Medicaid Crowding Out State Education Spending

https://www.educationnext.org/higher-ed-lower-spending-as-states-cut-back-where-has-money-gone/#

There has been a gradual decline in public financial support of higher education over the past 30 years. The average state spends $2,337 less today per full-time-equivalent college student than in 1987. This divestment has been passed on to students partly in the form of higher tuition and partly through reduced spending, both of which have been shown to negatively impact students. While the public discussion around college usually focuses on the price paid by students, recent work by economists David Deming and Chris Walters suggests that declines in the amount colleges and universities spend may have a larger impact on student outcomes.

This essay asks a simple question: where did the money go? Reduced spending on higher education must go somewhere¸ and the goal of my analysis is to produce the best possible estimates of where the spending went, the degree to which changes in different categories of spending explain changes in higher-education spending per student.

In reality, there are 50 different answers to this question, but in the aggregate, states have shifted most of their former investment toward public-welfare programs, particularly Medicaid. This finding highlights the struggle state legislatures face to balance the immediate needs of today against investments in the future. Most important, it illustrates that constraining the rise of health-care costs is critical not just for those who care about health-care reform but for the public-higher-education landscape as well.