Medicaid expansions and public health spending: Cross-subsidies, complementarities, and crowd out

OBJECTIVES: For the 26 states that are expanding Medicaid eligibility under the Affordable Care Act (ACA) in 2014, states must share the additional costs of covering previously-eligible state residents who newly enroll.  Fiscal constraints and generous federal matching funds create strong budgetary incentives for states to channel health-related spending to Medicaid rather than to other public health programs.  The ACA may exacerbate Medicaid’s crowd out of other public health spending, possibly resulting in unintended, adverse effects on population health.  Using a unique longitudinal data series on governmental spending from the 1992-2012, this study: (1) estimates the degree to which state Medicaid spending complements or crowds out other public health spending over time; (2) estimates the extent to which public health agencies use Medicaid revenues to cross-subsidize the delivery of non-clinical public health programs; and (3) uses crowd-out and cross-subsidy estimates to calculate the net effect of Medicaid expansions on public health spending and service delivery. 

METHODS:  A retrospective cohort design follows 50 states and approximately 2500 local public health agencies over the period 1992-2012 using U.S. Census of Governments (COG) data combined with periodic surveys of local agencies.  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 changes in state Medicaid policy and public health governance characteristics as instruments.   

RESULTS:  A 10% increase in state Medicaid spending was associated with a 4.1% reduction in state public health spending (p<0.05) and a 5.9% reduction in local public health spending (p<0.01) after adjusting for unobserved confounding.  Simulation results indicate that state Medicaid spending growth during 2014-20 could reduce public health spending by 9-16%, resulting in a 2-8% growth in preventable mortality rates.

CONCLUSIONS:  Growth in state Medicaid spending is significantly associated with reductions in state and local public health spending, consistent with the crowd-out hypothesis. Diminished state and local public health spending is likely to be an unintended consequence of ACA implementation, emphasizing the importance of strategies like the Public Health and Prevention Fund to reinforce governmental investments in public health activities.