Fiscal structure and programme response over the business cycle: evidence from Medicaid and SCHIP

ABSTRACT

In this paper, I show that fiscal structure can have large effects on the ability of safety net programmes to provide benefits. I examine the response of child enrolment in Medicaid, which is funded through a matching grant, and enrolment in the State Children’s Health Insurance Program (SCHIP), which is funded through a block grant, to business cycle fluctuations. I find that while child Medicaid enrolment is relatively acyclical, a one percentage point increase in the unemployment rate decreases SCHIP enrolment per child by 6.3%, and a 1% decrease in gross state product (GSP) or GSP growth decreases enrolment in SCHIP by approximately 1%, suggesting block grant funding reduces the ability of safety net programmes to respond to macroeconomic fluctuations.

KEYWORDS:

• Medicaid
• SCHIP
• fiscal federalism
• fiscal structure
• business cycles

JEL CLASSIFICATION:

• H51
• H75
• I18
• I38

Acknowledgments

I thank Davis Bryan for excellent research assistance, and Jim Ziliak, Bill Hoyt, and audiences at the University of Kentucky, the Kentucky Economics Association, and the Southern Economics Association for useful feedback.

Disclosure statement

This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.

Data Availability

The data that support the findings of this study are openly available in Mendeley (data.mendeley.com) at http://dx.doi.org/10.17632/s89wdg72ws.1.

Notes

¹ The FMAP$=1-\left[\frac{{(\mathrm{S}\mathrm{t}\mathrm{a}\mathrm{t}\mathrm{e}\mathrm{P}\mathrm{e}\mathrm{r}\mathrm{C}\mathrm{a}\mathrm{p}\mathrm{i}\mathrm{t}\mathrm{a}\mathrm{I}\mathrm{n}\mathrm{c}\mathrm{o}\mathrm{m}\mathrm{e})}^2}{{(\mathrm{N}\mathrm{a}\mathrm{t}\mathrm{i}\mathrm{o}\mathrm{n}\mathrm{a}\mathrm{l}\mathrm{P}\mathrm{e}\mathrm{r}\mathrm{C}\mathrm{a}\mathrm{p}\mathrm{i}\mathrm{t}\mathrm{a}\mathrm{I}\mathrm{n}\mathrm{c}\mathrm{o}\mathrm{m}\mathrm{e})}^2}\times 0.45\right]$.

² See Cameron, Gelbach, and Miller (2011).

³ Hansen over identification tests fail to reject the null of the validity of this limited instrument set.