of State Medicaid Spending, 1977–2004

This article estimates an economic model of the determinants of state government spending on health care benefits provided through the Medicaid program for the old, disabled, and young populations, respectively. Spending on the mutually exclusive recipient groups, rather than the aggregate, is examined to ascertain the extent to which one population’s costs supplant spending on the alternative populations. Endogeneity bias arising from the incentive effects of health care benefit guarantees on program take-up is addressed using an identification strategy that relies on measures of time-varying state resident participation in federally administeredwelfare programs to control for unobservable economic and noneconomic opportunities simul-taneously determining Medicaid recipiency. It finds that state demand fo