Medicaid Crowd-Out of Other Public Health Spending: Modeling Economic & Health Effects

MOTIVATION: Thirty states are expanding Medicaid eligibility under the Affordable Care Act (ACA) as of 2015, and while federal funds cover most costs for newly eligible recipients, states must share the additional costs of covering previously-eligible state residents who enroll in Medicaid. States, together with their local government counterparts, also provide the vast majority (87%) of public sector funds for public health programs designed to promote health and prevent disease and injury on a population-wide basis. Fiscal constraints and generous federal matching funds create strong budgetary incentives for states to channel their health-related spending to Medicaid rather than to other types of public health programs and policies. The ACA may exacerbate Medicaid’s tendency to crowd out other types of public health spending, possibly resulting in unintended, adverse effects on population health. OBJECTIVES: Using a unique longitudinal data series on governmental spending from the 1992-2014, this study: (1) estimates the degree to which state Medicaid spending complements or crowds out other state and local public health spending over time; and (2) uses crowd-out estimates in combination with estimates of service delivery and mortality effects from other studies to simulate the impact of ACA’s Medicaid expansions on public health financing, service delivery, and preventable mortality. DESIGN: A retrospective cohort design follows 50 states and approximately 2500 local public health agencies over the period 1992-2014 using periodic surveys of local agencies conducted by NACCHO combined with data from the U.S. Census of Governments (COG), Area Resource File, and state Medicaid reports. We construct separate measures of annual state Medicaid spending, state and local hospital spending, and state and local public health spending on a per capita scale. Fixed-effects and dynamic structural equation models are used to estimate the effects of Medicaid and hospital spending on public health spending, while controlling for a rich set of fiscal, demographic, socioeconomic, and health resources variables. Instrumental variables techniques are used to control for unobserved characteristics that simultaneously influence Medicaid and public health spending, using information on state Medicaid policy changes, Federal Medical Assistance Percentage (FMAP) changes, and public health governance characteristics as instruments. We estimate separate models at (1) the state level only and (2) both state and local level using hierarchical specifications. Population Studied: A total of 50 states and 2467 local public health agencies are examined over a 22 year period. RESULTS: Medicaid spending produces sizeable crowd-out effects on public health spending at both state and local levels during the study period. A 10% increase in state Medicaid spending was associated with a 4.1% reduction in state public health spending (