Interstate Spillovers, Fiscal Decentralization, and Public Spending on Medicaid Home‐ and Community‐Based Services

• Author: Gerel Oyun
• DOI: http://doi.org/10.1111/puar.12639
• Published date: 01 July 2017
• Date: 01 July 2017

566 Public Administration Review • July | August 2017

Public Administration Review,

Vol. 77, Iss. 4, pp. 566–578. © 2016 by

The American Society for Public Administration.

DOI: 10.1111/puar.12639.

Gerel Oyun is an independent scholar.

Previously, she taught in the School of

Business Administration at the American

University of Sharjah, United Arab Emirates.

Her research interests include health

policy, decentralization in health care, and

disparities in health services and outcomes.

She holds a PhD in public affairs from the

University of Texas at Dallas and a master of

public health degree from Boston University.

E-mail: gerel@ymail.com

Abstract : This article examines the interstate spillover effect of Medicaid expenditures for home- and community-

based services ( HCBS ) and tests the relationship between fiscal decentralization and public spending. Based on the

theory of interstate strategic interaction, an empirical model is specified that explicitly accounts for interdependence

in states’ spending decisions. The model is estimated by applying spatial econometric methods to panel data for the 50

U.S. states for 2000–2010. Findings show a positive interdependence in state HCBS expenditures that is contingent

on similarity in citizen ideology between states. Fiscal decentralization, measured by transfer dependence and revenue

autonomy, is positively related to Medicaid HCBS spending.

Practitioner Points

• Medicaid HCBS expenditures are interdependent across states. The degree of interdependence is contingent

on the similarity in citizen ideology between states.

• Policy diffusion occurs in the process of learning and imitation through information spillover.

• Fiscal decentralization financed from local sources and in the form of intergovernmental transfers is

associated with higher HCBS expenditures.

Gerel Oyun

Interstate Spillovers, Fiscal Decentralization,

and Public Spending on Medicaid Home- and

Community-Based Services

M edicaid spending is one of the most pressing

problems the United States faces today.

Program enrollment increased 73 percent

between 2000 and 2013, compared with 12 percent

growth in the total U.S. population (Joffe 2015 ).

Total Medicaid spending rose from 19.5 percent

to 24.5 percent of state expenditures over the same

period. This escalation in Medicaid costs is crowding

out state spending for other public programs,

including education and transportation infrastructure

(Joffe 2015 ).

Long-term services and supports (LTSS) constitute

a significant portion of total Medicaid expenditures,

ranging from 34 percent to 38 percent for the sample

period. A closer look reveals that the expenditure

trends of the LTSS components—institutional care

and home- and community-based services (HCBS)—

are moving in opposite directions (see figure 1 ).

Medicaid spending on all HCBS increased from

18 percent of total Medicaid expenditures for

LTSS in 1995 to 51 percent in 2013. Meanwhile,

spending on institutional care decreased from 82

percent to 49 percent (Eiken et al. 2015 ). Total

Medicaid expenditures mask differential responses

of institutional care and HCBS to driving factors of

LTSS spending; this calls for separate examination of

HCBS expenditures.

A growing volume of literature focuses on questions

related to Medicaid LTSS programs, with considerable

attention given to the cross-state variation in

Medicaid HCBS utilization and expenditures.

Previous empirical studies on HCBS expenditures

have examined sociodemographic, economic, political,

and program policy and administrative determinants

of state spending for Medicaid HCBS (Harrington

et al. 2000 ; Kane et al. 1998 ; Kitchener, Carrillo, and

Harrington 2003 ; Kitchener et al. 2007 ). However,

the literature overlooks two important possible

determinants of HCBS spending: (1) the interstate

spillover of state HCBS spending, which reveals the

interdependence of spending policy choices across

states, and (2) fiscal decentralization, which is the

assignment of revenue and expenditure responsibilities

from the federal government to state and local

governments. This research attempts to fill this gap.

Expenditure spillover and fiscal decentralization are

relevant to HCBS spending for two reasons. First, a

large literature provides evidence for the presence of

spillover effects in state expenditures (e.g., Baicker

2005 ; Case, Rosen, and Hines 1993 ; Saavedra 2000 ).