Abstract We analyze the effects of the COVID-19 pandemic on state and local government finances, with an emphasis on health spending needs and the role of the Medicaid program. We first find that enhanced federal matching funds are roughly the same size as expected increases in state Medicaid costs nationwide over the entirety of the federal budget window. Second, we show that there is substantial variation in states' exposure to increases in Medicaid program costs. Third, we show that the formulas through which fiscal relief has been distributed impact the extent to which aid targets the states experiencing the greatest need. Applications for Practice ? During the COVID-19 pandemic, states' Medicaid programs have been both a source of heightened expenditures and a vehicle through which federal aid has flowed. ? Nationwide, we find that enhanced federal Medicaid matching funds are roughly the same size as expected increases in states' Medicaid costs over the entirety of the federal budget window. ? We find that enhanced Medicaid matching funds are not correlated with variations in states' Medicaid enrollment increases and thus do not effectively target the states that have experienced the largest increases in program cost. ? We find that the American Rescue Plan Act's unemployment-based formula for allocating federal dollars does a moderately better job than the enhanced Medicaid matching funds at targeting resources at states that have experienced the largest increases in Medicaid enrollment.
Medicaid and fiscal federalism during the COVID-19 pandemic