Helen Levy

Macroeconomic Impact of Medicaid Expansion in Michigan

Research Project Description
John Z. Ayanian, Helen Levy, Gabriel Ehrlich

The federal government currently pays 100% of the cost of Medicaid expansion under the Affordable Care Act in the 30 states that have chosen to expand eligibility. Beginning in 2017, The federal government's share of the cost will decline to 95% in 2017 and then gradually decline until it reaches 90% in 2020, thereafter requiring states to finance 10% of costs for their expansion enrollees.

In many states, the burden of paying even 10% of the costs of the newly insured population has been cited as an obstacle to expansion. But Medicaid expansion delivers two different types of economic benefit to states. The first is a fiscal benefit: the reduction in state spending on activities that are assumed by the Medicaid program, such as mental health programs for adults previously ineligible for Medicaid. The second is a macroeconomic benefit: the increase in economic activity as a result of the influx of federal spending. This increase in economic activity benefits state residents directly – for example, through increased employment in the health care sector – and some of this benefit then flows back to the state through increased tax revenues. Could the macroeconomic benefit substantially or even entirely offset the state's share of Medicaid expansion?

In Michigan, the Medicaid expansion began in April 2014 and currently covers approximately 600,000 individuals. Federal Medicaid match funding for this program currently provides more than $3 billion annually to the state. We propose to carry out a study of the macroeconomic benefits of Medicaid expansion in Michigan using two main modeling tools to forecast this policy effect on Michigan's economy.

Commonwealth Fund

Funding Period: 5/1/2016 to 10/31/2016

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