Medicaid and SCHIP: Dollars and Common SenseStan DornSenior Policy AnalystEconomic and Social Research Institute

Families USA National ConferenceJanuary 27, 2005

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On a personal note I’m not an economist I don’t even play one on TV My boss is an economist

and usually reviews my work He’s out of the office this

week

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Topics

1. Ups and downs

2. Taxing and spending

3. Winners and losers

4. Expensive and cheap

5. Real and illusory

Part I: ups and downs

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The business cycle

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Ameliorating recession – what’s a policymaker to do? Monetary stimulus –

lower interest rates Fiscal stimulus

Raise spending Cut taxes

Automatic fiscal stabilizers Stimulus automatically

rises and falls, against the business cycle (“countercyclical”)

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Unemployment insurance

Grows when unemployment rises, falls when unemployment drops

Impact, during average recession between WW II and 1999: Mitigated the loss in real GDP by 15 to 17

percent Saved more than 130,000 jobs in the average

recession’s peak year Source: L. Chimerine, T. S. Black, and L. Coffey, Unemployment Insurance as an Automatic Stabilizer: Evidence of

Effectiveness Over Three Decades, Coffey Communications, LLC, for U.S. Department of Labor (July 1999) Unemployment Insurance Occasional Paper 99-8. http://wdr.doleta.gov/owsdrr/99-8/99-8.pdf

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Changes in Medicaid spending, spending on unemployment insurance, and the unemployment rate: 1983-2003

-30

-20

-10

0

10

20

30

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Medicaid (billions of dollars) Unemployment Insurance (billions of dollars)

Unemployment Rate (tenths of a percent)

Source: U.S. Bureau of Economic Analysis, Dept. of Commerce, August 2005; U.S. Bureau of Labor Statistics (BLS), August 2005. Calculations by ESRI.

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Impact of a 1 percentage point change in the unemployment rate (standard Medicaid program, no cap on federal dollars)

Expected change in the proportion of residents who have each listed form of coverage

ESI Medicaid No coverage

Children -1.048% +0.637% +0.427%

Adults <65 -0.995% +0.237% +0.670%

Source: Dorn, Smith, and Garrett. ESRI, HPA and the Urban Institute, 9/27/05.

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Implications for state decisions about Medicaid waivers Caps on federal Medicaid dollars could

hurt a state’s ability to recover from future recession

More important – such caps could prevent the state from providing health coverage to vulnerable people precisely when ESI declines and Medicaid is most needed

Part II: Taxing and spending

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What happens when taxes are raised to expand health coverage? Claim: “Raising taxes will hurt the state’s

economy!” Response: “Expanding health coverage helps

the state’s economy even more!” Urban analysis in MA: universal coverage + $700-900

million tax increase, would increase personal income by $400 million and create 7,300 to 8,600 jobs.

Why? Taxes reduce private spending, some of which would have happened outside the state. Almost all health spending happens within the state.

Other factors: more federal money in state, higher productivity

Source: Holahan, Blumberg, Weil, Clemans-Cope, Buettgens, Blavin, and Zuckerman. Urban Institute, 10/05.

Part III: Winners and losers

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Scenario: use an employer assessment to expand health coverage

Claim: “Forcing employers to pay will hurt business!”

Response: “More employers win than lose!” Fewer uninsured means less cost-shifting, lowering

premiums for employers that cover their workers Exempt the smallest firms from the employer

assessment (e.g., under 10 workers) Let employers subtract from the assessment premium

payments and workers covered from other sources –only firms that don’t cover their workers will pay

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Example: winners & losers in CTConnecticut firms that offer coverage vs. firms with 10+

workers that do not offer coverage: 2003

22,491

8,0055,151 5,659

13,045

0 1,050 923 51 473

<10 10 to 24 25-99 100-999 1000+

Firm size, by number of workers

Nu

mb

er o

f fi

rms

Firms offering coverage Firms with 10+ workers but not offering coverage

Source: AHRQ. MEPS-IC. July 2005. Calculations by ESRI, January 2006.http://www.meps.ahrq.gov/MEPSDATA/ic/2003/Index203.htm

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Connecticut workers at firms that offer coverage vs. workers at firms with 10+ workers that do not offer coverage: 2003

105,126 99,687170,656

208,803

731,597

15,558 23,713 10,75847,527

<10 10 to 24 25-99 100-999 1000+

Firm size, by number of workers

Nu

mb

er o

f em

plo

yees

At firms offering coverage At firms with 10+ workers that do not offer coverage

Source: AHRQ. MEPS-IC. July 2005. Calculations by ESRI, January 2006.http://www.meps.ahrq.gov/MEPSDATA/ic/2003/Index203.htm

Part IV: Expensive and cheap

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Metrics forcoverage expansion costs State budget costs vs. total health

spending Premium costs vs. taxes Change in health spending, as a

percentage of total health spending

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Employer responsibility

If shift costs from employers to public sector, public costs go up more than total health care costs

If premiums go down and taxes on employers go up, firms wind up in the middle

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Covering all the uninsured nationally would raise health spending by 3 percent, or less than half of one year’s health care inflation

Health spending, 2004: Real total vs. projected increase from universal coverage (billions)

$1,878

$48

$0

$500

$1,000

$1,500

$2,000

Total health spending, 2004 Extra spending from universal coverage

Source: Hadley and Holahan, 2005; CMS, 2005 (NHE). Calculations by ESRI, 1/06.

Part V: Real and illusory

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IOM Loss per uninsured -

$1,645 - $3,280 Illusion: this much

money is saved when someone gains coverage

Reality: this is a dollar value of improved morbidity and mortality resulting from insurance