RAND report finds Medicaid expansion would boost state economy

Critics say report uses ‘discredited’ Keynesian multiplier
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Photo: Source: The Economic Impact of Medicaid Expansion on Pennsylvania, RAND Health, 2013, License: N/A

According to HAP, in 2016, federal Medicaid funding in Pennsylvania will be approximately $4.7 billion without Medicaid expansion, or $7.2 billion with the expansion. HAP does the math and finds that Medicaid expansion would bring $2.5 billion in additional federal funding to Pennsylvania.

Debate about the expansion of Pennsylvania’s Medicaid program, as encouraged by the Patient Protection and Affordable Care Act (PPACA), is now focused on a report conducted for the Hospital and Healthsystem Association of Pennsylvania (HAP) by the nonprofit RAND Corporation.
The report concludes that Medicaid expansion will transfer enormous amounts of federal money to states that will be a significant economic boost to states that expand the program. According to HAP, in 2016, federal Medicaid funding in Pennsylvania will be approximately $4.7 billion without Medicaid expansion, or $7.2 billion with the expansion. HAP does the math and finds that Medicaid expansion would bring $2.5 billion in additional federal funding to Pennsylvania.
Meanwhile, during this same time period, Pennsylvania will send $6.7 billion to Washington for things like Medicare payments, taxes, and fees. This guarantees a net surplus of tax revenues into the state only if expansion takes place.
In addition, HAP says that the cumulative inflow of federal dollars from 2014 to 2020 will be $16.5 billion higher if Pennsylvania expands Medicaid. Plus, the forecasts indicate that an increase of $2.5 billion in annual federal Medicaid spending due to the Medicaid expansion will lead to $3 billion of growth in the state’s GDP that sustains more than 35,000 jobs.

Economic stimulus

Paula Bussard, senior vice president with HAP, says that increased federal dollars will stimulate the state economy, create jobs, and encourage a self-sustaining scenario where tax revenues rise as a result of the added economic activity.
“With the (Medicaid) expansion, we are forecasting an increase of $270 million just in the state’s personal income tax,” says Bussard.
Another expansion bonus concerns the $1 billion of uncompensated care that Pennsylvania’s hospitals now provide. Bussard says that these costs will drop 25 percent if Medicaid is expanded, thereby easing financial pressure on hospitals as 95 percent of the population gains insurance coverage.
“We’re cautiously optimistic that the Medicaid expansion will happen here, and that it will have no curve balls,” adds Bussard. “It’s also important to note HAP is not discussing creation of a single-payer system.”

The deal is too good

The RAND study is consistent with others that have been done about Medicaid expansion, according to Sharon Ward, executive director of the Pennsylvania Budget and Policy Center. She says the federal money from expansion is “too good a deal to pass up,” because the money, in effect, represents federal revenue used to support Pennsylvania’s economy.
Ward also deems the idea that Medicaid is an unsustainable government program “inaccurate.” She points out that the Congressional Budget Office believes the PPACA will actually help to reduce the federal budget deficit.
“In 55 years, the feds have never reneged on dollar promises to the states,” says Ward. “If Medicaid is expanded, the state will put up a small amount of money, but the feds a lot more.”
Ward agrees that a reduction in uncompensated care is vital if services from hospitals and physicians are to be sustained. Rural hospitals in particular are now at risk of closing because of narrow margins, and if Medicaid is not expanded many people in these underserved areas won’t have any health care options left.
“The Pennsylvania economy is ripe for expansion, which will be aided by Medicaid growth,” adds Ward.
Martin Ciccocioppo, vice president of research with HAP, says that federal money that doesn’t go to Pennsylvania will be happily accepted by other states if the commonwealth chooses not to expand Medicaid.
“The real question involves keeping the federal money in Pennsylvania,” he says.

Misguided arguments

Elizabeth Stelle, policy analyst with the Commonwealth Foundation, argues that the RAND study promotes misguided economic-multiplier (Keynesian) arguments, and that expansion of Medicaid will cause states to trade short-term gain for long-term pain and higher taxes. In addition, the Medicaid program cannot be economically sustained.
According to Stelle, the RAND study assumes that federal dollars are a “gimme” and will not cause higher taxes. However, she says that every tax dollar spent on Medicaid is money out of the pocket of a taxpayer, which also accelerates cost increases for health care for the privately insured.
Stelle says the Commonwealth Foundation favors private-sector solutions to health-care problems — solutions that would discourage employers from dropping employee coverage.
“For insurance to cost less, we’ve got to get government out of the insurance business,” says Stelle. “Instead of Medicaid expansion, we prefer more private insurance options and less regulation.”
C. Richard Schott, M.D., F.A.C.C., president of the Pennsylvania Medical Society (PMS), emphasizes that virtually all physicians want their patients to have both insurance and access to care. He also says that hospitals like Medicaid because it is a reliable payer (as opposed to patients with no coverage whatsoever). For this reason, he believes arguments favoring the Medicaid expansion “have merit.”
However, Dr. Schott also acknowledges that his personal views are a bit different from the position of PMS, and that Medicaid in its present form is not sustainable. He also says that it’s not clear who will ultimately pay for Medicaid expansion, but borrowed money seems to be the norm to fund Washington’s spending. “There is no such thing as free money,” he says.
The conservative Goldwater Institute made another argument in favor of states declining Medicaid expansion in the pages of The Wall Street Journal: It will trim the federal budget. Goldwater says, “Using figures compiled by Kaiser and our own research at the state level, the Goldwater Institute estimates that the federal tab for Medicaid expansion has been reduced by more than $424 billion in new federal spending over the next eight years thanks to the 18 states that have already opted out. If the 12 still-undecided states also decide to opt out, there will be an additional $185 billion in savings.”

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