Report | Budget Taxes and Public Investment

Medicaid cuts in Ryan budget would cost jobs in every state

Issue Brief #328

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Wisconsin Rep. Paul Ryan’s fiscal 2013 budget (U.S. House Budget Committee 2012) proposes massive cuts to the non-retirement social safety net in the next decade. While there are many reasons why these cuts are ill-advised, one stands out in today’s current economic context: job losses. A new EPI analysis finds that Ryan’s proposed Medicaid cuts, which total $544 billion over the next five years, would cost the economy about 10,600 jobs in the first year—a figure that would rise to nearly 1.5 million jobs lost in 2017. These job losses—overwhelmingly in the private sector—would affect every state.

A breakdown of Ryan’s proposed cuts

Ryan proposes cutting $1.742 trillion from Medicaid, $134 billion from the Supplemental Nutrition Assistance Program, roughly $650 billion from other health programs, more than $463 billion from other safety net programs (likely significantly more), and at least $291 billion from low-income discretionary programs over a decade (relative to spending under current policies). Totaling $3.3 trillion, these cuts to programs for lower-income households represent roughly 62 percent of Ryan’s total budget cuts over the next 10 years (Merrick and Horney 2012).

Hurting the disadvantaged and increasing household risk

There are three problems with Ryan’s cuts to the safety net, two obvious and one less so. First, these cuts would overwhelmingly fall on the most vulnerable members of our society, who are unable to bear the brunt of deficit reduction (or, more accurately in Ryan’s case, the financing of upper-income tax cuts). For example, more than 85 percent of Medicaid benefits currently go to poor seniors, blind and disabled people, and children (Congressional Budget Office 2012a). Yet many of these vulnerable citizens cannot work full-time. And fewer and fewer jobs are providing health insurance (Gould 2012). Most insurance companies in the individual market would charge elderly or disabled policyholders prohibitively expensive premiums because of their risk. For many vulnerable populations, public assistance programs are the only answer.

Second, cuts weakening the social safety net would weaken the economy. This is because the safety net helps promote a strong economy by establishing a base level of economic security that frees people to take risks, such as starting a business or going back to school (Bordoff, Deich, and Orszag 2006). And by promoting equal opportunity, the safety net helps ensure that individuals with exceptional abilities are able to realize their potential, no matter what their station in life at birth.

Cutting jobs and impeding the recovery

Third and perhaps most important in the current economic context, Ryan’s safety net cuts would immediately reduce employment and impede recovery. Consider Ryan’s proposed Medicaid cuts, which total $544 billion over the next five years (a period in which the economy is expected to remain below potential). Using standard macroeconomic modeling consistent with private- and public-sector projections, we estimate that these cuts would cost the economy roughly 862,000 jobs in 2014 and that annual job loss would rise to nearly 1.5 million in 2017 (Table 1).

Table 1 Table 1 (continued)

Medicaid cuts in Ryan budget* ($billions) and job loss, 2013–2017

2013 2014 2015 2016 2017 2013–2017
Expansion $1 $48 $81 $98 $103 $331
Block grant 0 37 47 59 70 213
Total cut 1 85 128 157 173 544
Total job loss -10,557 -861,553 -1,220,599 -1,410,242 -1,474,737 -4,977,690
Private-sector job loss -10,098 -823,205 -1,172,795 -1,353,832 -1,419,149 -4,779,080

*Cuts from Affordable Care Act repeal and block granting

Sources: Author's analysis of Center on Budget and Policy Priorities data (Park and Broaddus 2012) and Congressional Budget Office (2012b)

Furthermore, these job losses would overwhelmingly come from private-sector employment. Medicaid has very low overhead—CBO (2012a) reports that about 96 percent of the program’s funds go toward benefits (including the “disproportionate share hospital” payments and vaccines for children), which are spent in the private sector (CBO 2012a). Accordingly, Medicaid cuts of this magnitude would result in the loss of more than 823,000 private-sector jobs in 2014, and annual job losses would rise to above 1.4 million private-sector jobs in 2017.

No state would be spared the economic pain. As Table 2 shows, every state loses: In 2014 these cuts would cost Michigan between about 24,700 and 25,800 jobs, Arizona between about 15,800 and 21,000 jobs, and California between approximately 82,600 and 92,300 jobs.  Even Wyoming, with the smallest labor market in the country, would still lose between about 1,300 and 1,900 jobs.

Table 2 Table 2 (continued)

Job loss from Medicaid cuts* in Ryan budget, by state, 2013–2017

Scenario 1 Scenario 2
2013 2014 2015 2016 2017 2013 2014 2015 2016 2017
Total 10,557 861,553 1,220,599 1,410,242 1,474,737 10,557 861,553 1,220,599 1,410,242 1,474,737
Alabama 219 15,719 22,740 26,204 27,162 150 12,247 17,351 20,047 20,964
Alaska 19 2,095 2,847 3,307 3,520 26 2,155 3,053 3,527 3,689
Arizona 221 20,959 29,046 33,654 35,524 193 15,780 22,357 25,830 27,012
Arkansas 135 11,038 15,625 18,055 18,887 93 7,610 10,781 12,456 13,026
California 1,012 82,637 117,072 135,262 141,450 1,131 92,290 130,752 151,066 157,975
Colorado 150 10,381 15,125 17,413 17,996 181 14,790 20,953 24,209 25,316
Connecticut 58 7,386 9,873 11,493 12,321 131 10,651 15,090 17,434 18,232
Delaware 52 3,502 5,126 5,898 6,084 34 2,737 3,878 4,480 4,685
District of Columbia 21 3,090 4,075 4,752 5,124 59 4,777 6,768 7,820 8,178
Florida 943 59,706 88,407 101,585 104,278 585 47,711 67,594 78,096 81,668
Georgia 456 29,622 43,655 50,191 51,623 312 25,459 36,069 41,673 43,579
Hawaii 43 3,246 4,660 5,375 5,590 48 3,885 5,504 6,359 6,650
Idaho 47 3,773 5,363 6,194 6,468 49 3,982 5,642 6,519 6,817
Illinois 307 27,341 38,229 44,242 46,524 455 37,159 52,644 60,823 63,605
Indiana 246 17,946 25,889 29,844 30,971 228 18,567 26,304 30,391 31,781
Iowa 37 5,021 6,672 7,773 8,354 119 9,697 13,738 15,873 16,599
Kansas 53 4,930 6,852 7,936 8,367 107 8,764 12,417 14,346 15,002
Kentucky 224 17,025 24,395 28,145 29,291 144 11,751 16,648 19,234 20,114
Louisiana 253 19,453 27,823 32,107 33,441 154 12,576 17,817 20,585 21,527
Maine 54 5,009 6,961 8,062 8,500 48 3,889 5,510 6,367 6,658
Maryland 127 11,880 16,498 19,110 20,154 205 16,710 23,673 27,352 28,602
Massachusetts 169 17,721 24,237 28,129 29,861 258 21,050 29,822 34,455 36,031
Michigan 265 24,708 34,329 39,762 41,925 316 25,820 36,581 42,264 44,197
Minnesota 58 9,109 11,928 13,924 15,060 215 17,542 24,852 28,713 30,026
Mississippi 140 11,767 16,594 19,183 20,100 88 7,153 10,134 11,709 12,244
Missouri 201 18,107 25,275 29,257 30,788 213 17,380 24,623 28,449 29,750
Montana 29 2,420 3,415 3,948 4,135 34 2,796 3,961 4,576 4,786
Nebraska 43 3,641 5,131 5,932 6,217 76 6,195 8,776 10,140 10,603
Nevada 67 4,381 6,444 7,411 7,628 90 7,383 10,460 12,085 12,638
New Hampshire 34 2,679 3,811 4,400 4,594 50 4,107 5,819 6,723 7,030
New Jersey 230 19,295 27,218 31,464 32,964 310 25,284 35,821 41,387 43,280
New Mexico 73 7,612 10,411 12,083 12,827 65 5,273 7,470 8,631 9,026
New York 623 71,867 97,147 112,923 120,475 698 56,924 80,647 93,177 97,438
North Carolina 571 37,839 55,554 63,901 65,828 315 25,732 36,456 42,120 44,047
North Dakota 22 1,749 2,484 2,869 2,997 32 2,586 3,664 4,234 4,427
Ohio 427 36,034 50,791 58,720 61,539 409 33,350 47,249 54,590 57,086
Oklahoma 85 8,221 11,358 13,165 13,915 125 10,169 14,407 16,646 17,407
Oregon 137 10,605 15,155 17,490 18,223 130 10,618 15,043 17,380 18,175
Pennsylvania 427 37,171 52,141 60,319 63,343 457 37,326 52,881 61,097 63,891
Rhode Island 29 3,043 4,156 4,824 5,124 37 3,019 4,277 4,941 5,167
South Carolina 208 15,607 22,419 25,858 26,883 147 12,023 17,033 19,679 20,579
South Dakota 28 2,145 3,063 3,535 3,685 33 2,663 3,773 4,359 4,559
Tennessee 347 25,488 36,744 42,360 43,973 213 17,417 24,675 28,508 29,812
Texas 1,025 73,716 106,640 122,887 127,380 848 69,227 98,078 113,316 118,498
Utah 63 4,961 7,059 8,152 8,508 97 7,923 11,225 12,969 13,562
Vermont 17 2,057 2,775 3,226 3,446 24 1,966 2,785 3,218 3,365
Virginia 176 13,617 19,460 22,459 23,400 296 24,149 34,213 39,529 41,337
Washington 76 9,547 12,783 14,877 15,938 227 18,504 26,216 30,289 31,674
West Virginia 130 9,193 13,335 15,361 15,905 61 4,945 7,006 8,095 8,465
Wisconsin 163 14,165 19,885 23,002 24,147 220 17,965 25,452 29,407 30,752
Wyoming 19 1,329 1,927 2,220 2,299 23 1,874 2,655 3,068 3,208

*Cuts from Affordable Care Act repeal and block granting

Note: Scenario 1 assumes job loss is proportional to state-level cuts; Scenario 2 assumes job loss is proportional to each state's share of national employment.

Sources: Author's analysis of Center on Budget and Policy Priorities data (Park and Broaddus 2012), Congressional Budget Office (2012b), and Families USA (2012)

Methodology

Data on annual Medicaid cuts proposed by the Ryan budget were taken from a Center on Budget and Policy Priorities analysis (Park and Broaddus 2012) of the potential impact of turning the program into a block grant, and a Congressional Budget Office report on the potential impact of repealing the Affordable Care Act (CBO 2012b). The state distributions applied to these cuts at the federal level were from Families USA (2012).

Both national job loss estimates (Table 1) and state job loss estimates (Table 2) were calculated using a fiscal multiplier of 1.4, which is Moody’s Analytics chief economist Mark Zandi’s most recent estimate of the near-term economic activity generated by a dollar of government spending (Zandi 2011). The state job loss estimates are presented as a range, with two scenarios modeled. Scenario 1 assumes job loss is proportional to state-level cuts. This would be true, for example, if the dollar cut in each state directly translates into a loss of demand for goods and services produced exclusively in that state and nowhere else in the country. This is certainly not always the case, as supply chains are rarely located solely in one state.

Scenario 2, on the other hand, assumes that job loss is proportional to each state’s share of national employment. This would be the case if a state’s job loss is determined by overall national spending. As the truth is somewhere between the assumptions behind scenarios 1 and 2, these estimates provide a plausible range of job losses for each state.

The job impact estimates in this analysis are conservative for two reasons. Because Medicaid is a program generally benefiting low-income households—which, out of necessity, are much more likely to consume rather than save an additional dollar of disposable income—the cuts to Medicaid would likely have an even larger impact on the economy than we estimate here. For example, Reich et al. (2011) suggests a job impact three times greater than what our model assumes. Additionally, it is likely that an even larger share of the job loss would fall on the private sector because overhead includes not only labor but equipment and supplies, which are provided by private companies.

References

Bordoff, Jason, Michael Deich, and Peter R. Orszag. 2006. A Growth-Enhancing Approach to Economic Security. A Hamilton Project Strategy Paper. http://www.hamiltonproject.org/files/downloads_and_links/a_growth_enhancing_approach_to_economic_security.pdf

Congressional Budget Office. 2012a. “Medicaid Spending and Enrollment Detail for CBO’s March 2012 Baseline.” http://cbo.gov/sites/default/files/cbofiles/attachments/43059_Medicaid.pdf

Congressional Budget Office. 2012b. “Updated Estimates for the Insurance Coverage Provisions of the Affordable Care Act.” March. http://cbo.gov/sites/default/files/cbofiles/attachments/03-13-Coverage%20Estimates.pdf

Families USA. 2012. Republicans Again Propose Slashing Funding for Medicaid, Medicare, and Other Health Programs.

Gould, Elise. 2012. A Decade of Declines in Employer-sponsored Health Insurance Coverage. Economic Policy Institute Briefing Paper No. 337. http://www.epi.org/publication/bp337-employer-sponsored-health-insurance/

Merrick, Kelsey and Jim Horney. 2012. Chairman Ryan Gets 62 Percent of His Huge Budget Cuts from Programs for Lower-Income Americans. Center on Budget and Policy Priorities report. http://www.cbpp.org/cms/index.cfm?fa=view&id=3723

Park, Edwin and Matt Broaddus. 2012. Ryan Medicaid Block Grant Would Cut Medicaid by One-Third by 2022 and More After That. Center on Budget and Policy Priorities report. http://www.cbpp.org/cms/index.cfm?fa=view&id=3727

Reich, Gabriel Chodorow, Laura Feiveson, Zachary Liscow, and William Woolston. 2011. “Does State Fiscal Relief During Recessions Increase Employment? Evidence from the American Recovery and Reinvestment Act.” Social Science Research Network Accepted Paper Series. November 20. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1960632

U.S. House of Representatives Budget Committee. 2012. The Path to Prosperity: A Blueprint for American Renewal. http://budget.house.gov/UploadedFiles/Pathtoprosperity2013.pdf

Zandi, Mark. 2011. “At Last, the U.S. Begins a Serious Fiscal Debate.” Moody’s Analytics Dismal Scientist [online publication], April 14. http://www.economy.com/dismal/article_free.asp?cid=198972&src=msnbc


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