Cooperation and Competition Among Welfare Recipient Groups: Do Taxpayers Pay for Cost Increases?

This research examines how state governments cope with the cost pressures emanating from the Medicaid low-income health care program using a demand systems approach. We find states differentially respond to the rising costs of the elderly, disabled, and families. Our panel estimates over states are sensitive to including the full spectrum of policy responses, including other government spending and taxes. The GMM estimates, using primarily federally controlled program outcomes to identify the endogenous prices, show about half of the cost increases for elderly recipients are financed by own benefit decreases. The disabled, on the other hand, succeed in increasing the Medicaid pie for all recipients at the expense of other government expenditure, but not taxpayers, in response to cost increases. In contrast, higher expenses for family recipients erode support, and not only do Medicaid benefits for all groups decrease, but cash assistance program expenditures are cut as well. We also find that more Democrats in the legislature, and more liberal ideology, generally leads to increases in the number of recipients for the disabled and the elderly. JEL classification: H11, H42, H77, I38.