The Political Economy of Medicaid Expansion: Federalism, Interest Groups, and the ACA

Medicaid was established in 1965 as a joint state and federal program to provide medical insurance to Americans who are poor and have disabilities, and it has grown from 1 percent to 3 percent of GDP. The source of Medicaid’s growth over the past 50 years must inform efforts to reform the program and slow spending. The literature on the political economy of Medicaid provides strong evidence of interest group and political ideological influence, enabled by the open-ended federal match for state spending. The strongest support for political influence, interest group influence, and matching grants as drivers of growth emerges from studies on Medicaid’s discretionary coverages and populations in contrast to the program’s mandatory components. Evidence also exists that increases in populations that are already eligible may lead to offsetting reductions in reimbursement rates, thus suggesting that increased medical need (the cost of adequate care for the poor) has not been a primary driver of growth. JEL codes: D72, D78, I13, H51