Like every other U.S. state, Michigan faced an explosion in Medicaid participation and costs in the early 1990s. From 1990 to 1994 alone, the number of persons eligible for Medicaid grew nearly 25%, from 1,173,384 to 1,464,923. Much of this growth was due to new federal guidelines that increased the number of persons eligible for Medicaid. Partly as a result of this increased participation, during this same time period total expenditures increased from $2,078,412,202 to $4,103,376,419, or 97.4%. By 1995, Medicaid expenditures consumed 20% of the state's budget.

In this chapter we explore a case study, based on extensive interviews with key participants from the state legislature, the Michigan Department of Community Health, and affected interest groups, of Michigan's attempt to bring these costs under control while maintaining sufficient standards of care for Medicaid clients. While a case study like this has some clear benefits, as we will discuss, it also suffers from a significant restriction that we readily acknowledge up front. A focus on any single state precludes us from exploring the influence of some of the most important elements of our theory: namely, the institutions, or rules, that vary across political systems. To be more specific, we cannot examine how behavior in Michigan was influenced by alternative mechanisms for control or by legislative capacity, as these remained constant in Michigan during the period we examine. Thus, we clearly cannot, and do not, treat the evidence from this case study as a test of our theory.