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the same scope of medical care under Kerr-Mills as do the wealthier States, receive more money per recipient from the Federal Government. The fact that, generally speaking, the poorest States spend less per needy person (including Federal funds) for their public assistance recipients suggests significant limitations in ability to provide additional State funds for matching purposes under MAA.

Therefore, States with the poorest provisions for medical care of the totally and medically indigent would seem to be those least able to assume the costs involved if they were to attempt to provide the level of medical care available to OAX and MAA recipients in other States.

Conversely, as we have noted, States with fairly broad public assistance medical care provisions and liberal means tests for OAA already in effect, needed to take relatively little further action to provide medical care benefits under MAA. But, that "relatively little further action” represented a financial windfall for the wealthier States.

We have illustrated the financial advantage accruing to a State by virtue of transfer of a nursing home patient, whose care cost $200 a month, from OAA to MAA. It will be recalled that this simple action meant that the State would receive $100 in Federal money under MAA rather than the $51.50 it would get under OAA. The consequent transfer of tens of thousands of OAA recipients, particularly in the wealthier States, from OAA to MAA has resulted, predictably, in a few States receiving the overwhelming proportion of Federal matching funds. And, as the situation now stands, these States will continue to receive a disproportionate share of Federal money, at least in relation to the percentage of the Nation's elderly who live in those few States.

Tables V and VI (see pp. 19-20) indicate the dimensions of the imbalance in the distribution of MAA funds. Five States—California, Massachusetts, Michigan, New York, and Pennsylvania received 88 percent of the $189 million in Federal funds expended from the inception of the program through December 1962. However, only 32 percent of the older population of the Nation resides in those States. (Because they are relatively high income States, they can be expected to have an even smaller proportion of their aged population who are needy.) Only 10 percent of the Nation's aged live in the State of New York. New York, however, received 42 percent of the $189 million.

The five States mentioned above each receive only the minimum Federal matching grant-50 percent-in contrast to the maximum 80-percent Federal help for which some of the less wealthy States qualify. The fact that these States secure the lion's share of Federal money, despite being at the bottom of the matching formula, further highlights the far greater fiscal ability of the richer States to utilize MAA grants.

The disproportionate sharing of MAA payments may well continue over the long run. In August 1963, California, Massachusetts, Michigan, New York, and Pennsylvania accounted for 76 percent of the Federal funds allocated to MAA.

The disparity, noted above, should lessen somewhat with full-scale implementation of MAA programs in other large States. Nonetheless, the basic imbalance and disproportionate participation in MAA will continue to be striking as between those States with high and those with lower per capita incomes.

(The five States we have discussed are expected to receive 72 percent of all Federal MAA funds allocated during fiscal 1964.)

While the intent of the Kerr-Mills formula was to increase the relative flow of Federal funds to the low per capita income States, the effect in the MAA program has been virtually the opposite. Those States which cannot afford to implement MAA, or which can only implement it nominally, are the low-income States. The real flow of funds is to the wealthier States. The Federal share comes from general revenues to which all States, including those which cannot afford Kerr-Mills, have contributed. The 12 States with the lowest per capita incomes in the Nation contribute 10 percent of total Federal taxes. In August 1963 the total Federal return in MAA matching funds to those of the 12 States which participate in MAA amounted to 5 percent of total Federal MAA grants. Thus, Mississippi, which contributes one-half of 1 percent of Federal taxes, received no Federal MAA money in August, wbile New York, which pays some 13 percent of taxes, received 33 percent of the total Federal grants for that month.



Complex administration is expensive

The costs of administering the MAA and OAA health care programs are a significant drain upon the limited resources of the States. These costs constitute a large portion of total expenditures for almost any type of medical assistance other than long-term hospital or nursing home care.

Under a public assistance health care program such as MAA, complete "workup” must be made for each applicant for assistance. Eligibility has to be determined by examination of resources, including such difficult evaluative factors as the value of assets and, in almost half of the programs, the ability of relatives to contribute. Redeterminations of eligibility and field investigations to determine the accuracy of the applicants' statements add to administrative expense. The cost of such investigations is quite large in relation to the actual payments to physicians, or for prescribed drugs, and even for some hospital bills.

Total administrative costs for MAA during calendar 1962, excluding the costs of determining eligibility for recipients transferred from other programs, were $15,700,000, or 6.2 percent of total medical care vendor payments. Among the States, Tennessee had the highest ratio of administrative costs to vendor payments, 59.3 percent. Four other States had ratios of over 25 percent. In other words, it cost Tennessee 59 cents to pay out $1 in benefits, with the other four States each spending more than 25 cents for every $1 they were able to pay to medical vendors.

As table VII indicates, the average administrative cost for each applicant approved for MAA during calendar 1962 was $70. Five States had average administrative costs in excess of $100, but none of these were in States where administrative costs represented a particularly high percent of vendor payments. In these States, the moderate administrative costs in relation to total payments resulted • Based upon fiscal year 1962. As calculated by Tax Foundation, Inc., and published in "Facts and Figures on Government Finance."


TABLE VII.—MAA: Administration costs in relation to total vendor payments, and applicants, by jurisdiction, calendar year 1968

(Expenditures in thousands)



Average administrative costs

per case ?


Payments began

Assistance granted




tion as per-
cent of vendor





Percent of


1 Includes costs of continuing cases on rolls; excludes costs of determining eligibility of cases transferred from other programs.

Based on applications received during year rather than number of cases for which assistance was actually provided (latter data unavailable).

from high average assistance costs. On the other hand, there were three States where the average administrative cost per case was under $5—a cost quite low even for processing of an application formsuggesting that the method of accounting for costs produced an understatement of administrative expenses in some places.

As has been noted in previous reports, the more restricted the eligibility requirements and the more limited the benefits, the greater the relative administrative expense, because, along with generally less adequate administrative organizations, extremely careful screening out of applicants is required under such circumstances. Generally speaking, those States with the most restrictive programs—presumably the best they can afford-are confronted with the highest costs of administration in relation to the dollars going for actual medical care.

The Federal Government pays only 50 percent of the costs of administration, while it may pay as much as 80 percent of the dollars going for actual medical care. Thus, only a relatively small portion of a State's funds may go for medical care while a substantially greater amount may have to be allocated to administrative costs.

Unquestionably, in “means test medicine,” too much money goes for the “means test” and not enough for the "medicine.” In contrast to this, a social security-financed program would not spend millions of dollars investigating income and assets. The administrative expenses of such a program, estimated at 3 percent, would relate mainly to the procedure for paying benefits and not to the determination of eligibility.

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