Introduction
Over the coming months, members of Congress will be debating proposals that are designed to reduce the federal budget deficit. One program that has already received considerable attention is Medicaid, which provides nursing home and other long-term care for seniors and people with disabilities, as well as health coverage for low-income children and families.
The Republican budget proposal, introduced by House Budget Committee Chairman Paul Ryan, would subject Medicaid to some of the largest cuts in the history of the program. This proposal would cut federal Medicaid funding significantly—not by reducing underlying health care costs, but simply by shifting those costs to already overburdened state governments. It would do this by converting the program to a block grant that would provide considerably less federal funding with each passing year. The Republican budget proposal would cut federal funding to the states by 5 percent in 2013. In 2014, the cut would be 15 percent. Over the coming years, these funding cuts would get larger and larger, until, at the end of the 10-year period, the cut in federal funds would approximate 33 percent. (Other budget proposals under consideration don’t specify the size of their Medicaid cuts. However, they do include global caps or other limits that would trigger automatic spending cuts, which could easily result in similar cuts to Medicaid.)
These cuts would have a devastating impact not only on states, but also on Medicaid enrollees—seniors and people with disabilities who need nursing home and other long-term care, as well as low-income families, many of whom will lose benefits or lose their coverage altogether.
Beyond the human toll that would be experienced by program enrollees and their families, these Medicaid cuts would have a significant and harmful effect on state economies and jobs. To determine those economic consequences, Families USA used the RIMS II input-output model (created by the U.S. Department of Commerce, Bureau of Economic Analysis). Working with Richard Clinch, Director of Economic Research at the Jacob France Institute of the Merrick School of Business at the University of Baltimore, we looked at the reductions in state business activity and the resulting number of jobs that would be at risk today under three different scenarios based on the Republican budget proposal: a 5 percent cut, a 15 percent cut, and a 33 percent cut in federal Medicaid spending.
We found that these Medicaid cuts would cause serious and quantifiable harm to state economies. Every federal Medicaid dollar that flows into a state stimulates business activity and generates jobs. The loss of federal funding means there will be fewer dollars circulating through each state’s economy, as well as fewer dollars passing from one person to another in successive rounds of spending that drive economic growth. This loss of the “economic multiplier effect” that states would experience as a direct result of federal Medicaid cuts would be large and much greater than the amount of the dollar cuts themselves.
While our nation’s economy is showing modest signs of recovery, that recovery remains fragile, and many families have not yet returned to a secure financial footing. Unemployment remains high, and decisions that would lead to additional job losses make little sense. Unfortunately, federal Medicaid cuts could severely worsen unemployment and further burden troubled state economies.
