VII. Key Issues: Regulation & Reform >> C. Health Reform >> Affordable Care Act (ACA) >> ACA and Government >> ACA and the States >> ACA and Medicaid >>State-Level Medicaid Expansion Economic Impact Studies (last updated 1.13.17)
A number of studies have been conducted to show the economic benefits of Medicaid expansion. This report provides a good overview of how such studies are conducted and their underlying assumptions:
- Dorn, S., John Holahan, C. C., & McGrath, M. (2013). Medicaid Expansion Under the ACA: How States Analyze the Fiscal and Economic Trade-offs. Washington, D.C.: Urban Institute.
One critic has noted that such studies tend to engage in one-sided bookkeeping, i.e., focusing on the benefits resulting from higher Medicaid spending, but completely ignoring the companion loss of jobs in other sectors of the economy as tax revenues are diverted into health care.
- According to Chris Conover, given the deadweight losses associated with taxes, every dollar of Medicaid spending will shrink the economy by 44 cents; this implies that for every 100 jobs attributable to Medicaid expansion, 144 jobs will be lost in other sectors of the economy. The net impact actually will be even larger given that jobs in the health sector tend to pay more than in the rest of the economy.
- President Obama’s former economic advisor, Christina Romer, calculated in a seminal paper published before her stint as CEA chief, that tax increases used to support increased spending (as opposed to deficit reduction) reduce the size of the economy by $2 to $3 for every dollar of new taxes raised. In that case, every new Medicaid-related job actually costs the economy at least 3 to 4 jobs elsewhere (i.e., 1 job that effectively was shifted into the health sector plus another 2-3 lost because the economy shrank as a consequences of the adverse effects of taxes used to bankroll the expansion)
Thus, if one tallied all the purported job gains across the various states that have conducted such studies, it would imply that Medicaid expansion might create hundreds of thousands of new jobs nationally. But as just demonstrated, the opposite is true. These economic impact studies take advantage of the fact that because the federal government will absorb 90% of Medicaid expansion costs over the long run, all new federal Medicaid spending appears to be a “cost-free” injection of new funds into the economy–from which a large stream of benefits would flow. In reality, every state that accepts Medicaid expansion essentially is doing so at the expense of all the remaining states whose taxes (and job losses) will help finance that expansion.
Moreover, the majority of studies ignore the reality that without Medicaid expansion, state residents with incomes between 100-138% will be eligible for federal subsidies that, according to the CBO, on average will be 50% larger than the federal amounts spent per Medicaid eligible. By ignoring federal Exchange subsidies foregone by a decision to expand Medicaid, such studies inappropriately count all new federal Medicaid dollars as an injection of new demand into the state economy. But in states that already have expanded Medicaid (prior to Obamacare) to close to poverty, it is easily possible that there will be a much higher ratio of near-poor would-be Medicaid eligible than would-be eligibles with incomes below poverty. In such cases, states will gain more federally-induced new jobs by not agreeing to expansion than if they did.
Summaries of State-Level Studies
With the foregoing caveat, the following lists various economic impact studies that have been conducted:
- Kaiser Commission on Medicaid and the Uninsured (November 2013). The Role of Medicaid in State Economies and the ACA. Issue Brief, November 2013. This includes a summary of findings across studies, a detailed explanation of general methodology and a table that codifies key findings from 32 studies encompassing 26 different states (some states had multiple studies) as well as listing the organization conducting the study and methodology/modeling software that was used.
- ASPE (March 2015). Economic Impact of the Medicaid Expansion. (3.23.15). This paper has a table summarizing the results from 26 different state-level studies, showing the estimated economic impact and number of jobs created; this is identical to the November 2013 Kaiser Commission on Medicaid and the Uninsured report except that some figures have been updated.
Studies Excluded From Kaiser Commission Synthesis
- Beaulier, Scott & Dr. Phillip A. Mixon (2014). Feasibility of Medicaid Expansion in Alabama. A Working Paper of the Manuel H. Johnson Center for Political Economy. This study critiques two economic impact studies commissioned by the Alabama Hospital Association. Argues that due to physician shortage, the expected economic benefits from expansion will be much smaller than projected.
- A report released 2.20.13 said Medicaid expansion in Florida would create 71,300 jobs by 2016. That research came from a joint report from Families USA and Florida CHAIN, a statewide consumer health advocacy group.
- A recent Georgetown University study found that Florida would save about $300 million in 2014 and $100 million in 2020, even after Florida takes on 10% of Medicaid costs (USAToday, 2.20.13).
- According to a study by Deloitte Consulting LLC and the University of Louisville’s Urban Studies Institute, Medicaid expansion will add 17,000 jobs and $15.6 billion to Kentucky’s economy from 2014-2021.
- A follow-on study by the same authors found that Medicaid expansion will add 40,000 jobs and $30 billion to Kentucky’s economy through 2021, including a “net positive impact” of more than $800 million to state and local government budgets.” (BloombergView, 11.5.15). See Deloitte Development LLC. (February 2015). Medicaid Expansion Report: 2014. Commonwealth of Kentucky.
- Neal, Bob (October 2012). The Fiscal and Economic Impacts of Medicaid Expansion in Mississippi, University Research Center.
- Riley, Sean (April 2013). Medicaid Expansion: The Economic Analysis Dilemma. Platte Institute. Provides a very detailed critique and analysis of the limitations and fallacies of previous estimates of economic impact, demonstrating that the trade-offs involved are much more complex than advocates have been willing to acknowledge.
- North Carolina
- Ku, Leighton, et al. The Economic and Employment Costs of Not Expanding Medicaid in North Carolina: A County-Level Analysis (Dec. 2014).
- Hall, Mark, and Edwin Shoaf. Medicaid Expansion Costs in North Carolina: A Frank Discussion. Wake Forest University School of Law, January 2016. This report summarizes the economic impact studies that have been done and does additional analysis to conclude that the economic benefits from expansion due to a) reduced costs to local government; b) reduced uncompensated care for state hospitals; and c) increased tax revenue would cover $566 million of the $600 added cost to the state in 2020 of expanding Medicaid (2020 is the first year federal financial participation would drop to 90%).