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Medicaid expansion rooted in dangerous economic assumptions

Medicaid expansion rooted in dangerous economic assumptions

Fred Birnbaum
September 12, 2016
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September 12, 2016

The first rule of holes: when in one, stop digging. The federal government regularly ignores this rule, its current-year deficit projection is circa $600 billion and the national debt just surpassed $19.5 trillion.

Given those dire fiscal numbers, why the clamor to expand Medicaid in Idaho and saddle our kids and grandkids with an even bigger burden?

Any economically unsustainable public policy cannot fulfill its initial promise. If we break promises by further expanding Medicaid, we risk the health of vulnerable Idahoans who need the program: children and pregnant women. That’s unacceptable.

Medicaid expansion proponents assert it’ll secure healthcare coverage for those in need. Next, they say, expansion will simply return money Idahoans pay in taxes to the feds — get it, or someone else will. Further, because we already take federal dollars, let’s be consistent and take more.

Moreover, we’re told, injecting new federal money will create an economic multiplier that will provide new revenues to Idaho and create thousands of jobs. Finally, other states expanded Medicaid and benefit from it.

Let’s examine reality.

If Idaho expands Medicaid, it would be with incremental — borrowed — spending. To repeat, Medicaid expansion wouldn’t be covered by taxes anyone pays. And future federal tax revenues are unlikely to cover future federal spending as deficits are growing again.

Based on recent data, 34 percent of Idaho’s total spending is derived from federal funds. Do we want to increase this percentage? Dependence on federal aid is not a recipe for wealth generation, rather a symptom of poverty.

Federal money flows to the poorer states at higher rates, but does it lift its residents? According to the Tax Foundation, Mississippi consumes the highest percentage of federal aid among states, at more than 42 percent of its total funds. Mississippi is consistently the state with the lowest per capita income.

Does the federal funds economic multiplier work to Idaho’s advantage?

During a 2016 Idaho Legislative Health Care Working Group meeting, numbers were presented as to the fiscal impact of expanding Medicaid. The analysis detailed a net $165.5 million in savings to Idaho over five years.

The costs and savings from the actuarial firm Milliman are used for a 5-year horizon, from state fiscal years 2018 thru 2022. Added to those numbers is the estimated impact from the federal funds that flow to Idaho as part of the federal Medicaid match. The changes to the methodology originally presented by Milliman include a shortening of the time horizon and the inclusion of an economic multiplier from the federal funds.

Note, this federal match would have been 100 percent in 2016 but will fall to 90 percent starting in 2020. By using a shorter time horizon, the analysis avoids using more years when the fiscal match is at 90 percent.

Using an economic multiplier is common in economic models, but how valid is it? According to a National Bureau of Economic Research paper by Alan Auerbach and Yuriy Gorodnichenko, multipliers work better in economic contractions than expansions — with the effects muted during the latter period. We have proof: the Obama administration has added nearly $9 trillion of deficit spending to the U.S. economy; yet we have the worst post-recessionary GDP growth since the late 1940s.

A final word of caution is advised when considering data from states that have expanded Medicaid. Initially, the feds picked up 100 percent of the expansion tab and will do so through 2016. There is no data from any state yet where the state picks up a portion of the tab — which states will start to do in 2017.

Note: The Idaho Statesman first published this article.

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