POLITICAL-ECONOMIC FACTORS INFLUENCING STATE MEDICAID POLICY

A political-economic theory is developed to explain the formation of public policy in the American states; here, I focus specifically on states' Medicaid policy decisions. I analyze three dimensions of Medicaid policy-financial eligibility, categorical eligibility, and benefit coverage-and argue that each dimension represents a different political process. My theory assumes that state politicians maximize their political utility by attempting to satisfy the preferences of voters, interest groups and their own ideology, while at the same time they minimize their political disutility by attempting to keep the political costs of their actions as low as possible- However, I postulate further that the political process varies according to the degree to which constituents are interested in the policy, the strength of interest groups, and politicians' political ideology. To test this theory, I use a heteroskedastic, timewise autoregressive model for panel data. My theory is fairly well supported by the empirical results: the Medicaid policy dimensions do represent different political processes, and politicians must trade off the utility gained from increasing spending with the utility lost from increasing public expenditures. However, contrary to my theory, politicians' political ideology plays a significant role in all the Medicaid policy decisions.