Why Do States Expand Medicaid?

In September the Kaiser Family Foundation released a report comparing Medicaid expansion states with states that have chosen not to expand Medicaid. The report generated little fanfare among either supporters or opponents of Medicaid expansion. It should have created a firestorm. The report sheds light on why many states have seemingly turned down free federal Medicaid funds, while other states eagerly gorge at the public trough.

Why have some states expanded Medicaid while others have not? Proponents of Medicaid expansion paint conservatives who oppose expansion as both heartless and fiscally foolhardy. At the same time, expansion advocates are prone to argue they expanded Medicaid for economic reasons. After all, they are getting federal funds their state residents benefit from but don’t have to pay for. Yet upon closer inspection, the evidence points to a more fundamental conclusion: expansion states are spendthrifts, eager to spend not only their own residents’ money but money from other states’ taxpayers as well. States that expanded Medicaid tend to have per capita state spending that’s about 17 percent higher than non-expansion states.

For starters, states that have declined to expand Medicaid tend to be fiscally conservative, with lower state taxes and lower state spending. By contrast, expansion states tax their residents more. In 2004, expansion states had median per capita tax collections (both state and local) of 19 percent more than non-expansion states. By 2012, this gap had widened with expansion states collecting 28 percent more taxes per capita than non-expansion states. Moreover, since 2008 expansion states have moved to increase taxes, while non-expansion states have reduced taxes slightly.

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