Do Local Governments Represent Voter Preferences?: Evidence From the Affordable Care Act on Local Government Support for Hospitals

69 Pages Posted: 14 Jul 2018 Last revised: 13 Oct 2018

See all articles by Victoria Perez

Victoria Perez

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA)

Justin M. Ross

Indiana University - School of Public & Environmental Affairs

Kosali Ilayperuma Simon

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA); National Bureau of Economic Research (NBER)

Date Written: June 24, 2018

Abstract

Local governments participate in the health care system as both a patient care provider and third-party payer. In doing so, local governments represent the majority of the public health service economy, outspending state governments about $3-to-$2 on hospitals. Using data from the Census of Governments from 2006 to 2015, we employ a difference-in-difference framework to study the effect of the state decision to expand Medicaid on their local governments’ fiscal decisions. We find that local governments in areas that voted for Obama in the 2012 presidential election responded to their state's Medicaid expansion by increasing expenditures on hospitals, whereas those that voted for Romney reduced hospital expenditures and used the savings to reduce property taxes. This finding is not driven by an urban/rural distinction. We then extend this analysis to determine (1) the extent to which observed changes in local government financing are affected by changes in hospital revenue; and (2) assess the effect of these changes in local government funding on the finances of surrounding hospitals. We rule out the possibility that changes in local government spending are a response to hospital competition and find evidence that hospitals in Medicaid expansion states observed increased profits, following the expansion. This paper provides evidence on the responsiveness of local governments to the preferences of their voters under incentives introduced by the Affordable Care Act (ACA).

Keywords: Fiscal Federalism, Medicaid, Local Government, Voter Preferences, ACA

JEL Classification: R10, R70, I18

Suggested Citation

Perez, Victoria and Ross, Justin M. and Simon, Kosali Ilayperuma, Do Local Governments Represent Voter Preferences?: Evidence From the Affordable Care Act on Local Government Support for Hospitals (June 24, 2018). Available at SSRN: https://ssrn.com/abstract=3196019 or http://dx.doi.org/10.2139/ssrn.3196019

Victoria Perez (Contact Author)

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA) ( email )

1315 East Tenth Street
Bloomington, IN 47405
United States

HOME PAGE: http://https://sites.google.com/view/victoriaperez/home

Justin M. Ross

Indiana University - School of Public & Environmental Affairs ( email )

1315 East Tenth Street
Bloomington, IN 47405
United States

Kosali Ilayperuma Simon

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA) ( email )

1315 East Tenth Street
Bloomington, IN 47405
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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