Report: Medicaid expansion is a job killer

PORTLAND – The Maine Heritage Policy Center (MHPC) on Thursday released a study of the pending proposal to expand Medicaid which predicts disastrous results for Maine’s private sector should the bill become law.

“Many of Maine’s policymakers have already fallen for the siren call of Medicaid expansion as provided for under the provisions of the Affordable Care Act (Obamacare),” writes MHPC Chief Executive Officer and Chief Economist J. Scott Moody.

“At first glance, expanding Maine’s Medicaid program looks like free money since Uncle Sam has promised to pick up the entire tab for the first three years,” writes Moody. “Who doesn’t like free money?”

But, according to Moody, the costs of Medicaid expansion are real and significant – and not just in terms of the added money Maine taxpayers will be asked to fork over as welfare spending grows. (More than $800 million over ten years, according to the Alexander Group report.) The cost will also be felt by Maine businesses and families, as government spending crowds out private sector income growth and job creation.

“Obamacare’s expansion of Medicaid will come at the expense of long-run economic growth by further shrinking Maine’s anemic private sector,” writes Moody. “A smaller private sector results from two negative impacts of Medicaid expansion. First, it will have to be paid for by higher taxes or borrowing (albeit at the federal level for the time being), leaving less money in the pockets of individuals and businesses and reducing their ability to invest for the future. Second, it will crowd-out the private sector in competition for scarce labor and capital.”

Moody’s analysis finds that personal income per household could decrease, on average, by as much as $2,638 – the equivalent of Maine’s economy losing 30,000 full time jobs.

Medicaid expansion’s impact on economic growth and job creation has been the subject of controversy since the U.S. Supreme Court’s 2012 ruling allowed states to opt out of the key Obamacare provision.

Progressive groups supportive of expansion, such as the Maine Center for Economic Policy, have relied on Keynesian economic theory to suggest federal welfare dollars will actually be a boon to the states economy.

At the national level, there is plenty of evidence that more Medicaid equals fewer jobs. Although redistributing income to the health care sector via Medicaid will increase employment in that sector, these gains will come at a loss to growth in other sectors of the economy. Rather than letting free markets decide how to allocate capital, Medicaid expansion lets government decide.

In Maine, things get more complicated. Despite progressives’ focus on the federal funding for expansion, Maine taxpayers will be required to pay 50 percent of new administrative costs and 10 percent of total benefit costs after three years. That new liability will have to come from other spending areas or higher taxes. The key question is whether new Medicaid payments to the health care sector will create more jobs than cutting spending from other agencies or raising taxes destroys.

Moody’s analysis suggest policymakers should be wary of those who claim Medicaid expansion will stimulate economic growth more than it suppresses it.

Download the full report here.

The Maine Wire is a project of MHPC.