The Economist: Texas Has Only One Rational Choice About Medicaid Expansion
By Ray Perryman
Oct. 6, 2012 at 5:06 a.m.
Updated Oct. 7, 2012 at 5:07 a.m.
The choice facing Texas (and every other state) regarding expanding Medicaid under the Affordable Care Act (ACA) is a difficult one. On the one hand, state funds will be required and the budget is tight; on the other hand, federal funds will be gained and access to care for low-income residents will improve. For more than three decades, I've studied the Texas economy. I've been involved in public policy debates through special reports and invited testimony on numerous occasions across a spectrum of industries and situations (including public health care).
As I watched the Medicaid decision unfold and saw how the formulas worked, it became clear to me that there was a need for some analysis beyond the simple first responses regarding state funds required. As a public service, my firm prepared an analysis of the economics of expanding Medicaid under the ACA. (You can download the report, entitled "Only One Rational Choice: Texas Should Participate in Medicaid Expansion Under the Affordable Care Act," at our website at perrymangroup.com.)
According to our analysis, every $1 spent by the state of Texas to expand Medicaid coverage under the Affordable Care Act returns $1.29 in dynamic state government revenue over the first 10 years of the expansion. Medicaid expenditures lead to substantial economic activity, federal funds inflow, reduction in costs for uncompensated care and insurance and enhanced productivity from a healthier population. When these outcomes and the related multiplier effects are considered, the program actually far more than pays for itself and provides a notable economic stimulus. This pattern also continues beyond the initial 10 years.
Without a doubt, neither the Affordable Care Act nor the Medicaid program is perfect, and there are many opportunities to provide needed health services in a more efficient and cost effective manner. However, if we don't expand Medicaid coverage as envisioned under the Affordable Care Act, Texas loses an opportunity to enhance access to health care for about 1.5 million Texans and foregoes almost $90 billion in federal health care funds over the first 10 years.
Texas is currently plagued by the highest rate of uninsurance and underinsurance in the nation, leading to lower than optimal health care spending, excessive uncompensated care, excessive morbidity and mortality and lost productivity. If Texas doesn't expand Medicaid under the ACA, there is a significant economic downside that must be weighed against potential savings in direct state outlays. Stated differently, there are substantial gains to be realized if we do expand the program.
During the first 10 years after implementation of a Medicaid expansion, The Perryman Group estimates that the total cumulative gross benefits to the state economy include $270.0 billion (in 2012 dollars) in output (real gross product) and 3,174,640 person-years of employment. These overall gains stem from spending for health care, which would be provided through the expansion, reducing uncompensated care (and, thus, the local government and private funds needed to pay for it), and improving outcomes through better care (reducing morbidity and mortality and thus increasing productivity).
State revenues required to implement the Medicaid expansion will of necessity be diverted from other potential uses, either in terms of the fiscal resources funding other public goods and services; lower taxes, allowing for greater private sector activity; or some combination of spending increases and tax reductions. When this diversion is accounted for, the outcomes from expanding Medicaid are still $255.8 billion (in 2012 dollars) in output (real gross product) and 3,031,400 person-years of employment (about $300,000 per annum over the first 10 years of implementation).
Federal Medicaid funding returned to the state would total $6.78 for every dollar of state funds spent. The federal tax burden on Texas citizens and firms will remain the same irrespective of whether the state chooses to receive these benefits. The burden on local government entities is reduced (by $1.21 for every dollar of state funds for Medicaid expansion), while dynamic local government revenue rises by $0.51 per dollar of state money expended. Insurance premiums would be less due to a reduction in uncompensated care, and overall quality of life and productivity would be enhanced. For every dollar spent by the state for additional Medicaid coverage, total spending in the economy would go up by $43.50, output (real gross product) would rise by $21.72, personal income would grow by $14.34, and retail sales would expand by $6.13. In addition, the gains rise over time with population growth and aging and the resulting increase in the need for health care.
The bottom line is that the relevant question at present is not philosophical but practical. It is not an issue of whether Medicaid and the ACA are perfect - they are not. Even so, given the current framework, the best choice for Texas from an economic perspective is participating in the Medicaid expansion under the Affordable Care Act. It represents one of those rare occasions where Texas can provide significant services for many of its least advantaged citizens while simultaneously stimulating the economy and taking the most fiscally responsible course. Whether Texas opts in to this program or not, our citizens and businesses will pay the federal taxes that support it.
Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (perrymangroup.com). He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.