Medicaid Expansion Boost To Economy

Under the Affordable Care Act, a significant expansion of Medicaid took place in Iowa, which brought health coverage to an additional 150,000 low-income adults in the state. The federal government initially covered 100 percent of the cost, which amounted to $730 million in 2015. This influx of federal dollars had a significant impact on the state’s economy, creating over 10,000 jobs and generating over $500 million in annual income for Iowans.

The Medicaid expansion extended eligibility to non-elderly adults with incomes up to 138 percent of the poverty level. The number of adults gaining health insurance through this expansion is expected to grow to 177,000 by 2019, and the majority of those adults are working in low-wage jobs without meaningful or affordable health insurance, if offered at all. The Medicaid expansion has had a huge impact in rural areas of Iowa, where the percentage of uninsured non-elderly residents was cut nearly in half between 2013 and 2015.

Starting in 2020, the federal share of the cost will drop to 90 percent, but the total federal dollars flowing to the Iowa economy are expected to increase over time, reaching an estimated $1.1 billion per year by 2026. The additional Medicaid spending was used to supply a range of conventional health care delivery services to the expanded Medicaid population. This increase in spending also resulted in an increase in demand for supplies and other tangible inputs into the health care industry, referred to as “indirect spending.” Additionally, when workers in the health care sector and workers supplying the healthcare sector spent their paychecks, they stimulated another round of economic activity throughout the local economy, referred to as “induced spending.” The input-output model estimated these indirect and induced effects, and compiled them into an overall estimate of the economic impacts associated with the expanded Medicaid spending.

The influx of federal dollars in the first year of the Medicaid expansion created or retained an estimated 10,322 jobs and generated $507.9 million in additional income to Iowa workers. However, it is possible that some portion of the Medicaid expansion spending from the federal government did not increase health care spending but instead substituted for private spending on health care. In this case, the total jobs impact would have been slightly lower, but the impact would still be substantial.

As the size of the Medicaid expansion population increases, drawing a larger federal contribution, the annual boost to the state economy will also grow. For every increase of $100 million in federal dollars flowing to the state, another 1,503 jobs will be created or retained, paying another $74 million in employee compensation. The effects will be felt throughout the state, including in medical facilities in rural areas, in Iowa retail stores, and in businesses such as laundries supplying the health care sector. Furthermore, the boost in employment income in Iowa is expected to generate $33.8 million in expanded state tax receipts and $20.8 million in local government taxes.

Estimates of the economic impact of Medicaid expansion spending have been calculated in several states, with results similar to those found in Iowa. In Michigan, for example, the expansion was estimated to create 39,000 jobs and about $2.2 billion in incomes in 2016. These figures are about four times the estimates for Iowa, which is consistent with the analysis since the Michigan Medicaid expansion enrollment was about four times larger than in Iowa. The researchers also found that the increased incomes produced $145 million in additional state tax revenue and $235 million in state budget savings on other programs, resulting in a significant net gain to the state finances from the Medicaid expansion. This trend has also been found in other states.

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