Repealing Federal Health Reform: Economic and Employment Consequences for States

From the issue brief published by The Commonwealth Fund:

…Recent analyses show canceling the ACA’s tax credits and Medicaid expansion would double the number of uninsured Americans.2,3 As millions lose their insurance, hospitals and other providers would see their uncompensated medical care costs soar by $1.1 trillion from 2019 to 2028, and they would experience major revenue losses as well.

But repeal could also have much broader economic repercussions. Our analysis examines the potential economic and employment effects of repealing the ACA’s tax credits and Medicaid expansion, without a replacement plan, for every state and the District of Columbia. We estimate changes in:

  • employment—the number of jobs lost in health care, construction, and other sectors of the economy
  • economic activity, such as state gross product (the state equivalent of national gross domestic product) and business output
  • state and local tax revenues.

…Health care will comprise almost one-fifth (18.5%) of the nation’s economy by 2019.9 As such, major changes to health care will reverberate across other parts of the economy.  Federal tax credits first flow to health insurers. Most of the money, aside from carriers’ overhead, flows to hospitals, clinics, pharmacies, and other providers. Similarly, federal funding supports state Medicaid programs, which pay health care providers. These are the direct effects of federal funding.

Most of the revenue earned by health care providers is used to hire and pay staff and to purchase goods and services, like clinic space or medical equipment. In turn, those vendors pay their employees and buy additional goods and services. This is the indirect effect of federal funding.

The induced effect is manifested as workers use their incomes to pay for food, mortgages, rent, transportation, and other goods and services, which provides income to other businesses.

Federal funding thus initiates an economic cycle that ripples throughout the economy, both within and across state borders. The gains from this cycle also generate additional state and local tax revenues. When federal funds are cut, the results play out in the other direction, triggering losses in employment, economic activity, and state and local revenues.

The potential effects of the repeal of both premium tax credits and Medicaid expansion include:

  • …repeal results in a $140 billion cut in federal funding for health care in 2019. This in turn leads to about 2.6 million jobs lost that year, rising to nearly 3 million by 2021. A third of these lost jobs are in health care, but the majority is in other industries such as construction, real estate, retail trade, and finance. Nearly all are private-sector jobs.
  • …canceling states’ Medicaid expansions lowers federal funding by $466 billion from 2019 to 2023. This leads to 1.5 million fewer people with jobs in 2019. Moreover, gross state products shrink by nearly $900 billion and state and local tax revenues drop by $29 billion.

Read the full issue brief.