Medicaid Cuts Harm States' Economies: Study

January 17, 2003
As states face fiscal crises and consider big cuts to their Medicaid programs, a new report documents that those cuts would significantly harm each state's ailing economy.

The report, issued by the health care consumer watchdog organization Families USA, indicates that states cutting their Medicaid programs would cause large reductions in their states' jobs, wages, and business activity.

According to the Families USA report, states stand to lose an average of 37 jobs for every million dollars cut in the Medicaid program in 2003. Such job losses would vary considerably from state to state - with Mississippi losing 72 jobs for each million-dollar cut while Delaware would lose 17 jobs.

The report indicates that states would face large reductions in business activity for each million dollars in Medicaid cuts. On average, each million-dollar reduction in Medicaid spending would cause a loss of $3.4 million in business activity. Reductions in business activity would also differ substantially from state to state - with Mississippi losing $6.25 million in business activity for each million-dollar Medicaid cut while Delaware would lose $1.96 million.

In California, Gov. Gray Davis has proposed a Medicaid cutback of $1.3 billion for 2003. According to the Families USA report, this proposed cut would result in a loss of 27,994 jobs, $1.2 billion in lost wages, and $3.2 billion in lost business activity. In Michigan, the state legislature is considering a Medicaid cut of $60 million that, according to the new report, would result in a loss of 1600 jobs, $56 million in lost wages, and $151 million in lost business activity.

"When states slash their Medicaid programs, they hurt everyone through losses in jobs, wages, and economic activity," said Ron Pollack, executive director of Families USA. "This harm is in addition to the many difficulties faced by low-income families when their Medicaid lifeline is cut."

Among the findings in the Families USA report are the following:

• The 10 states that would experience the greatest job loss per million dollars in Medicaid cuts in 2003 are Mississippi (72 jobs), New Mexico (67), Arkansas (65), Montana (64), Oklahoma (62), Utah (60), West Virginia (57), Idaho (56), Louisiana (55), and Alabama (55).
• The 10 states that would lose the most state business activity per million dollars in Medicaid cuts in 2003 are Mississippi ($6.25 million), New Mexico ($5.72 million), Arkansas ($5.41 million), Utah ($5.27 million), West Virginia ($5.16 million), Oklahoma ($4.98 million), Alabama ($4.93 million), Montana ($4.90 million), Louisiana ($4.87 million), and South Carolina ($4.78 million).

"Cuts to the Medicaid program are short-sighted," continued Pollack. "Medicaid is a powerful stimulus to state economies, and Medicaid cutbacks will exacerbate states' economic problems."

The Families USA report also focused on how state money invested in the Medicaid program in 2001 translated into new jobs, additional business activity, and increased wages for all 50 states:

• State Medicaid spending in 2001 generated over 2.9 million jobs - approximately 58,785 jobs on average per state.
• The 10 states with the largest number of jobs generated by state Medicaid spending in 2001 were New York (300,352), California (291,439), Texas (187,901), Pennsylvania (143,110), Florida (132,215), Ohio (132,028), North Carolina (100,353), Michigan (98,754), Illinois (98,435), and Tennessee (81,675).
• The 50 states spent nearly $98 billion on Medicaid in 2001, but this investment generated an almost three-fold return ($279 billion) in new business activity.
• Employee wage increases attributable to state Medicaid spending ranged from $11.7 billion in New York to $114 million in Wyoming.

The report indicates that a significant factor in states' improved economic activity due to Medicaid spending arises because the federal government provides matching funds for each state's Medicaid program. The matching rate varies from state to state, ranging from $1.00 to $3.27 in federal funds for each state dollar.

Families USA used the RIMS II input-output economic model created by the U.S. Department of Commerce, Bureau of Economic Analysis to determine the impact of Medicaid spending on each state's economy. Through this model, Families USA was able to capture the specific economic conditions in each state and then calculated the new economic activity that would be generated by Medicaid spending in the areas of business activity, number of new jobs created, and wage and salary income associated with these new jobs.

For a copy of this report, and to compute how present Medicaid cut proposals will affect each state's business activities, jobs, and wages, visit the "Medicaid cuts calculator" at www.familiesusa.org.