Federal Medicaid Assistance to States: Impact on Prenatal Care

In the context of dramatically increasing U.S. health-care costs, this paper contributes to an ongoing debate discussing proposals to replace the government's current policy of matching state Medicaid spending with a block grant system. State-level panel data analysis provides evidence that, ceteris paribus, increasing the federal matching formula has a negative impact on prenatal care. This aggregate result masks significant differences between high- and low-spending states and appears to be driven by the high-spending states thus implying that a 2-track approach to Medicaid funding may be more appropriate than the current system. (JEL I1, H7)