Why do some states choose to spend more than four times as much as others to provide health care to the disadvantaged? Political scientists who have traditionally explored this question by analyzing trends in overall Medicaid expenditures lumped states' discretionary spending in with other money that states are mandated to spend. Analyses of total expenditures found that socioeconomic factors drove spending but that party control of state legislatures made no difference in health policy making.

By isolating discretionary state Medicaid expenditues from total spending figures, I reexamine the influences of political as well as economic and demographic factors. The often-doubted importance of party control becomes clear. This study investigates spending patterns in the discretionary portions of state Medicaid programs in forty-six states from 1980 to 1993 and analyzes both incremental program changes and absolute differences in state spending. To discover how greatly the researcher's choice of dependent variables can affect results, optional spending is separated from total spending levels and the variation is modeled in both.

Focusing not on the spending that the federal government requires of state officials but on the policies that state officials actually choose allows a balanced exploration of both political and economic effects on welfare expenditures. This research also provides new insights about which forces will shape policy decisions if more and more control of the public health care system is devolved to the states.

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