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W E B S I T E : W W W . K F F . O R G / K C M U

April 2004

The Role of Medicaid in State Economies:

A Look at the Research Medicaid is the nation’s major public health program for low-income Americans, financing health and long-term care services for more than 50 million people — a source of health insurance for low-income children and parents and a critical source of acute and long-term care coverage for elderly and disabled individuals, including millions of low-income Medicare beneficiaries. In addition, the program supports tens of thousands of health care providers throughout the country, including hospitals, nursing facilities, group homes and community health centers, as well as managed care plans. The program’s financing structure — the federal matching arrangement — and the magnitude of Medicaid spending enable the program to make significant contributions to state economies in terms of jobs, income and overall economic activity. As state policymakers grapple with closing budget shortfalls, many look to Medicaid for savings, as it is a major component of state budgets. However, it is argued that cutting Medicaid not only adversely affects the beneficiaries and providers, but also may have an impact on the larger state economy. The Kaiser Commission on Medicaid and the Uninsured has compiled the findings from 17 studies analyzing the role Medicaid plays in state and local economies. These studies estimate the economic stimulus derived from Medicaid spending, and also analyze the adverse effects on the state economy from reducing Medicaid spending. This policy brief provides an overview of Medicaid financing, explains the methods used to assess economic impact and summarizes the main findings from the research. Overview of Medicaid Financing Authorized by Title XIX of the Social Security Act, Medicaid is a means-tested entitlement program jointly financed by the federal and state governments. According to Congressional Budget Office estimates, the federal government spent $161 billion on Medicaid in fiscal year (FY) 2003.1 In addition, the states are estimated to have spent $121 billion, bringing total program spending to $282 billion.2 Medicaid is the second largest line item in state budgets — 16 percent of state funds are allocated to Medicaid on average — and is the largest source of federal grant support for the states.3 The federal government matches each state’s Medicaid spending at an established rate that varies by state. The rate, the Federal Medical Assistance Percentage (FMAP), is determined by a set formula and tries to account for variation in incomes across the states. All states receive at least a 50 percent match and states with per capita incomes below the national average receive higher matching percentages. On average across all states, the federal government matches 57 percent of what states spend on Medicaid. The economic downturn has precipitated a significant decline in state revenues, leaving states with

1 Congressional Budget Office, Fact Sheet for March 2004 Baseline – Medicaid and the State Children’s Health Insurance Program. 2 KCMU estimates based on Congressional Budget Office March 2004 Baseline and General Accounting Office report to the Committee on Finance, U.S. Senate, Medicaid: Improved Federal Oversight of State Financing Schemes Is Needed, February 2004. 3 V. Wachino, A. Schneider and D. Rousseau, Financing the Medicaid Program: The Many Roles of Federal and State Matching Funds, KCMU policy brief, January 2004, available at http://www.kff.org/medicaid/loader.cfm?url=/commonspot/security/getfile.cfm&PageID=30545.

budget shortfalls in the tens of billions. In legislation enacted in May 2003, Congress temporarily increased the matching rates for FY 2004 by nearly three percent as part of a package providing states with fiscal relief. However, the fiscal relief will expire at the end of June 2004 (see Table 1 for FY 2004 and FY 2005 FMAP by state). Economic Impact Modeling To assess economic impact, most studies utilized either the RIMS II (Regional Input-output Modeling System) or IMPLAN (Impact Analysis for Planning) input-output models, which are widely used for assessing economic impact resulting from an event or major capital input such as a military base closing or airport construction. Input-output economic models account for the relationships between industries in an economy and allow for estimating the effects of changes in expenditures on state industries and the economy as a whole. Both models are based on similar theory — a change in input (e.g., a cut or increase in Medicaid expenditures) will produce direct impacts that will then “ripple” through other sectors of the economy producing indirect and induced impacts. This process does not continue endlessly as with each round of spending, a portion of dollars is used for purchases made outside the state, or is taxed or saved. The RIMS II model was developed by the U.S. Department of Commerce, Bureau of Economic Analysis and the IMPLAN model was originally developed by the U.S. Department of Agriculture Forest Service and then extended by the Minnesota IMPLAN Group, Inc. As discussed above, the models are based on similar economic theory; however, there are inherent differences in the models, primarily related to the types of multipliers each model uses and the approach used to compute multipliers. Both models make several assumptions in order to quantify impact; the assumptions and limitations of input-output economic modeling are included within the studies as appropriate. Economic Impact Measures and the Multiplier Effect Economic impact can be defined as the net change in the economy resulting from an event such as an increase or decrease in government spending. New spending can create a larger impact than the amount of new spending alone through “multiplier effects” because of the successive rounds of spending that occur when money is injected into a state economy. For instance, state businesses and residents spend their earnings on purchases from other businesses or residents in the state, who in turn make other purchases and so on.4 Conversely, multipliers can work in reverse when spending is reduced. Economic impact is generally quantified in terms of employment, income, state revenue and overall economic output (also referred to as business activity, gross state product or value added). Both state and federal Medicaid spending have a multiplier effect. State spending alone yields multiplier effects as money is injected into the state’s economy and used to conduct business, make purchases and support salaries. However, because of the matching arrangement, the economic impact of Medicaid spending is intensified by the infusion of new dollars from the federal government that would otherwise not exist in the state — a dollar of state Medicaid spending attracts at least one federal dollar. Thus, the total impact multiplier, relative to the multiplier of the state dollar alone, is considerably larger. Not including the temporary federal fiscal relief, the FMAP ranges from 50 to 77 percent among states — meaning that for every dollar a state spends on Medicaid, the federal government contributes at least one dollar and up to roughly three and one half dollars. The higher the matching rate, the stronger the financial incentive for states. For example, if a state’s matching rate is set at 70 percent, for each $1 the state spends on Medicaid, the federal government contributes $2.33. Conversely, for every $1 that the state cuts in Medicaid spending, it will forgo the $2.33 match from the federal government. Therefore, the state is actually reducing its Medicaid spending by $3.33 to save $1 in state funds.5 4 Within the health care sector, spending is largely internal to the state as health care is a service-based industry in which the product is generally consumed locally. 5 V. Wachino et al., January 2004.

2

State-only funded health programs and state spending in other areas may have economic multipliers roughly in the same range as Medicaid; however, these programs may not generate the added impact, as they typically do not attract federal matching funds. It is important to note that there are state programs that receive federal support, though not matching funds, and that there are other state programs, such as highway construction, that do attract federal matching funds. Figure 1 presents an example of how Medicaid spending flows through an economy and demonstrates how the relationships within an economy can generate impacts greater than the original spending alone. First, while Medicaid payments are made on behalf of enrollees, the direct recipients are providers, including hospitals, private physicians and nursing homes, or managed care organizations. Therefore, Medicaid funding directly impacts health care service providers, supporting the jobs, income, and purchases associated with carrying out health care services.

Figure 1

Flow of Medicaid Dollars Through a State Economy: An Example

State Medicaid DollarsFederal Medicaid Matching Dollars

—Injection of New Money—

Health Care Services

Vendors (ex. Medical Supply Firm)

Direct Effects

Employee Income

Indirect Effects

Consumer Goods and Services

Taxes

Induced Effects

Through the multiplier effect, other businesses and industries are indirectly affected due to the direct impact. For example, a medical supply firm may be affected through its business dealings with Medicaid providers — fluctuations in Medicaid funding may affect a Medicaid provider’s supply order which then may affect the medical supplier’s purchases from its vendors, and so on. Lastly, both the direct and indirect effects induce changes in household consumption and tax collection primarily due to household income fluctuations. Employees of Medicaid health care providers that are directly impacted or the employees of businesses that are indirectly impacted may change their spending patterns according to increases or decreases in income — the change in income triggers the household to increase or decrease spending on consumer goods. Due to changes in personal income and, subsequently spending, sources of government revenue — including income and sales taxes — would be affected as well. Key Study Findings After reviewing the 17 studies, several key findings emerge. The specific findings from each study are included in the Appendix. Medicaid spending generates economic activity, including jobs, income and state tax revenues, at the state level.

• Medicaid is the second largest line item in state budgets.

3

• Money injected into a state from outside the state is critical to generating economic activity.

Medicaid’s economic impact is intensified because of the federal match — state spending pulls federal dollars into the economy.

• Medicaid is the largest source of federal funds for states. The amount of federal dollars each state

receives depends on the state’s Medicaid spending and their FMAP. • Federal Medicaid matching dollars support jobs and generate income within the health care sector

and throughout other sectors of the economy due to the multiplier effect. The economic impact of Medicaid spending varies from state to state.

• Regardless of the economic impact model used, all studies have similar findings — Medicaid

spending has a positive impact on state economies. • The magnitude of the impact is dependent on state Medicaid spending, a state’s matching rate from

the federal government (FMAP) and the economic multipliers used in the studies, which reflect economic conditions within the state.

• The size of the health sector and the interdependence of industry sectors within a state and its

regions can modify the impact.

• States and state regions and/or counties that are more reliant on public services and the health care industry may be disproportionately affected.

Reductions in state and federal Medicaid will lead to declines in economic activity at the state level.

• Reductions in state spending automatically reduce the infusion of federal dollars. States lose at least

one dollar in federal funds for every dollar of state Medicaid spending cut.

• Decreases in funding reduce the flow of dollars to hospitals, nursing homes, home health agencies and pharmacies, and reduce the amount of money circulating through the economy, affecting employment, income, state tax revenue and economic output.

All of the studies examined provide evidence that Medicaid spending has a positive impact on state economies. It is clear from the studies conducted thus far that in addition to providing valuable health coverage for low-income people, state Medicaid spending also yields significant economic benefits for states, and that, largely as a result of Medicaid’s unique matching arrangements, these benefits may be larger than state spending alone. As states address their budget shortfalls, spending decisions will hinge on a variety of factors. However, it will be important to consider the role of Medicaid in state economies and its economic impact relative to state spending in other areas.

This issue brief was prepared by Alicia Carbaugh of the Kaiser Commission on Medicaid and the Uninsured with assistance from Barbara Lyons, Julie Hudman and Victoria Wachino of the Commission staff. KCMU would like to acknowledge the comments provided by Leighton Ku of the Center on Budget and Policy Priorities, Andy Schneider of Medicaid Policy, LLC, and Alan Weil of the Urban Institute.

4

List of State Reports Alaska: Gerald A. Doeksen, Cheryl St. Clair. "Economic Impact of the Medicaid Program on Alaska’s Economy." March 2002. http://www.hss.state.ak.us/dhcs/PDF/economicimpact2001.pdf. Arizona: Center for Business Research, L. William Seidman Research Institute, W. P. Carey School of Business, Arizona State University. “The Economic Impacts of Proposed Budget Cuts to Arizona’s Health Care Safety Net.” June 2, 2003. www.azhha.org/public/uploads/EconomicImpactsOfProposedBudgetCutsByASU.pdf. Arkansas: Wayne Miller and John Pickett. “Economic & Fiscal Impact of Additional $100 Million in State Funding For Medicaid Programs.” March 24, 2003. http://www.arcommunities.org/econ_dev/Economic/economicimpact/medicaid.asp. Florida: Priya Sampath. “Penny Wise and Pound Foolish: Why Cuts to Medicaid Hurt Florida’s Economy.” October 2003. http://www.floridachain.org/pubs/MedcaidReport.pdf. Idaho: Dana Warn. “Medicaid: Someone You Know Needs It.” Idaho Community Action Network and Northwest Federation of Community Organizations. January 2004. http://www.nwfco.org/. Mississippi: Benjamin Blair and Meghan Millea. “Economic Impacts of Federal Medicaid Expenditures on the State of Mississippi in 2002.” August 2003. http://www.healthpolicy.msstate.edu/publications/economicimpactfull.pdf. Montana: Steve Seninger. "Economic Impact of Medicaid on Montana and on the Billings, Butte, and Miles City Healthcare Market Areas." January 2003. http://www.naswmt.com/pdf/Seninger_Study.pdf. North Carolina: Kerry E. Kilpatrick et al. "The Economic Impact of Proposed Reductions in Medicaid Spending in North Carolina.” April 2002. http://www.healthlaw.org/pubs/2002.NC.econimpact.doc. Ohio: Robert Greenbaum and Anand Desai. "Uneven Burden: Economic Analysis of Medicaid Expenditure Changes in Ohio." April 2003. http://ppm.ohio-state.edu/ppm/ohiomedicaidcuts03.pdf.

Oklahoma: Oklahoma Health Care Authority. "Medicaid and the Economy: Estimated Economic Impact." Revised January 2003. South Carolina: Moore School of Business, University of South Carolina. "Economic Impact of Medicaid in South Carolina." January 2002. http://research.moore.sc.edu/Research/studies/Medicaid/medicaideconimpact.pdf. Texas: The Perryman Group. "Medicaid and the Children’s Health Insurance Program (CHIP): An Assessment of Their Impacts on Business Activity and the Consequences of Potential Funding Reductions." April, 2003. http://www.texmed.org/pmt/lel/cln/Perryman.pdf. Utah: Jan Crispin-Little. "Economic Impact of Medicaid and CHIP on the Utah Economy." January 2003. http://www.business.utah.edu/bebr/onlinepublications/MedicaidChipEconImp.pdf Virginia: Fiscal Analytics, Ltd. “The Impact of Additional Medicaid Spending in Virginia.” June 2003. http://www.vhha.com/FAStudyFinal.pdf. West Virginia: Christiadi and Tom S. Witt. “Economic Impact of Medicaid Federal-Match on the West Virginia Economy FY 2002.” January 2002. http://www.bber.wvu.edu/specialstudies/medicaid_federal_match.html. Wisconsin: Steven C. Deller. “Economic Impact of Reducing Medicaid and BadgerCare Expenditures." February 2003. http://www.wccf.org/pdf/econimpact.pdf. National Study: Families USA. "Medicaid: Good Medicine for State Economies." January 2003. www.familiesusa.org.

5

Table 1: Federal Medical Assistance Percentages (FMAP), FY 2004 and FY 2005, and Federal Matching Funds Provided for Each Dollar of State Medicaid Spending, FY 2004

Federal Funds Sent to State for EachDollar in State Medicaid Spending

State FY 2004 FMAP Based on FY 2004 FMAP FY 2005 FMAP

Alabama 73.7% $2.80 70.8%Alaska 61.3% $1.59 57.6%Arizona 70.2% $2.36 67.5%Arkansas 77.6% $3.47 74.8%California 53.0% $1.13 50.0%Colorado 53.0% $1.13 50.0%Connecticut 53.0% $1.13 50.0%Delaware 53.0% $1.13 50.4%District of Columbia 73.0% $2.70 70.0%Florida 61.9% $1.62 58.9%Georgia 62.6% $1.67 60.4%Hawaii 61.9% $1.62 58.5%Idaho 73.9% $2.83 70.6%Illinois 53.0% $1.13 50.0%Indiana 65.3% $1.88 62.8%Iowa 66.9% $2.02 63.6%Kansas 63.8% $1.76 61.0%Kentucky 73.0% $2.71 69.6%Louisiana 74.6% $2.93 71.0%Maine 69.2% $2.24 64.9%Maryland 53.0% $1.13 50.0%Massachusetts 53.0% $1.13 50.0%Michigan 58.8% $1.43 56.7%Minnesota 53.0% $1.13 50.0%Mississippi 80.0% $4.01 77.1%Missouri 64.4% $1.81 61.2%Montana 75.9% $3.15 71.9%Nebraska 62.8% $1.69 59.6%Nevada 57.9% $1.37 55.9%New Hampshire 53.0% $1.13 50.0%New Jersey 53.0% $1.13 50.0%New Mexico 77.8% $3.50 74.3%New York 53.0% $1.13 50.0%North Carolina 65.8% $1.92 63.6%North Dakota 71.3% $2.49 67.5%Ohio 62.2% $1.64 59.7%Oklahoma 73.5% $2.78 70.2%Oregon 63.8% $1.76 61.1%Pennsylvania 57.7% $1.36 53.5%Rhode Island 59.0% $1.44 55.4%South Carolina 72.8% $2.68 69.9%South Dakota 68.6% $2.19 66.0%Tennessee 67.5% $2.08 64.8%Texas 63.2% $1.72 60.9%Utah 74.7% $2.95 72.1%Vermont 65.4% $1.89 60.1%Virginia 53.5% $1.15 50.5%Washington 53.0% $1.13 50.0%West Virginia 78.1% $3.57 74.7%Wisconsin 61.4% $1.59 58.3%Wyoming 64.3% $1.80 57.9%

Sources: http://aspe.hhs.gov/search/health/fmap.htm; Kaiser Commission on Medicaid and the Uninsured estimates based on FFY 2004 FMAPsas published at http://aspe.hhs.gov/search/health/FMAP03-04temporaryincrease.html.Notes: FY 2004 rates include 2.95% temporary increase in FMAP under Tax Equity Act that expires in June 2004. FY 2005 rates do not.

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the

Ark

ansa

s D

epar

tmen

t of H

uman

Ser

vice

s D

ivis

ion

of M

edic

al

Ser

vice

s.

Ark

ansa

s’ a

dditi

onal

spe

ndin

g of

$10

0 m

illio

n do

llars

will

gen

erat

e/co

ntrib

ute:

•

$300

mill

ion

fede

ral m

atch

•

$633

mill

ion

in e

cono

mic

act

ivity

(eve

ry $

1 in

sta

te s

pend

ing

gene

rate

s $6

.33

in e

cono

mic

act

ivity

) •

10,2

68 jo

bs

• $3

06 m

illio

n in

resi

dent

inco

me

• $3

95 m

illio

n to

the

Gro

ss S

tate

Pro

duct

•

$22.

3 m

illio

n in

reve

nue

for s

tate

and

loca

l gov

ernm

ent (

sale

s an

d us

e ta

xes,

per

sona

l inc

ome

tax,

oth

er d

irect

and

indi

rect

taxe

s an

d fe

es)

7

App

endi

x: O

verv

iew

of S

tate

Eco

nom

ic Im

pact

Ana

lyse

s

STA

TE a

nd C

ITA

TIO

N

MET

HO

DS

FIN

DIN

GS

FLO

RID

A

P. S

ampa

th

Penn

y W

ise

& Po

und

Fool

ish:

Why

C

uts

to M

edic

aid

Hur

t Flo

rida’

s Ec

onom

y O

ctob

er 2

003

Hum

an S

ervi

ces

Coa

litio

n of

Dad

e C

ount

ry w

ritte

n fo

r Com

mun

ity H

ealth

A

ctio

n In

form

atio

n N

etw

ork

(CH

AIN

)

Stu

dy u

tiliz

ed IM

PLA

N e

cono

mic

inpu

t-out

put m

odel

to a

sses

s st

ate-

and

co

unty

-leve

l im

pact

of 2

002

Med

icai

d sp

endi

ng a

nd re

cent

sta

te g

over

nmen

t po

licie

s—cu

ts to

the

prog

ram

ena

cted

in th

e 20

03 le

gisl

ativ

e se

ssio

n an

d th

e pr

opos

al n

ot to

use

the

fede

ral r

elie

f pro

vide

d by

the

Jobs

and

Gro

wth

Tax

an

d R

elie

f and

Rec

onci

liatio

n ac

t pas

sed

in M

ay 2

003.

Onl

y th

e fe

dera

l m

atch

was

use

d to

cal

cula

te im

pact

—56

% (1

.27:

1) in

200

2 an

d 62

% (1

.61:

1)

2003

. IM

PLA

N d

ata

was

org

aniz

ed in

to c

ount

y-le

vel m

odel

s an

d sp

ecifi

c m

ultip

liers

w

ere

calc

ulat

ed p

er c

ount

y. M

edic

aid

Ser

vice

Exp

endi

ture

s by

cou

nty

and

serv

ice

type

for t

he y

ear 2

001-

2002

, pro

vide

d by

the

Age

ncy

for H

ealth

Car

e A

dmin

istra

tion,

and

the

FMA

P w

ere

used

to c

alcu

late

impa

ct. T

he s

peci

fic

mul

tiplie

rs ti

mes

the

dire

ct im

pact

(fed

eral

mat

ch a

mou

nt fo

r eac

h ca

tego

ry

of s

ervi

ce b

y co

unty

) gav

e th

e es

timat

ed in

dire

ct a

nd in

duce

d ef

fect

s.

Flor

ida’

s 20

02 s

tate

exp

endi

ture

of $

4.1

billi

on re

sulte

d in

the

follo

win

g:

• $4

.79

billi

on fe

dera

l mat

ch

• E

mpl

oym

ent i

mpa

ct: 1

20,9

50 jo

bs

• In

com

e im

pact

: $4.

3 bi

llion

•

Bus

ines

s ac

tivity

impa

ct: $

8.7

billio

n M

edic

aid

cuts

ena

cted

in th

e 20

03 le

gisl

ativ

e se

ssio

n of

$49

.5 m

illio

n es

timat

ed to

hav

e re

sulte

d in

the

follo

win

g:

• $7

1.8

mill

ion

lost

fede

ral m

atch

•

1,73

2 jo

bs im

pact

ed

• $5

9 m

illio

n in

lost

sal

arie

s an

d w

ages

•

$155

mill

ion

in lo

st e

cono

mic

act

ivity

IDA

HO

D

. War

n M

edic

aid:

Som

eone

You

Kno

w N

eeds

It

Med

icai

d Su

ppor

ts Id

aho’

s C

ount

y Ec

onom

ies

Janu

ary

2004

N

orth

wes

t Fed

erat

ion

of C

omm

unity

O

rgan

izat

ions

and

Idah

o C

omm

unity

A

ctio

n N

etw

ork

(eco

nom

ic im

pact

an

alys

is p

erfo

rmed

by

Ste

ven

Pet

erso

n,

Dep

artm

ent o

f Agr

icul

tura

l Eco

nom

ics

and

Rur

al S

ocio

logy

, Uni

vers

ity o

f Id

aho

Stu

dy u

tiliz

ed IM

PLA

N in

put-o

utpu

t mod

el to

est

imat

e th

e st

ate-

and

cou

nty-

leve

l eco

nom

ic im

pact

of M

edic

aid

spen

ding

. A

ll do

llar f

igur

es a

re fr

om y

ear 2

000,

the

mos

t rec

ent y

ear t

he IM

PLA

N

data

base

is a

vaila

ble.

SFY

200

3 M

edic

aid

spen

ding

was

def

late

d to

200

0 us

ing

a de

flato

r pro

vide

d by

Ste

ven

Pet

erso

n of

the

Uni

vers

ity o

f Ida

ho. T

he

econ

omy-

wid

e im

pact

s ar

e th

e su

m o

f the

dire

ct, i

ndire

ct a

nd in

duce

d ec

onom

ic im

pact

of M

edic

aid

spen

ding

, bas

ed o

n ec

onom

ic im

pact

ana

lysi

s pe

rform

ed b

y P

eter

son

usin

g IM

PLA

N. T

otal

bus

ines

s ac

tivity

refe

rs to

tota

l in

dust

ry s

ales

and

tota

l inc

ome

incl

udes

bot

h la

bor a

nd c

apita

l inc

ome

(wag

es a

nd p

rofit

s).

Med

icai

d le

vera

ge fa

ctor

s by

cou

nty

wer

e al

so c

alcu

late

d (to

tal b

usin

ess

activ

ity re

sulti

ng fr

om M

edic

aid

spen

ding

for a

par

ticul

ar c

ount

y (y

ear 2

000

data

) div

ided

by

stat

e M

edic

aid

spen

ding

in th

at c

ount

y (d

efla

ted

to 2

000

data

).

Sta

te s

pend

ing

on M

edic

aid

resu

lts in

tota

l bus

ines

s ac

tivity

app

roxi

mat

ely

five

times

larg

er th

an th

e st

ate’

s or

igin

al in

vest

men

t giv

en th

at s

tate

dol

lars

ar

e m

atch

ed a

nd b

ecau

se th

e in

itial

spe

ndin

g st

imul

ates

add

ition

al e

cono

mic

ac

tivity

. S

tate

spe

ndin

g on

Med

icai

d of

$21

3.8

mill

ion

resu

lted

in th

e fo

llow

ing:

•

$549

.8 m

illio

n fe

dera

l mat

ch ($

763,

572,

171

in to

tal s

pend

ing)

•

Tota

l em

ploy

men

t im

pact

: 16,

764

• To

tal i

ncom

e im

pact

: $54

3 m

illio

n •

Tota

l bus

ines

s ac

tivity

: $1.

0 bi

llion

MIS

SISS

IPPI

B

. Bla

ir an

d M

. Mill

ea

Econ

omic

Impa

cts

of F

eder

al M

edic

aid

Expe

nditu

res

on th

e St

ate

of M

issi

ssip

pi

in 2

002

Aug

ust 2

003

Mis

siss

ippi

Hea

lth P

olic

y R

esea

rch

Cen

ter,

Mis

siss

ippi

Sta

te U

nive

rsity

Stu

dy u

tiliz

ed IM

PLA

N in

put-o

utpu

t mod

el to

ass

ess

the

econ

omic

impa

ct o

f 20

02 fe

dera

l Med

icai

d ex

pend

iture

s on

the

stat

e an

d on

indu

strie

s an

d se

ctor

s w

ithin

Mis

siss

ippi

in te

rms

of o

utpu

t, gr

oss

stat

e pr

oduc

t (G

SP

), em

ploy

men

t, pe

rson

al in

com

e an

d ta

x co

llect

ions

. A

n ou

tput

impa

ct e

stim

ates

how

muc

h th

e ec

onom

ic s

timul

us in

crea

ses

over

all e

cono

mic

act

ivity

in th

e st

ate.

GS

P is

def

ined

as

the

valu

e ad

ded

to

all f

inal

goo

ds a

nd s

ervi

ces

prod

uced

in th

e st

ate.

The

tax

colle

ctio

ns

estim

ate

is d

eriv

ed a

s a

perc

enta

ge o

f per

sona

l inc

ome.

N

atio

nal a

nd s

tate

eco

nom

ic a

nd d

emog

raph

ic d

ata

colle

cted

from

Bur

eau

of

Eco

nom

ic A

naly

sis,

Bur

eau

of L

abor

Sta

tistic

s an

d U

.S. C

ensu

s B

urea

u.

Dat

a w

as c

ompl

ied

in th

e 20

00 M

issi

ssip

pi IM

PLA

N d

atab

ase

and

com

bine

d w

ith fe

dera

l Med

icai

d ex

pend

iture

s pr

ovid

ed b

y th

e M

issi

ssip

pi D

ivis

ion

of

Med

icai

d.

Mis

siss

ippi

’s 2

002

Med

icai

d ex

pend

iture

of a

ppro

xim

atel

y $6

20 m

illio

n re

sulte

d in

the

follo

win

g:

• $1

.98

billi

on fe

dera

l mat

ch

• $2

.69

billi

on in

add

ition

al e

cono

mic

out

put

• $1

.39

billi

on o

f the

sta

te’s

GS

P w

as a

ttrib

utab

le to

fede

ral M

edic

aid

fund

ing

• 39

,059

jobs

sup

porte

d by

Med

icai

d in

flow

•

$1.0

5 bi

llion

in p

erso

nal i

ncom

e •

Incr

ease

in p

erso

nal i

ncom

e ge

nera

ted

$60.

7 m

illio

n in

tax

reve

nue

8

App

endi

x: O

verv

iew

of S

tate

Eco

nom

ic Im

pact

Ana

lyse

s

STA

TE a

nd C

ITA

TIO

N

MET

HO

DS

FIN

DIN

GS

MO

NTA

NA

S

. Sen

iger

Ec

onom

ic Im

pact

of M

edic

aid

on

Mon

tana

and

on

the

Billin

gs, B

utte

, and

M

iles

City

Hea

lthca

re M

arke

t Are

as

Janu

ary

2, 2

003

Sch

ool o

f Bus

ines

s A

dmin

istra

tion,

U

nive

rsity

of M

onta

na-M

isso

ula

Stu

dy u

tiliz

ed th

e M

onta

na IM

PLA

N m

odel

to e

xam

ine

the

impa

ct o

f 200

2 M

edic

aid

expe

nditu

res

on th

e st

ate

as a

who

le, a

s w

ell a

s th

e B

illin

gs, B

utte

an

d M

iles

City

are

as. T

he s

tudy

als

o ex

amin

ed th

e ec

onom

ic im

pact

of t

wo

budg

et c

ut s

cena

rios—

15 p

erce

nt a

nd 2

0 pe

rcen

t red

uctio

ns in

sta

te

Med

icai

d sp

endi

ng.

Bas

elin

e jo

b an

d in

com

e m

easu

res

wer

e es

tabl

ishe

d fo

r the

sta

te a

s w

ell a

s th

e B

illin

gs, B

utte

and

Mile

s C

ity a

reas

. To

calc

ulat

e th

e es

timat

es o

f st

atew

ide

and

mar

ket a

rea

impa

ct, t

he fe

dera

l mat

ch ra

te a

nd 2

002

Med

icai

d ex

pend

iture

s w

ere

used

. Job

and

inco

me

data

was

pro

vide

d by

the

Mon

tana

D

epar

tmen

t of L

abor

and

Indu

stry

and

Mon

tana

IMP

LAN

mod

el.

Mon

tana

’s 2

002

stat

e ex

pend

iture

of $

140

mill

ion

for M

edic

aid

spen

ding

re

sulte

d in

the

follo

win

g:

• $4

20 m

illio

n fe

dera

l mat

ch

• To

tal e

mpl

oym

ent i

mpa

ct: 1

3,46

9 (h

ealth

car

e se

ctor

and

oth

er s

ecto

rs)

• To

tal i

ncom

e im

pact

: $37

5 m

illio

n

NO

RTH

CA

RO

LIN

A

K. K

ilpat

rick,

et a

l. Th

e Ec

onom

ic Im

pact

of P

ropo

sed

Red

uctio

ns in

Med

icai

d Sp

endi

ng in

N

orth

Car

olin

a A

pril

11, 2

002

Inst

itute

for P

ublic

Hea

lth, S

choo

l of

Pub

lic H

ealth

, Uni

vers

ity o

f Nor

th

Car

olin

a, C

hape

l Hill

Stu

dy u

tiliz

ed IM

PLA

N to

cal

cula

te th

e es

timat

ed e

cono

mic

impa

ct u

nder

two

scen

ario

s—re

duci

ng S

FY 2

003

expe

nditu

res

by a

hig

h am

ount

($

408,

309,

631)

and

a lo

w a

mou

nt ($

399,

293,

466)

. Th

ese

figur

es re

pres

ent

tota

l Med

icai

d ex

pend

iture

s (s

tate

+ fe

dera

l). Im

pact

was

cal

cula

ted

at th

e st

ate

and

coun

ty le

vel.

The

Div

isio

n of

Med

ical

Ass

ista

nce

prov

ided

bud

get d

etai

ls a

nd o

utlin

ed th

e pr

opos

ed b

udge

t cut

sce

nario

s. J

ob a

nd o

utpu

t los

s w

as c

alcu

late

d fo

r a

redu

ctio

n in

tota

l Med

icai

d ex

pend

iture

s an

d fo

r onl

y th

e fe

dera

l mat

ch

com

pone

nt.

It is

arg

ued

that

eco

nom

ic im

pact

of M

edic

aid

redu

ctio

ns is

onl

y ap

prop

riate

ly a

ttrib

utab

le to

the

loss

of t

he fe

dera

l mat

ch. T

his

supp

oses

that

fo

rego

ne ta

x re

venu

es th

at w

ould

hav

e go

ne to

the

prog

ram

wou

ld fl

ow b

ack

into

the

econ

omy

and

stim

ulat

e ot

her s

ecto

rs. T

houg

h th

e au

thor

s pr

esen

t th

eir f

indi

ngs

with

this

app

roac

h, th

ey fe

el th

at o

nly

acco

untin

g fo

r the

impa

ct

of th

e lo

ss o

f fed

eral

mat

ch u

nder

stat

es th

e im

pact

of t

he lo

ss o

f sta

te a

nd

loca

l Med

icai

d su

ppor

t on

job

and

inco

me

crea

tion.

Hig

h re

duct

ion

(-$4

08,3

09,6

31 fe

dera

l + s

tate

) •

Em

ploy

men

t im

pact

: 9,7

00 lo

st jo

bs

• E

cono

mic

out

put l

oss:

$70

6,25

7,42

0

Fede

ral r

educ

tion

only

und

er th

e hi

gh s

cena

rio (-

$278

,593

,774

) •

Em

ploy

men

t im

pact

: 6,5

90 lo

st jo

bs

• E

cono

mic

out

put l

oss:

$47

9,84

6,82

9

Low

redu

ctio

n (-

$399

,292

,466

fede

ral +

sta

te)

• E

mpl

oym

ent i

mpa

ct: 9

,500

lost

jobs

•

Eco

nom

ic o

utpu

t los

s: $

690,

432,

383

Fe

dera

l red

uctio

n on

ly u

nder

the

low

sce

nario

(-$2

72,4

67,2

95)

• E

mpl

oym

ent i

mpa

ct: 6

,454

lost

jobs

•

Eco

nom

ic o

utpu

t los

s: $

469,

094,

951

OH

IO

R. G

reen

baum

and

A. D

esai

U

neve

n Bu

rden

: Eco

nom

ic A

naly

sis

of

Med

icai

d Ex

pend

iture

Cha

nges

in O

hio

Sch

ool o

f Pub

lic P

olic

y an

d M

anag

emen

t Th

e O

hio

Sta

te U

nive

rsity

A

pril

2003

Res

earc

hers

con

duct

ed a

n ec

onom

ic im

pact

ana

lysi

s to

est

imat

e im

pact

of a

$4

91 m

illio

n cu

t in

stat

e M

edic

aid

expe

nditu

res

at th

e st

ate

and

coun

try

leve

ls. U

tiliz

ed F

amili

es U

SA

repo

rt M

edic

aid:

Goo

d M

edic

ine

for S

tate

Ec

onom

ies

for R

IMS

II-b

ased

mul

tiplie

rs. R

efer

to M

edic

aid:

Goo

d M

edic

ine

for C

alifo

rnia

’s E

cono

my

(out

lined

abo

ve) f

or m

etho

dolo

gy.

SFY

200

1 M

edic

aid

expe

nditu

re d

ata

was

pro

vide

d by

the

Ohi

o D

epar

tmen

t of

Job

and

Fam

ily S

ervi

ces;

job

and

inco

me

data

was

pro

vide

d by

the

Cen

sus

Bur

eau:

200

0 C

ount

y B

usin

ess

Pat

tern

s fo

r Ohi

o an

d O

hio

Dep

artm

ent o

f Dev

elop

men

t. Th

e st

udy

also

exa

min

ed c

ount

y de

pend

ence

on

publ

ic a

ssis

tanc

e an

d he

alth

car

e se

rvic

es in

an

effo

rt to

furth

er q

uant

ify lo

cal i

mpa

ct o

f Med

icai

d re

duct

ions

.

Ohi

o’s

FY 2

001

stat

e ex

pend

iture

of $

3.6

billi

on fo

r Med

icai

d ex

pend

iture

s re

sulte

d in

the

follo

win

g:

• E

mpl

oym

ent i

mpa

ct: 1

32,0

28 jo

bs

• In

com

e im

pact

: $4.

1 bi

llion

•

New

bus

ines

s ac

tivity

: $11

.5 b

illio

n A

redu

ctio

n of

$49

1 m

illio

n in

sta

te M

edic

aid

expe

nditu

res

wou

ld re

sult

in th

e fo

llow

ing:

•

Red

uced

eco

nom

ic a

ctiv

ity: $

1.5

billi

on o

ver a

two-

year

per

iod

• E

mpl

oym

ent i

mpa

ct: 1

6,50

0 jo

bs

• Fi

scal

impa

ct: $

22 m

illio

n in

tax

reve

nue

(tax

reve

nue

figur

e in

clud

es

only

sta

te in

com

e ta

xes

and

does

not

est

imat

e th

e ef

fect

on

sale

s an

d ot

her t

axes

)

9

App

endi

x: O

verv

iew

of S

tate

Eco

nom

ic Im

pact

Ana

lyse

s

STA

TE a

nd C

ITA

TIO

N

MET

HO

DS

FIN

DIN

GS

OK

LAH

OM

A

Okl

ahom

a H

ealth

Car

e A

utho

rity

and

Okl

ahom

a D

epar

tmen

t of C

omm

erce

M

edic

aid

and

the

Econ

omy:

Est

imat

ed

Econ

omic

Impa

ct

Janu

ary

2001

(Rev

ised

Jan

uary

200

3)

Ana

lysi

s ex

amin

ed th

e ec

onom

ic im

pact

of S

FY 2

002

expe

nditu

res

and

of

addi

tiona

l inc

rem

enta

l spe

ndin

g (a

dditi

onal

$10

, $50

, $70

, $10

0 an

d $1

30

mill

ion

stat

e do

llars

) on

the

stat

e ec

onom

y. T

he s

tudy

als

o ex

amin

ed th

e im

pact

on

cate

gorie

s of

ser

vice

in th

e he

alth

sec

tor u

nder

eac

h of

thes

e sc

enar

ios.

Th

e ec

onom

ic im

pact

in te

rms

of jo

bs a

nd in

com

e w

as c

alcu

late

d ba

sed

on

fact

ors

utili

zed

by th

e O

klah

oma

Dep

artm

ent o

f Com

mer

ce in

thei

r eco

nom

ic

anal

ysis

of S

FY 2

000

Med

icai

d ex

pend

iture

s. A

fede

ral m

atch

rate

of

70.5

6% w

as u

sed

in th

e ca

lcul

atio

ns a

nd p

rogr

am e

xpen

ditu

res

unde

r eac

h sc

enar

io w

ere

base

d on

the

patte

rn o

f exp

endi

ture

s fo

r SFY

200

2. T

o ca

lcul

ate

fisca

l im

pact

, an

aver

age

inco

me

tax

rate

and

con

sum

ptio

n ta

x ra

te

per d

olla

r of i

ncom

e w

ere

used

.

Okl

ahom

a’s

SFY

200

2 st

ate

expe

nditu

re o

f $72

2 m

illio

n fo

r Med

icai

d re

sulte

d in

the

follo

win

g:

• $1

.65

billi

on fe

dera

l mat

ch

• To

tal e

mpl

oym

ent s

uppo

rted:

90,

366

jobs

•

Tota

l inc

ome

supp

orte

d: $

1.98

bill

ion

•

Tota

l fis

cal i

mpa

ct: $

76.5

mill

ion

in s

tate

inco

me

and

cons

umpt

ion

taxe

s

SOU

TH C

AR

OLI

NA

D

ivis

ion

of R

esea

rch

Moo

re S

choo

l of B

usin

ess

Uni

vers

ity o

f Sou

th C

arol

ina

Econ

omic

Impa

ct o

f Med

icai

d on

Sou

th

Car

olin

a Ja

nuar

y 20

02

Stu

dy u

tiliz

ed IM

PLA

N to

cal

cula

te e

mpl

oym

ent a

nd in

com

e ch

ange

s in

the

econ

omy

for d

iffer

ent i

ndus

tries

and

regi

ons.

The

eco

nom

ic im

pact

s of

the

2001

fede

ral M

edic

aid

mat

ch, p

ropo

sed

cuts

of f

our a

nd 1

0 pe

rcen

t and

a

$47

mill

ion

incr

ease

in th

e fe

dera

l mat

ch w

ere

estim

ated

. Fe

dera

l mat

ch c

uts

are

the

only

dire

ct lo

sses

con

side

red

in th

is a

naly

sis;

as

sum

es th

at th

e st

ate

spen

ding

cut

has

no

net e

ffect

on

the

econ

omy.

20

01 M

edic

aid

expe

nditu

re d

ata

at th

e st

ate

and

coun

ty le

vels

was

pro

vide

d by

the

Dep

artm

ent o

f Hea

lth a

nd H

uman

Ser

vice

s.

Sou

th C

arol

ina’

s 20

01 s

tate

exp

endi

ture

for M

edic

aid

resu

lted

in th

e fo

llow

ing:

•

$2.1

bill

ion

fede

ral m

atch

ing

fund

s •

Sup

port

of m

ore

than

61,

000

jobs

•

Gen

erat

ion

of $

1.5

billi

on in

inco

me

for s

tate

citi

zens

TEXA

S Th

e P

erry

man

Gro

up

Med

icai

d an

d th

e C

hild

ren’

s H

ealth

In

sura

nce

Prog

ram

(CH

IP):

An

Asse

ssm

ent o

f The

ir Im

pact

on

Busi

ness

Act

ivity

and

the

Con

sequ

ence

s of

Pot

entia

l Fun

ding

R

educ

tions

A

pril

2003

Stu

dy u

tiliz

ed th

e Te

xas

subm

odel

of t

he U

S M

ulti-

Reg

iona

l Im

pact

A

sses

smen

t Sys

tem

(US

MR

IAS

) dev

elop

ed b

y th

e P

erry

man

Gro

up to

es

timat

e th

e ec

onom

ic im

pact

of c

urre

nt M

edic

aid

and

SC

HIP

spe

ndin

g an

d th

e ef

fect

s of

pot

entia

l spe

ndin

g re

duct

ions

at t

he s

tate

leve

l and

am

ong

Texa

s’ re

gion

s an

d co

untie

s.

The

stud

y co

nstru

cted

cur

rent

est

imat

es o

f the

leve

l of d

irect

Med

icai

d fu

ndin

g in

eac

h co

unty

and

regi

on o

f the

sta

te. T

he T

exas

Hea

lth a

nd

Hum

an S

ervi

ces

Com

mis

sion

and

the

Texa

s C

ompt

rolle

r of P

ublic

Acc

ount

s pr

ovid

ed 1

998

expe

nditu

re d

ata

per r

ecip

ient

on

whi

ch th

e es

timat

es u

sed

in

the

stud

y w

ere

base

d. S

tate

-leve

l bud

geta

ry d

ata

was

use

d to

det

erm

ine

coun

ty s

pend

ing

on v

ario

us ty

pes

of o

utla

ys (e

.g.,

phys

icia

ns, h

ospi

tals

, nu

rsin

g ho

mes

, etc

.). E

mpl

oym

ent a

nd p

ayro

ll da

ta b

y se

ctor

wer

e co

mpi

led

by th

e U

S D

epar

tmen

t of C

omm

erce

(Bur

eau

of th

e C

ensu

s). F

eder

al

fund

ing

was

est

imat

ed b

ased

on

pres

ent c

ost-s

harin

g pa

ram

eter

s.

Giv

en th

ese

estim

ates

, the

ove

rall

cont

ribut

ion

of th

e pr

ogra

ms

to b

usin

ess

activ

ities

can

be

eval

uate

d. S

urve

y da

ta, i

ndus

try in

form

atio

n an

d ot

her d

ata

sour

ces

are

used

to c

reat

e a

mat

rix d

escr

ibin

g va

rious

goo

ds a

nd s

ervi

ces

(inpu

ts) r

equi

red

to p

rodu

ce o

ne u

nit o

f out

put f

or a

giv

en s

ecto

r. O

nce

the

base

info

rmat

ion

is c

ompi

led,

eva

luat

ions

of t

he m

agni

tude

of s

ucce

ssiv

e ro

unds

of a

ctiv

ity in

volv

ed in

the

over

all p

rodu

ctio

n pr

oces

s ca

n be

eva

luat

ed

by u

sing

the

US

MR

IAS

mod

el.

Ref

er to

stu

dy fo

r add

ition

al d

etai

l reg

ardi

ng m

etho

ds.

Usi

ng c

urre

nt M

edic

aid

expe

nditu

res,

the

com

posi

te im

pact

s in

clud

e:

• $5

6.17

4 bi

llion

in a

nnua

l tot

al e

xpen

ditu

res

• $2

9.51

1 bi

llion

in a

nnua

l Gro

ss S

tate

Pro

duct

•

$20.

444

billi

on in

ann

ual p

erso

nal i

ncom

e •

$7.6

94 b

illio

n in

ann

ual r

etai

l sal

es

• 47

4,42

0 pe

rman

ent j

obs

• $1

.458

bill

ion

in a

nnua

l sta

te re

venu

e U

sing

fede

ral f

undi

ng s

egm

ent o

nly,

impa

cts

incl

ude:

•

$33.

670

billi

on in

ann

ual t

otal

exp

endi

ture

s •

$17.

689

billi

on in

ann

ual G

ross

Sta

te P

rodu

ct

• $1

2.25

4 bi

llion

in a

nnua

l per

sona

l inc

ome

• $4

.611

bill

ion

in a

nnua

l ret

ail s

ales

•

284,

368

perm

anen

t job

s •

$0.8

74 b

illio

n in

ann

ual s

tate

reve

nue

10

App

endi

x: O

verv

iew

of S

tate

Eco

nom

ic Im

pact

Ana

lyse

s

STA

TE a

nd C

ITA

TIO

N

MET

HO

DS

FIN

DIN

GS

UTA

H

J. C

rispi

n-Li

ttle

Econ

omic

Impa

ct o

f ME

DIC

AID

and

C

HIP

on

the

Uta

h Ec

onom

y Ja

nuar

y 20

03

Bur

eau

of E

cono

mic

and

Bus

ines

s R

esea

rch,

Dav

id E

ccle

s Sc

hool

of

Bus

ines

s, U

nive

rsity

of U

tah

Stu

dy u

tiliz

ed R

IMS

II to

est

imat

e th

e ec

onom

ic im

pact

of 2

001

Med

icai

d an

d C

HIP

exp

endi

ture

s in

term

s of

the

fede

ral m

atch

, em

ploy

men

t, ea

rnin

gs a

nd

fisca

l im

pact

s (g

over

nmen

t rev

enue

). H

ealth

car

e ex

pend

iture

s pa

id fo

r with

fe

dera

l mat

chin

g m

onie

s re

pres

ent t

he in

itial

inpu

ts—

fede

ral m

atch

ing

dolla

rs a

re th

e on

ly in

itial

inpu

ts c

onsi

dere

d in

this

ana

lysi

s.

The

econ

omic

act

ivity

est

imat

es a

re b

ased

on

expe

nditu

re d

ata

prov

ided

by

the

Uta

h D

epar

tmen

t of H

ealth

in it

s an

nual

pub

licat

ion,

Ann

ual S

tatis

tical

R

epor

t of t

he M

edic

aid

& U

tah

Med

ical

Ass

ista

nce

Prog

ram

Fis

cal Y

ear

2001

. Med

icai

d ex

pend

iture

s ar

e gr

oupe

d in

to c

ateg

orie

s of

ser

vice

, whi

ch

prov

ide

info

rmat

ion

on s

pend

ing

patte

rns,

and

are

mat

ched

to in

dust

ries

with

in th

e R

IMS

II m

odel

. The

cor

resp

ondi

ng e

arni

ngs

and

empl

oym

ent

mul

tiplie

rs w

ere

appl

ied

to th

e sp

endi

ng in

eac

h in

dust

ry.

The

stud

y as

sum

es th

at a

ll st

ate

and

loca

l tax

es a

re d

irect

ly ti

ed to

inco

me.

H

owev

er, r

ecei

pts

from

pro

perty

tax

may

not

be

in d

irect

pro

porti

on to

an

incr

ease

in e

arni

ngs.

The

refo

re, t

he fi

scal

est

imat

es s

houl

d be

vie

wed

as

an

“upp

er b

ound

” est

imat

e of

the

impa

ct o

n st

ate

and

loca

l tax

reve

nues

. Th

e au

thor

s no

te th

at jo

bs a

nd e

arni

ngs

are

supp

orte

d, n

ot c

reat

ed w

ith

fede

ral d

olla

rs. C

uts

in s

tate

fund

ing

wou

ld n

ot re

sult

in im

med

iate

loss

of

jobs

or e

arni

ngs,

how

ever

, if t

he c

uts

are

seve

re a

nd p

rolo

nged

, job

loss

es

coul

d oc

cur w

ithin

thre

e to

five

yea

rs.

Uta

h’s

2001

sta

te e

xpen

ditu

re o

f $26

4.7

mill

ion

for M

edic

aid

and

$4.7

mill

ion

in C

HIP

resu

lted

in th

e fo

llow

ing:

•

$600

,364

,379

Med

icai

d fe

dera

l mat

ch; $

18,8

80,0

00 C

HIP

mat

ch

• E

mpl

oym

ent i

mpa

ct (M

edic

aid)

: 16,

818

jobs

•

Em

ploy

men

t im

pact

(CH

IP):

560

jobs

•

Inco

me

impa

ct (M

edic

aid)

: $43

7,41

3,71

9

• In

com

e im

pact

(CH

IP):

$16,

146,

176

• Fi

scal

impa

ct (M

edic

aid)

: $47

,371

,906

•

Fisc

al im

pact

(CH

IP):

$1,7

48,6

31

Eve

ry $

1,00

0,00

0 in

sta

te s

pend

ing

resu

lted

in th

e fo

llow

ing:

•

$2,2

70,0

00 M

edic

aid

fede

ral m

atch

; $4,

000,

000

CH

IP m

atch

•

64 jo

bs (M

edic

aid)

•

120

jobs

(CH

IP)

• $1

,664

,576

in in

com

e (M

edic

aid)

•

$3,4

59,9

00 in

inco

me

(CH

IP)

• $1

20,3

49 in

tax

reve

nue

(Med

icai

d)

• $2

50,1

51 in

tax

reve

nue

(CH

IP)

VIR

GIN

IA

Fisc

al A

naly

tics,

Ltd

. Th

e Im

pact

of A

dditi

onal

Med

icai

d Sp

endi

ng in

Virg

inia

Ju

ne 2

003

The

stud

y co

nduc

ts a

n im

pact

ana

lysi

s on

Virg

inia

’s M

edic

aid

spen

ding

in

clud

ing

the

follo

win

g el

emen

ts: p

rovi

des

a ge

nera

l rev

iew

of t

he s

tate

’s

Med

icai

d pr

ogra

m to

hel

p de

term

ine

whe

ther

Virg

inia

is p

rovi

ding

the

appr

opria

te le

vel o

f sup

port

to it

s he

alth

car

e pr

ovid

ers,

and

exa

min

es th

e ec

onom

ic im

pact

of p

ropo

sed

med

ical

exp

endi

ture

s, in

clud

ing

cost

-shi

fting

to

the

priv

ate

sect

or d

ue to

the

curr

ent l

evel

of f

undi

ng fo

r the

Med

icai

d pr

ogra

m. T

he s

tudy

ana

lyze

s th

e im

pact

of M

edic

aid

spen

ding

by

expe

nditu

re p

rogr

am a

nd s

tate

regi

on.

Spe

cific

ally

, the

impa

ct o

f a $

250

mill

ion

incr

ease

in M

edic

aid

spen

ding

is

calc

ulat

ed u

sing

bot

h th

e IM

PLA

N a

nd R

IMS

II in

put-o

utpu

t mod

els.

The

au

thor

s di

scus

s se

vera

l ass

umpt

ions

inco

rpor

ated

into

inpu

t-out

put m

odel

s an

d lim

itatio

ns o

f eco

nom

ic im

pact

mod

elin

g. T

he c

alcu

latio

ns o

f inc

reas

es

in jo

bs a

nd b

usin

ess

activ

ity u

sing

the

mod

els

are

only

a p

art o

f the

larg

er

anal

ysis

.

A $

250

mill

ion

incr

ease

in s

tate

Med

icai

d sp

endi

ng w

ould

resu

lt in

the

follo

win

g:

• S

uppo

rt of

10,

000

to 1

5,00

0 jo

bs

RIM

S II

cal

cula

tions

(usi

ng V

irgin

ia-s

peci

fic m

ultip

lier o

f 2.5

from

Med

icai

d;

Goo

d M

edic

ine

for S

tate

Eco

nom

ies,

Fam

ilies

US

A):

• $2

50 m

illio

n fe

dera

l mat

ch

• $6

26 m

illio

n in

new

bus

ines

s ac

tivity

IM

PLA

N c

alcu

latio

ns (u

sing

mul

tiplie

r of 1

.7):

• $2

50 m

illio

n fe

dera

l mat

ch

• $4

26 m

illio

n in

new

bus

ines

s ac

tivity

WES

T VI

RG

INIA

C

hris

tiadi

and

T. W

itt

Econ

omic

Impa

ct o

f Med

icai

d Fe

dera

l-M

atch

on

the

Wes

t Virg

inia

Eco

nom

y FY

200

2 Ja

nuar

y 20

03

Bur

eau

of B

usin

ess

and

Eco

nom

ic

Res

earc

h, C

olle

ge o

f Bus

ines

s an

d E

cono

mic

s, W

est V

irgin

ia U

nive

rsity

Stu

dy u

tiliz

ed IM

PLA

N in

put-o

utpu

t mod

el to

est

imat

e th

e im

pact

of F

Y 20

02

Med

icai

d ex

pend

iture

s, a

s w

ell a

s th

e im

pact

of a

10

perc

ent c

ut a

nd a

five

pe

rcen

t inc

reas

e in

exp

endi

ture

s at

the

stat

e an

d co

unty

leve

l. O

vera

ll st

ate

impa

ct w

as a

lso

brok

en d

own

by in

dust

rial s

ecto

r. O

nly

the

fede

ral m

atch

w

as u

sed

to e

stim

ate

impa

ct.

IMP

LAN

dat

a fo

r the

sta

te’s

55

coun

ties

and

the

stat

e as

a w

hole

was

use

d to

cal

cula

te m

ultip

liers

. Tot

al M

edic

aid

expe

nditu

res

by p

rovi

der t

ype

and

coun

try w

ere

prov

ided

by

the

stat

e’s

Dep

artm

ent o

f Hea

lth a

nd H

uman

S

ervi

ces.

Eco

nom

ic im

pact

s es

timat

ed in

clud

ed e

mpl

oym

ent,

empl

oyee

co

mpe

nsat

ion,

bus

ines

s vo

lum

e an

d “v

alue

add

ed”.

Val

ue a

dded

is d

efin

ed

as a

mea

sure

of t

he v

alue

cre

ated

by

a bu

sine

ss, i

ndus

try o

r im

pact

and

co

rres

pond

s to

the

conc

ept o

f gro

ss s

tate

pro

duct

.

Wes

t Virg

inia

’s F

Y 20

02 s

tate

exp

endi

ture

of $

371

mill

ion

for M

edic

aid

resu

lted

in th

e fo

llow

ing:

•

$1.1

33 b

illio

n fe

dera

l mat

ch

• To

tal e

mpl

oym

ent i

mpa

ct: 3

2,68

5 jo

bs

• To

tal i

ncom

e im

pact

: $66

7.3

in e

mpl

oyee

com

pens

atio

n •

Tota

l bus

ines

s vo

lum

e im

pact

: $1.

881.

0 bi

llion

•

Gen

erat

ed $

955.

2 m

illio

n of

val

ue a

dded

11

App

endi

x: O

verv

iew

of S

tate

Eco

nom

ic Im

pact

Ana

lyse

s

12

STA

TE a

nd C

ITA

TIO

N

MET

HO

DS

FIN

DIN

GS

WIS

CO

NSI

N

S. D

ella

r, L.

Hal

l, J.

Pea

cock

Ec

onom

ic Im

pact

of R

educ

ing

Med

icai

d an

d Ba

dger

Car

e Ex

pend

iture

s Fe

brua

ry 2

003

U

nive

rsity

of W

isco

nsin

, Mad

ison

and

W

isco

nsin

Cou

ncil

on C

hild

ren

and

Fam

ilies

Stu

dy u

tiliz

ed IM

PLA

N in

put-o

utpu

t mod

el to

est

imat

e th

e ef

fect

s of

a 1

0 pe

rcen

t cut

in M

edic

aid

and

Bad

gerC

are

(Wis

cons

in’s

CH

IP p

rogr

am)

spen

ding

. The

cut

was

bas

ed o

n 20

02-2

003

Med

icai

d an

d B

adge

rCar

e sp

endi

ng. T

he im

pact

ana

lysi

s w

as b

ased

on

2000

eco

nom

ic d

ata,

the

mos

t cu

rren

t dat

a av

aila

ble.

The

mod

el e

xam

ined

dire

ct, i

ndire

ct a

nd in

duce

d ef

fect

s of

the

cut a

nd te

ased

out

the

impa

ct in

the

heal

th s

ecto

r by

prov

ider

/ser

vice

type

and

impa

ct o

n ot

her i

ndus

try s

ecto

rs.

Th

e st

udy

assu

mes

fixe

d pr

opor

tion

(mea

ning

that

a 1

0 pe

rcen

t red

uctio

n in

sp

endi

ng h

as tw

ice

the

impa

ct o

f a 5

per

cent

redu

ctio

n) a

nd a

ssum

es fu

ll ut

iliza

tion

of re

sour

ces

(eco

nom

y is

con

side

red

to b

e at

full

empl

oym

ent a

t all

times

and

that

em

ploy

men

t and

wag

es w

ill g

o up

and

dow

n pr

opor

tiona

lly

with

in th

e m

ultip

lier e

ffect

). Th

e au

thor

s no

te th

at s

ome

chan

ges

in s

pend

ing

mig

ht b

e ab

sorb

ed b

y th

e he

alth

car

e in

dust

ry a

nd n

ot tr

igge

r lay

offs

or w

age

redu

ctio

ns, y

et w

ith a

10

perc

ent r

educ

tion

in s

pend

ing

it is

reas

onab

le to

as

sum

e th

at la

yoffs

and

wag

e re

duct

ions

wou

ld b

egin

to o

ccur

.

The

anal

ysis

indi

cate

s th

at a

10

perc

ent c

ut w

ould

resu

lt in

the

follo

win

g:

• $3

67 m

illio

n pe

r yea

r red

uctio

n in

tota

l exp

endi

ture

s ($

148

mill

ion

in

stat

e fu

nds,

$21

8 m

illio

n in

fede

ral m

atch

ing

fund

s)

• To

tal l

oss

of 9

,100

jobs

with

an

acco

mpa

nyin

g lo

ss o

f $39

4 m

illio

n in

in

com

e (d

irect

loss

of 5

,700

jobs

and

$24

0 m

illio

n in

lost

inco

me)

•

Lost

eco

nom

ic a

ctiv

ity w

ould

resu

lt in

a $

30 m

illio

n de

clin

e in

sta

te a

nd

loca

l gov

ernm

ent r

even

ue (d

ue to

low

er in

com

e, s

ales

and

oth

er ta

xes)

FAM

ILIE

S U

SA (N

atio

nal S

tudy

) M

edic

aid:

Goo

d M

edic

ine

for S

tate

Ec

onom

ies

Janu

ary

2003

[S

tate

-by-

stat

e da

ta a

vaila

ble

with

in th

e st

udy]

Stu

dy u

tiliz

ed R

IMS

II e

cono

mic

inpu

t-out

put m

odel

to a

sses

s th

e im

pact

of

Med

icai

d sp

endi

ng in

eac

h st

ate

for t

wo

diffe

rent

yea

rs—

estim

ated

the

econ

omic

impa

ct o

f act

ual s

tate

Med

icai

d sp

endi

ng in

FY

2001

(the

mos

t re

cent

yea

r for

whi

ch e

xpen

ditu

re d

ata

was

ava

ilabl

e) a

nd c

alcu

late

d ec

onom

ic im

pact

mul

tiplie

rs to

pre

dict

eco

nom

ic im

pact

of p

oten

tial s

tate

M

edic

aid

spen

ding

incr

ease

s or

cut

s in

FY

2003

.

RIM

S II

cal

cula

ted

econ

omic

impa

ct in

term

s of

bus

ines

s ac

tivity

(the

in

crea

sed

outp

ut o

f goo

ds a

nd s

ervi

ces)

; em

ploy

men

t (th

e nu

mbe

r of n

ew

jobs

cre

ated

); an

d em

ploy

ee e

arni

ngs

(wag

e an

d sa

lary

inco

me

asso

ciat

ed

with

the

new

jobs

). Th

e ec

onom

ic im

pact

s of

sta

te M

edic

aid

spen

ding

in F

Y 20

01 a

nd th

e ec

onom

ic im

pact

mul

tiplie

rs fo

r FY

2003

are

bas

ed o

n fe

dera

l fis

cal y

ears

. FY

200

1 da

ta o

n ac

tual

sta

te a

nd fe

dera

l Med

icai

d ex

pend

iture

s w

ere

obta

ined

from

CM

S-6

4 re

ports

. Eco

nom

ic im

pact

s of

fede

ral M

edic

aid

expe

nditu

res

wer

e ca

lcul

ated

by

mul

tiply

ing

tota

l fed

eral

ass

ista

nce

and

adm

inis

trativ

e ex

pend

iture

s by

app

ropr

iate

RIM

S II

mul

tiplie

rs. F

Y 20

01 s

tate

sp

endi

ng a

nd e

cono

mic

impa

ct m

ultip

lier w

as d

eriv

ed b

y di

vidi

ng th

e to

tal

econ

omic

impa

ct (i

nclu

ding

bot

h fe

dera

l mat

chin

g an

d ec

onom

ic m

ultip

lier

effe

cts)

by

leve

l of s

tate

spe

ndin

g. F

Y 20

03, e

cono

mic

mul

tiplie

rs fo

r eac

h do

llar o

f sta

te M

edic

aid

spen

ding

wer

e de

velo

ped

(the

proc

ess

is o

utlin

ed

with

in th

e st

udy)

.

Bus

ines

s ac

tivity

•

In F

Y 20

01, s

tate

s sp

ent n

early

$97

.7 b

illio

n on

Med

icai

d, g

ener

atin

g an

al

mos

t thr

ee-fo

ld re

turn

in s

tate

eco

nom

ic b

enef

it--$

279.

3 bi

llion

in

incr

ease

d st

ate-

leve

l out

put o

f goo

ds a

nd s

ervi

ces

from

incr

ease

d bu

sine

ss a

ctiv

ity

• In

FY

2001

, the

rate

of r

etur

n pe

r dol

lar i

nves

ted

in M

edic

aid

rang

ed

from

a lo

w o

f $1.

95 to

$6.

34 a

mon

g st

ates

•

In F

Y 20

01, t

he a

vera

ge v

alue

of i

ncre

ased

bus

ines

s ac

tivity

gen

erat

ed

from

sta

te M

edic

aid

spen

ding

was

nea

rly $

6 bi

llion

per

sta

te

• In

FY

2003

, eve

ry $

1 m

illio

n of

sta

te M

edic

aid

spen

ding

resu

lts in

$3.

4 m

illio

n in

new

sta

te b

usin

ess

activ

ity o

n av

erag

e ($

1 m

illio

n re

duct

ion

in

spen

ding

resu

lts in

the

loss

of b

usin

ess

activ

ity)

Jobs

and

Wag

es

• In

FY

2001

, tot

al s

tate

Med

icai

d sp

endi

ng g

ener

ated

alm

ost 3

mill

ion

jobs

and

ove

r $10

0 bi

llion

in w

ages

via

em

ploy

men

t in

the

heal

th s

ecto

r an

d ot

her s

ecto

rs

• O

n av

erag

e, w

ages

incr

ease

d by

$2

billi

on p

er s

tate

•

For F

Y 20

03, o

n av

erag

e, $

1 m

illio

n in

sta

te s

pend

ing

gene

rate

d 37

jo

bs a

nd $

1.2

mill

ion

in w

ages

($1

mill

ion

redu

ctio

n in

spe

ndin

g re

sults

in

the

loss

of j

obs

and

wag

es)

Fo

r add

ition

al in

form

atio

n on

inpu

t-out

put m

odel

s, IM

PLA

N o

r RIM

S II,

ple

ase

refe

r to

the

indi

vidu

al s

tudi

es o

r vis

it:

Min

neso

ta IM

PLA

N G

roup

, Inc

: http

://w

ww

.impl

an.c

om fo

r inf

orm

atio

n on

IMPL

AN

. U

.S. D

epar

tmen

t of C

omm

erce

, Bur

eau

of E

cono

mic

Ana

lysi

s: h

ttp://

ww

w.b

ea.g

ov/b

ea/re

gion

al/ri

ms/

for i

nfor

mat

ion

on R

IMS

II.

SO

UR

CE

: Res

earc

h co

mpi

led

for t

he K

aise

r Com

mis

sion

on

Med

icai

d an

d th

e U

nins

ured

, 200

3-20

04.

1 3 3 0 G S T R E E T N W , W A S H I N G T O N , D C 2 0 0 0 5

P H O N E : ( 2 0 2 ) 3 4 7 - 5 2 7 0 , F A X : ( 2 0 2 ) 3 4 7 - 5 2 7 4

W E B S I T E : W W W . K F F . O R G / K C M U

A d d i t i o n a l c o p i e s o f t h i s r e p o r t ( # 0 0 0 0 ) a r e a v a i l a b l e

o n t h e K a i s e r F a m i l y F o u n d a t i o n ’ s w e b s i t e a t w w w . k f f . o r g .

The Kaiser Commission on Medicaid a nd the Uninsured provides information a nd a nalys is on health care coverage

a nd access for the low-income populat ion, with a specia l focus on Medicaid's ro le a nd coverage of the uninsured.

Begun in 1991 a nd based in the Kaiser Family Foundation's Washington, DC off ice , the Commission is the largest

operat ing program of the Foundation . The Commission’s work is conducted by Foundation sta f f under the guida nce

of a b i-part isa n group of nat ional leaders a nd experts in health care a nd publ ic pol icy .