<<  <  >  >>

Evidence strongly

effect on charitable activity to provide medical

Yet DSH funds do not necessarily increase

care to the poor.

overall funding for uncompensated care. In

suggests that

Perhaps the easiest donor cost to quantify is

fact, they often displace existing efforts.

states have

the tax burden imposed by Medicaid. With

Mark Duggan studied California's Medicaid

expanded

Medicaid spending projected at $309 billion,

DSH program and found that in 1990 "every

the program's per capita cost exceeded $1,000

dollar of DSH funds crowds out one dollar of

Medicaid beyond

[local] government subsidies."33 Surveys have

in 2004.39 (That figure does not include hidden

its original

found that as much as one-third of federal

costs of the program, including Medicaid's

DSH payments were captured by states and

effect on the cost of private medical care.) A tax

purpose of

spent on other items.34

burden of this magnitude decreases the

providing

rewards of productive activity.

As one might expect, when such funds are

medical

How the tax burden of Medicaid is dis-

diverted from the provision of medical care,

tributed will determine whether (and to what

they do little to improve health. According to

assistance to the

extent) it creates a disincentive to work for

Dartmouth economists Katherine Baicker

truly needy.

the poor or for the nonpoor. If the tax burden

and Douglas Staiger, "Surprisingly little is

is disproportionately imposed on higher-

known about whether these public subsidies

income earners, high marginal tax rates will

have had any impact on patient care, despite

reduce work incentives for those individuals.

spending of nearly $200 billion during the

Insofar as it is placed on lower-income indi-

1990s on these programs by state and federal

governments."35 Duggan finds that "virtually

viduals, Medicaid will place a significant

obstacle in the way of the poor who would

none of the billions of dollars received by

like to pull themselves out of poverty.

these facilities results in improved medical

care quality for the poor."36 He concludes

The tax burden that Medicaid places on

low-income earners should not be taken light-

that "health outcomes for low-income indi-

ly. Generally, those with higher incomes pay

viduals did not improve despite a substantial

for a larger share of Medicaid spending as a

increase in public medical spending for the

result of their greater consumption and larger

indigent. . . . If California's experience is rep-

incomes (which are taxed at higher marginal

resentative of the U.S. as a whole, then the

income tax rates). However, 43 percent of

social benefit from this $20 billion increase

Medicaid revenues come from state govern-

in public medical spending has been much

smaller than its cost."37

ments. On average, states rely on general sales

taxes for one-third of general fund revenues.40

Medicaid funds diverted from medical

care do not lose all value. Baicker and Staiger

Sales and gross receipt taxes account for half

of overall state revenues.41 Sales taxes are wide-

note that those funds "may result in other

benefits to society . . . such as tax abatement

ly considered regressive in that they place a

or subsidies of other government pro-

larger burden on low-income earners relative

grams."38 However, the convoluted path

to income. In addition, personal income taxes

provide one-third of state revenues and also

those funds take results in unnecessary inef-

place a significant burden on low-income fam-

ficiency and may do little to achieve

ilies.42 That observable cost imposes unseen

Medicaid's purpose of improving the health

of the truly needy.

costs by discouraging and frustrating self-help

among actual and potential Medicaid recipi-

Taxpayers

ents, just as the availability of the subsidy does.

Medicaid induces costly responses on the

As discussed below, Medicaid effectively

part of taxpayers who fund the program as

increases the cost of privately purchased

well. Those unseen costs stem from Medicaid's

medical care and health insurance. Insofar as

tax burden and the resulting effect on taxpay-

Medicaid discourages individuals from

ers' work incentives; its effect on the cost of pri-

obtaining private health insurance, it dimin-

vate medical care and health insurance; and its

ishes the ability of private insurers to pool

8