of the marginal dollar of spending are well-known to be small.
My question: Would Obama listen to his technocratic economist advisers if they told him all of this? Actually, I take that back; I think I already know the answer.