Medicaid Expansion: Missed Opportunities by Red States

I put this aside at the time because the CEA’s analysis seemed to me to be likely to be wrong in two areas:

1. Their short-run Keynesian multipliers looked low to me for large states, and for states surrounded by other non-expanding states.

2. In a long-run model in which we assume “full” or “normal” employment, increased federal government spending does not add to national GDP, but where the federal government dollars are spent redistributes economic activity around the country: Texas, Kansas, Missouri, Virginia, Louisiana, and company lose; and California, Oregon, Colorado, Illinois, New York, and Massachusetts gain; to the tune of a Moretti-style regional multiplier by which $1 of extra federal spending acts as do $1 of regional exports and so attract enough labor, capital, and enterprise to boost state-level economic product by $1.

But I never wrote up my long comment on the CEA’s report, and so it is time to declare commenting bankruptcy on this one…

Council of Economic Advisers: Missed Opportunities: The Consequences of State Decisions Not to Expand Medicaid: “In addition to their effects on insurance coverage, access to health care, and health and well‐being…

…States’ decisions to expand Medicaid will also have immediate macroeconomic benefits by drawing additional Federal funding into State economies…. Over the next few years, while the recovery from the 2007‐2009 recession remains 24 incomplete and slack remains in the economy, this increase in demand will boost overall employment and economic activity…. Much of the additional Federal funding will fund additional medical care for newly enrolled Medicaid enrollees, increasing overall demand for medical goods and services. For dollars entering the economy this way, CEA uses a GDP multiplier of 1.5…. Federal funding will protect enrollees from high out‐of‐pocket medical costs…. For dollars entering the economy this way, CEA uses a GDP multiplier of 1.5…. For reductions in uncompensated care costs borne by State and local governments, CEA uses a multiplier of 1.1…. For other reductions in uncompensated care costs, CEA uses a GDP multiplier of 0.8….

Gruber and Yelowitz (1999) provide some evidence that past Medicaid expansions have indeed reduced precautionary saving. Because the macroeconomic estimates presented in this report do not account for effects of Medicaid expansions on precautionary saving, they are somewhat conservative…