Medicaid Expansion a Huge Success

Medicaid expansion could become a major election issue in the upcoming midterms, as its set to renew in 2019. For policymakers and stakeholders in Montana’s health care system, the big questions revolve around its costs and whether the state can afford it. But analysis shows the health care program not only pays for itself, it significantly boosts the state’s economy.

A study funded by the Montana Healthcare Foundation and Headwaters Foundation found Medicaid expansion introduces $350 to $400 million in new spending to the state’s economy each year, which will generate thousands of jobs and hundreds of million in personal income over the next two years.

Approximately 75 to 80 percent of Medicaid spending is new money. This means spending on Medicaid expansion rivals some of the larger sectors of the state’s economy. It’s 33 percent bigger than Montana’s beverage manufacturing industry (e.g., craft brewing, distilling, wineries, etc.) and only 10 percent smaller than the total budget for the Montana University System.

Montana approved Medicaid expansion in 2015, which extended coverage to more low-income and disabled Americans. During its first two years, Medicaid expansion provided beneficiaries more than $800 million in health care and infused a significant amount of money into the economy.

Medicaid expansion spending enters our economy in two ways – first, it supports new health care spending. Nearly one in 10 Montanans were enrolled in Medicaid expansion as of March 2018. Most expansion enrollees would have been uninsured in the absence of the expansion. As such, Medicaid expansion provided tens of thousands of uninsured, underinsured and low-income Montanans with health care they would not have otherwise received.

Second, Medicaid expansion spending replaces existing spending. Even without Medicaid expansion, beneficiaries would have received some health care, but Medicaid expansion changed who pays for their care. Without expansion, the state, the federal government, employers, hospitals and providers, and the beneficiaries themselves all contribute to paying for care that is now paid for via Medicaid. With expansion, the federal government pays for nearly all the care provided to beneficiaries.

The effect is similar to when a Montana company wins a government contract – it brings money into the state’s economy that would otherwise not be there. Medicaid expansion impacts Montana’s economy the same way and this new money stimulates economic activity creating jobs and income.

It’s estimated that between 2018 and 2020, Medicaid expansion will generate about 5,000 jobs and $270 million in personal income annually (Table 1). This represents slightly less than 1 percent of Montana’s employment and income.

Table 1. Summary of economic impacts of Medicaid expansion in Montana, year and cumulative (income and sales in millions of 2016 dollars). Source: Bureau of Business and Economic Research.
Table 1. Summary of economic impacts of Medicaid expansion in Montana, year and cumulative (income and sales in millions of 2016 dollars). Source: Bureau of Business and Economic Research.

During its first five years, Medicaid expansion is expected to generate a total of about $1.2 billion in personal income and $2.6 billion in output or new sales. Between June 2015, when the HELP Act was signed into law, and September 2017, Montana added more than 6,200 health care jobs.

It is important to note that the analysis does not say that the expansion creates 5,000 jobs one year and then an additional 5,000 new jobs the next year. Many of the jobs are created in one year and then persist. For instance, a nursing position created as a result of expansion in 2017 that persists through 2020, would be part of the 5,000 jobs in 2020.

But the economic impacts of Medicaid expansion are not limited to just the jobs and the income it directly or indirectly supports. Medicaid expansion also represents a significant investment in Montanans’ health and well-being – and these investments pay off.

A substantial body of research from around the U.S. has evaluated the effects of Medicaid expansion and found that it:

  • Improves health: One study found that Medicaid expansion was associated with a 5 percent increase in the share of low-income adults in excellent health. This is consistent with a larger body of literature that finds that insurance expansions improve mental health and reduce mortality.
  • Improves financial health: A recent study found that Medicaid expansion reduced medical debt by $900 per treated person, prevented 50,000 bankruptcies and led to better credit terms for borrowers.
  • Reduces crime: Medicaid expansion reduced crime by more than 3 percent, generating social benefits of more than $10-$13 billion annually.

Furthermore, Medicaid expansion, along with the associated HELP-Link workforce development program, may have improved labor market outcomes for low-income Montanans.

Following expansion, participation in the labor force among low-income Montanans ages 18-64 increased by 6 to 9 percent. Similar gains in labor force participation did not occur among low-income populations in other states or among higher-income Montanans. This suggests that Medicaid expansion and HELP-Link improved labor market outcomes for low-income Montanans.

While Montana pays part of the cost of Medicaid expansion, these costs are more than offset by cost savings and increased revenues. Medicaid expansion has allowed some people to switch from traditional Medicaid to the expansion. Because Montana pays 35 percent of the cost for traditional Medicaid, but less than 10 percent in the expansion, this saved the state more than $40 million during the first two years.

Medicaid expansion also saved $7.7 million in 2017 through increasing economic activity, state revenues and reducing the cost of inmate care. As shown in Table 2, cost savings and increased revenue more than offset expansion costs. This will remain true even after the state’s share of Medicaid expansion costs rises to 10 percent in 2020.

Table 2. Fiscal effects of Medicaid expansion in Montana, year (in millions of 2016 dollars). Source: Bureau of Business and Economic Research.
Table 2. Fiscal effects of Medicaid expansion in Montana, year (in millions of 2016 dollars). Source: Bureau of Business and Economic Research.

Overall, Medicaid expansion in Montana generates several thousand additional jobs and several hundred million dollars in additional income. It also pays for itself, since the savings generated, plus additional revenues (or other reduced expenditures), exceed the costs to the state. In addition to generating economic activity, it appears to improve outcomes – reducing crime, improving health and shrinking debt.

If reauthorized in 2019, Medicaid expansion might not only be a success story for Montana, but possibly a model for other states to replicate.