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Medicaid Good for State Economies, Staring Contest Continues

A Kaiser Family Foundation report on 29 studies found that federal Medicaid dollars spur economic activity beyond initial investments, both in and outside of healthcare sectors.  In addition to the immediate effects of fewer uninsured residents, the 2009 study echoed bolstered previous findings, which showed that:

  • Medicaid spending generates economic activity, including jobs, income and state tax revenues at the state level, particularly in the health care sector
  • Medicaid spending positively impacts other sectors through the multiplier effect.  As an example, employees of Medicaid providers may increase their discretionary spending due to increased income; the effect is not only increased spending, but also more in income and sales tax revenues.
  • Reductions in state funding not only decimates federal matching funds, but will have significant negative impacts on health care providers, hospitals, nursing homes, pharmacies etc., affecting employment, tax revenues (income and sales) and overall economic output.

Despite research and data that show Medicaid helps the uninsured, middle class families, and state economies, several governors have promised their constituents that they will not expand their states’ Medicaid programs; many more legislators have expressed their desire to join one of the most confusingly popular bandwagons since Furbies.

Governor Rick Perry became the sixth governor to rejected Medicaid expansion in a July 9 letter to HHS Secretary Kathleen Sebelius, calling the bill “Orwellian-named,” and ACA measures “unsound encroachments” and “brazen intrusions into the sovereignty of our state.”  This decision would prevent 1.8 million expansion eligibles (0-133% of FPL) from receiving Medicaid coverage, and leave 1.3 million (0-100% of FPL) SOL and ineligible for any federal financial assistance for health care.  This decision could give Texas, which has 6.2 million uninsured (24.6% of state population) and ranked last in the Agency for Healthcare Research and Quality’s annual healthcare delivery snapshots, a stranglehold on the dubious honor of having the worst health care in the country.

With Texas, Louisiana, Mississippi, South Carolina, Florida and Wisconsin’s decision to opt out, over 4 million residents will be unable to receive Medicaid coverage.  Those with incomes above the federal poverty level ($11,170 for an individual, $23,050 for a family of four) will be eligible to receive some federal subsidies to purchase coverage through exchanges, but according to Urban Institute estimates, the 100-133% FPL group is relatively small at 931,000.  Of the 4 million eligibles, over 3.1 million are estimated to be SOLs.

History, however, has shown that resistant states can be won over.  When Medicaid was initially launched in 1966, only six states initially signed up and faced skepticism, if not downright hostility from many states.  Over time, all 50 states joined when the last holdout (Arizona) joined in 1982.  The Children’s Health Insurance Plan (CHIP) also faced opposition in 1997, but every state had adopted the CHIP program by 2001.

With Medicaid expansion’s generous federal match (100% through 2017, dropping to 90% in 2020), states are even more incentivized to participate.  Ron Pollack, executive director of Families USA, believes “that virtually all states will decide to implement.  They would be committing fiscal malpractice if they left all this money on the table.”

In the case that some states refuse to change their minds, the federal government is considering ways to ensure that everyone below the poverty line gets covered through the hardship exemption, which waives the individual mandate penalty for those who cannot find affordable health insurance (<8% of a family’s income); if there is even one plan in their geographic area that costs less than 8% of their income, they must either buy the policy or pay the penalty.  In a letter to all governors, Secretary Sebelius wrote, “as to the very small number of affected individuals who would not qualify for the statutory exemption, Congress provided additional authority, which we intend to exercise as appropriate, to establish any hardship exemption that may be needed.”

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