Medicaid Expansion and Jobs

Copyright, The New York Times Company

The coming Medicaid expansion will reduce employment, but last week’s Supreme Court ruling could permit states to prevent that outcome.

The state-administered Medicaid program pays health care providers on behalf of low-income individuals and families. It is the largest antipoverty program, spending about $8,000 per beneficiary a year.

Unlike other major safety-net programs like unemployment insurance and food stamps, the Medicaid program has not significantly expanded its eligibility or average benefit in recent years. Some states have restricted Medicaid benefits in order to control costs. A number of states have expanded eligibility, but those expansions were small enough that nationwide Medicaid enrollment and inflation-adjusted Medicaid spending actually grew slightly less between 2007 and 2010 than did the number of Americans in poverty.

As a result of the Patient Protection and Affordable Care Act, Medicaid enrollment and spending were expected to increase significantly in 2014, when the program will be made available to able-bodied adults with incomes up to 133 percent of the federal poverty level .

Full-time employment is a major reason that able-bodied adults would have incomes above 133 percent of the federal poverty level. If carried out, this expansion is expected to reduce full-time employment among able-bodied adults, because they would no longer need to be employed full time to obtain health insurance (previously they could pay out of pocket for health insurance when not employed full time, but that is a more expensive way to obtain health insurance).



Medicaid is a transfer, so it creates jobs in the sectors where it is spent, but it destroys jobs at the source of financing (for example, someone fails to buy a new car because he or she is lending money to the government to finance the expansion).

(The expansion could increase employment among the relatively small fraction of able-bodied adults who already earn less than the poverty line but would reduce employment among the much larger fraction who so far are at or above the poverty line, for a net employment reduction.)

In other words, by expanding subsidies for low-income people, we can expect more people to have low incomes.

The Supreme Court ruled last week that states do not have to expand their Medicaid programs, but instead could stick with the previous Medicaid eligibility rules and the federal financing that went with it. States therefore have a choice of depressing their employment rates by accepting the Medicaid expansion and the significant additional financing that goes with it, or forgoing the expansion and its employment-depressing effects.

Normally, I would guess that states would expand their programs. Maximizing employment should not be the only policy objective, especially when reduced employment comes with more resources from the federal government.

However, the Patient Protection and Affordable Care Act is unpopular, and employment rates receive an extraordinary amount of attention in politics these days. State political leaders might turn down the additional federal dollars in order simultaneously to show their distaste for the law and to show that they are taking steps to raise employment in their states.

The governors of Florida and Wisconsin have already announced that their states would not expand Medicaid. If enough states did the same, both state and federal taxpayers could save a lot, and the nation might avoid another depressing force on its labor market.