Repealing Federal Health Reform: Economic and Employment Consequences ...
Issue Brief
January 2017
Repealing Federal Health Reform: Economic
and Employment Consequences for States
Leighton Ku, Erika Steinmetz, Erin Brantley, and Brian Bruen
The mission of The Commonwealth
Fund is to promote a high
performance health care system.
The Fund carries out this mandate by
supporting independent research on
health care issues and making grants
to improve health care practice and
policy. Support for this research was
provided by The Commonwealth
Fund. The views presented here
are those of the authors and
not necessarily those of The
Commonwealth Fund or its directors,
officers, or staff.
Established in July 1997 as the School
of Public Health and Health Services,
Milken Institute School of Public
Health at the George Washington
University is the only school of
public health in the nation¡¯s capital.
Today, more than 1,900 students
from 54 U.S. states and territories
and more than 50 countries pursue
undergraduate, graduate and
doctoral-level degrees in public
health. The school also offers an
online Master of Public Health and
an online Executive Master of Health
Administration, which allow students
to pursue their degree from anywhere
in the world.
For more information about this brief,
please contact:
Leighton Ku, Ph.D., M.P.H.
Director, Center for Health Policy
Research
Department of Health Policy and
Management
Milken Institute School of Public Health
George Washington University
lku@gwu.edu
To learn more about new publications
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Commonwealth Fund pub. 1924
Vol. 1
ABSTRACT
Issue: The incoming Trump administration and Republicans in Congress are seeking to repeal
the Affordable Care Act (ACA), likely beginning with the law¡¯s insurance premium tax credits and
expansion of Medicaid eligibility. Research shows that the loss of these two provisions would lead
to a doubling of the number of uninsured, higher uncompensated care costs for providers, and
higher taxes for low-income Americans. Goal: To determine the state-by-state effect of repeal on
employment and economic activity. Methods: A multistate economic forecasting model (PI+ from
Regional Economic Models, Inc.) was used to quantify for each state the effects of the federal
spending cuts. Findings and Conclusions: Repeal results in a $140 billion loss in federal funding
for health care in 2019, leading to the loss of 2.6 million jobs (mostly in the private sector) that
year across all states. A third of lost jobs are in health care, with the majority in other industries.
If replacement policies are not in place, there will be a cumulative $1.5 trillion loss in gross state
products and a $2.6 trillion reduction in business output from 2019 to 2023. States and health
care providers will be particularly hard hit by the funding cuts.
INTRODUCTION
President-elect Donald Trump and Republican leaders of Congress seek to repeal and
replace the Affordable Care Act (ACA)¡ªalso known as Obamacare¡ªin 2017. A likely
strategy is to repeal two key elements of the health reform law: the insurance premium
tax credits and the expansion of Medicaid eligibility. A bill passed by Congress in 2015
(H.R. 3762) sought to do just that beginning in 2018¡ªwith no replacement plan¡ª
but it was vetoed by President Obama. The new Congress could pass a repeal bill in
early 2017 but not develop a replacement bill until later.1
Recent analyses show canceling the ACA¡¯s tax credits and Medicaid expansion
would double the number of uninsured Americans.2,3 As millions lose their insurance,
hospitals and other providers would see their uncompensated medical care costs soar
by $1.1 trillion from 2019 to 2028, and they would experience major revenue losses
as well.
But repeal could also have much broader economic repercussions. Our analysis examines the potential economic and employment effects of repealing the ACA¡¯s tax
credits and Medicaid expansion, without a replacement plan, for every state and the
District of Columbia. We estimate changes in:
?
employment¡ªthe number of jobs lost in health care, construction, and other
sectors of the economy
2
The Commonwealth Fund
?
economic activity, such as state gross product (the state equivalent of national gross domestic
product) and business output
?
state and local tax revenues.
POLICY BACKGROUND
Although the ACA dramatically lowered the number of uninsured,4,5 Republican leaders believe that
the law is harmful and are committed to its repeal.6 A plausible scenario is that, in 2017, Congress
passes a budget resolution requiring the repeal of key ACA provisions. This would be accomplished
through a reconciliation bill that could be passed by simple majorities in the House of Representatives
and the Senate¡ªthe strategy used to pass H.R. 3762 in 2015. Numerous Republican replacement
policies have been suggested, though a consensus has yet to emerge.7 Thus, Congress may pass repeal
in early 2017, with implementation delayed for a couple of years, but replacement policies are likely
to be developed much later.
Because plans for replacement are unresolved, we focus on the repeal of federal premium tax
credits and Medicaid expansion. Key elements of the current policies are:
?
Federal premium tax credits. These help those with low to moderate incomes (100 percent
to 400 percent of poverty) who purchase Qualified Health Plans in the health insurance
marketplaces. Most are provided as advance premium tax credits paid directly to the insurance plans, so consumers pay only the difference between their tax credits and actual plan
premiums. The tax credit varies with income, with higher credits for those with the lowest
incomes.
?
Federal payments to states for expanding Medicaid eligibility. These aid individuals newly
eligible for Medicaid under the ACA: nonelderly adults with incomes below 138 percent
of the federal poverty level. Because the Supreme Court ruled in 2012 that states cannot
be required to expand eligibility, 31 states and the District of Columbia have expanded
Medicaid while 19 states have not. The federal government covers nearly all the costs of
covering newly eligible adults through 2016, with matching rates declining to 90 percent
by 2020.8
HOW FEDERAL HEALTH FUNDING STIMULATES JOBS AND STATE
ECONOMIES
Health care will comprise almost one-fifth (18.5%) of the nation¡¯s economy by 2019.9 As such, major
changes to health care will reverberate across other parts of the economy.
These economic consequences can be projected by analyzing how funding flows from the federal government to states, consumers, and businesses. As illustrated in Exhibit 1, federal tax credits first
flow to health insurers. Most of the money, aside from carriers¡¯ overhead, flows to hospitals, clinics,
pharmacies, and other providers. Similarly, federal funding supports state Medicaid programs, which
pay health care providers. These are the direct effects of federal funding.
Repealing Health Reform: Economic & Employment Consequences for States
3
Exhibit 1
How Federal Health Funding Flows Through State Economies
Direct Effect
Federal Medicaid Matching Funds
Federal Premium Tax Credits
Marketplace Enrollees
State Medicaid Payments
Insurance Companies
Health Care Services
Indirect Effect
Vendors
Employees
Induced Effect
Goods & Services
State Taxes
Source: L. Ku, E. Steinmetz, E. Brantley, and B. Bruen, Repealing Federal Health Reform: Economic and Employment
Consequences for States, The Commonwealth Fund, January 2017.
Most of the revenue earned by health care providers is used to hire and pay staff and to purchase goods and services, like clinic space or medical equipment. In turn, those vendors pay their
employees and buy additional goods and services. This is the indirect effect of federal funding.
The induced effect is manifested as workers use their incomes to pay for food, mortgages, rent,
transportation, and other goods and services, which provides income to other businesses.
Federal funding thus initiates an economic cycle that ripples throughout the economy, both
within and across state borders. The gains from this cycle also generate additional state and local tax
revenues. When federal funds are cut, the results play out in the other direction, triggering losses in
employment, economic activity, and state and local revenues.
To conduct our analysis of repeal¡¯s potential impact, we first projected the level of federal
funding for tax credits and state Medicaid expansions that would be cut through repeal. A multistate
economic model (PI+ from Regional Economic Models, Inc.) quantified the effects for each state. (See
¡°Summary of Study Methods¡± on page 9. Detailed methods and data sources are available in the full
version of this analysis, The Economic and Employment Consequences of Repealing Federal Health Reform:
A 50 State Analysis, available at
Repealing_Federal_Health_Reform.pdf.)
It is important to note that other health policy changes, or even changes to tax policy, could
modify our projections. We focus on these two repeal policies alone because it is not yet clear what
additional policy changes might be advanced.
4
The Commonwealth Fund
FINDINGS ABOUT POTENTIAL EFFECTS
As seen in Exhibit 2, repeal results in a $140 billion cut in federal funding for health care in 2019.
This in turn leads to about 2.6 million jobs lost that year, rising to nearly 3 million by 2021. A third
of these lost jobs are in health care, but the majority is in other industries such as construction, real
estate, retail trade, and finance. Nearly all are private-sector jobs.
Exhibit 2
Repeal of Both Premium Tax Credits and Medicaid Expansion:
Potential National Impact
2019
2020
2021
2022
2023
Total
2019-23
Federal Funding Cut (billions of $)
-$139.5
-$150.0
-$161.5
-$172.0
-$184.0
-$807.0
Total Employment Lost (thousands of jobs)
-2,599
-2,854
-2,978
-2,924
-2,857
N/A
-2,535
-2,754
-2,857
-2,796
-2,727
N/A
Health Care
-912
-942
-974
-984
-1,003
N/A
Construction & Real Estate
-292
-385
-410
-383
-340
N/A
Retail Trade
-261
-275
-282
-275
-268
N/A
Finance & Insurance
-159
-165
-168
-163
-159
N/A
All Other Private
-912
-988
-1,023
-991
-957
N/A
Public Employment
-63
-100
-120
-128
-130
N/A
Business Output Lost (billions of $)
-$440.5
-$502.7
-$542.7
-$551.6
-$555.3
-$2,592.7
Gross State Product Lost (billions of $)
-$255.9
-$292.1
-$316.2
-$322.6
-$326.1
-$1,512.8
State & Local Taxes Lost (billions of $)
-$8.2
-$9.3
-$10.1
-$10.3
-$10.4
-$48.4
Private Employment
Source: George Washington University analyses.
If replacement policies are not in position, state economic losses will rise. From 2019 to 2023,
there will be a cumulative $1.5 trillion loss in gross state products and a $2.6 trillion reduction in business output (combined transactions at the production, wholesale, and retail levels).
State and local tax revenues also will fall during this period, dropping by $48 billion. State and
local governments could be faced with declining revenues, and safety-net health care providers would
see their uncompensated care costs rise sharply as millions of people lose their insurance.
The effects are similar but smaller when the two repeal elements are considered separately.
Exhibit 3 shows that tax credit repeal cuts federal funding by $341 billion from 2019 to 2023. This
leads to 1.1 million fewer jobs in 2019 alone. Gross state products shrink by $623 billion over five
years and state and local tax revenues fall by $21 billion.
Repealing Health Reform: Economic & Employment Consequences for States
5
Exhibit 3
Repeal of Premium Tax Credits Only: Potential National Impact
2019
2020
2021
2022
2023
Total
2019-23
Federal Funding Cut (billions of $)
-$61.0
-$65.0
-$68.8
-$71.8
-$74.8
-$341.3
Total Employment Lost (thousands of jobs)
-1,105
-1,202
-1,232
-1,184
-1,121
N/A
-1,077
-1,159
-1,181
-1,130
-1,068
N/A
Health Care
-369
-377
-382
-377
-373
N/A
Construction & Real Estate
-125
-164
-172
-157
-134
N/A
Retail Trade
-109
-114
-115
-109
-103
N/A
-88
-91
-91
-88
-85
N/A
All Other Private
-386
-414
-421
-399
-373
N/A
Public Employment
-27
-43
-51
-53
-53
N/A
Business Output Lost (billions of $)
-$188.4
-$212.5
-$225.2
-$224.0
-$218.6
-$1,068.7
Gross State Product Lost (billions of $)
-$109.3
-$123.4
-$131.1
-$130.9
-$128.3
-$623.0
State & Local Taxes Lost (billions of $)
-$3.7
-$4.1
-$4.4
-$4.4
-$4.3
-$20.9
Private Employment
Finance & Insurance
Source: George Washington University analyses.
Exhibit 4 shows how canceling states¡¯ Medicaid expansions lowers federal funding by $466
billion from 2019 to 2023. This leads to 1.5 million fewer people with jobs in 2019. Moreover, gross
state products shrink by nearly $900 billion and state and local tax revenues drop by $29 billion.
The majority of these losses occur in the states that have expanded Medicaid (31, plus the
District of Columbia), with nearly 1.2 million jobs lost in 2019. However, the 19 states that have not
expanded Medicaid also experience major setbacks: collectively, they lose about 338,000 jobs in 2019,
even though they do not receive the direct federal matching funds for Medicaid expansion.
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