Is Medicaid a Job Creator?



Through the heated national and state debates over health care policy and the implementation of the Affordable Care Act (ACA), perhaps the one thing that all parties involved can agree on is that the overall health of Americans has been on the decline while health care costs have risen. One might assume, therefore, that those favoring an expansion of Medicaid benefits might emphasize the health benefits. Yet for some reason their chief argument – at least the argument most commonly heard – is that a Medicaid expansion would “create jobs.”

In December of 2012, the South Carolina Hospital Association (SCHA) published a lengthy report on the economic impact of ACA through Medicaid expansion. The first argument in its executive summary states that expansion would generate an increase of federal funding to the state of approximately $11.2 billion from 2014-2020. It then goes on to argue that this flow of federal dollars represents an “unambiguous benefit to South Carolina’s economy” (italics in the original).

It’s almost as if the SCHA views new federal money as “free money” – as if, in other words, South Carolinians don’t pay federal taxes and somehow aren’t on the hook for federal debt.

Proponents of Medicaid expansion furthermore argue that, if South Carolina doesn’t accept expanded Medicaid funding, “the money will just go to another state.” This is false. These funds aren’t being passed and made available in a lump sum the way the 2009 stimulus funds were. Rejection of these funds will in fact entail the federal government spending less than it would if the funds were accepted.

The executive summary also contends that Medicaid expansion would create nearly 44,000 new jobs, 15,000 of which would be created outside the health care industry due to the economic multiplier effect (new economic activity due to these alleged new jobs). Not only is there no serious basis for the 44,000 number; the “multiplier effect” argument is highly suspect. SCHA’s report uses a 1.5 multiplier effect – meaning that for every two health care jobs created, one job outside of the healthcare industry will be created. Economists’ estimates of multiplier effect rates vary, but consider: the Obama administration assumed a 1.5 multiplier effect from the stimulus package. That led the administration to predict an unemployment rate of just over 5 percent by now – and it’s currently 7.9 percent nationwide.

(See the Hospital Association’s promotional video making preposterous job-creation claims here.)

Apparently the South Carolina Department of Health and Human Services (DHHS) agrees. In a February 5th House Ways and Means subcommittee meeting, DHHS Direction Tony Keck provided the audience with an ACA Addendum with a few arguments rebutting the SCHA report. Below are just a few of its key points:

The argument that no new tax dollars raised to fund ACA would return to South Carolina without Medicaid expansion is untrue because (a) the additional .9 percent Medicare tax on high income earners will go to the Medicare trust fund and will return to its members in South Carolina, (b) the additional 3.8 percent investment income tax on high income earners goes to the federal treasury, which can return to South Carolina through military spending, education, infrastructure, etc., and (c) the 71 percent of South Carolina’s uninsured that are projected to gain access to insurance under federal exchanges and growth in current Medicaid program will be subsidized through federal tax credits.

Regarding the “job creation” claim, the addendum points out the following:

  • In their article “The Health Care Jobs Fallacy,” Harvard professors Katherine Baicker and Amitabh Chandra state that “salaries for health care jobs are not manufactured out of thin air – they are produced by someone paying higher taxes, a patient paying more for health care, or an employee taking home lower wages…Additional health care jobs leave Americans with less money to devote to college tuition and mortgage payments, and the U.S. government with less money to perform all other governmental functions.”
  • Georgetown University projects health care jobs will grow by 5.6 million with or without Obamacare.
  • Impact analyses ignore the fact that jobs created in the analysis could have been created elsewhere.
  • Impact analyses assume that the market under analysis is operating at the desirable efficiency, which health care is clearly not.
  • The report double-counts several hundred million dollars of annual spending on the uninsured, considering it “out of scope.
  • Also “out of scope” was the report’s lack of sensitivity analysis and labor constraints analysis.

If any reform is to be done to our health care system, it should be done with the main intent of improving health and lowering costs – not bringing in more federal money for economic development and jobs. Although this is not the only argument the SCHA is using in favor of Medicaid expansion, they are making it frequently, and the fact that they went to the trouble of compiling this lengthy report is troubling.

As we’ve mentioned before, expanding Medicaid is a bad idea. The added financial burden it would put on federal and state taxpayers – present and future – is not worth the very limited impact it would have on the health of South Carolinians. And in addition to rejecting Medicaid expansion, our legislature can take further steps to protect South Carolinians from the effects of Obamacare in order to secure health care freedom to the furthest extent possible.

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