Recently, the White House’s Council of Economic Advisors (CEA) released a report urging states to expand Medicaid. However, the claims in the report should be approached with caution.
On the economic side of things, the CEA proposes states should expand in order to receive federal funds, which would supposedly create more jobs and thus more economic activity. Eventually, though, it is clear that, for the majority of states, Medicaid expansion will cost them in the long run. In Virginia, for example, it could cost the state as much as $190 million per year by 2022.
Where the CEA loses the most balance, however, is when discussing federal funds flowing to the states. It is true that by choosing to expand Medicaid a state receives increased federal funding. The CEA mentions all of the positives of receiving these extra funds while forgetting the simple fact that federal revenue must be raised through some means. Simply assuming that federal funding comes from nowhere overstates any positive economic projections.
Additionally, many states see the inflow of funds as a way to substitute state dollars for federal dollars by moving state-managed programs into Medicaid. Studies aren’t well-equipped to address this behavior. It is a stretch to think this creates additional economic activity. Instead, increases in state costs and the burden of funding federal revenues will create offsets in jobs and, consequently, economic growth in other areas of the economy.
Most importantly, the CEA frames the discussion in a small time window, highlighting numbers in years such as 2017. The longer the time window, the worse expansion looks at the state level.
The CEA wants to frame a state’s decision to expand Medicaid as a no-brainer. However, in order to do this, as many proponents have done since the debate on expansion began, the CEA ignores many important and meaningful costs that all states should be considering when deciding to expand. Federal funds do not flow from some magical fountain hidden within the District of Columbia—raising the revenues comes at a cost. It is now even more important for states to consider all of the benefits and costs when making such an important decision.