safety net as stimulus?

The Kaiser Foundation put out this analysis over a week ago, but it’s still worth posting. It addresses an aspect of the health care safety net that I haven’t heard discussed much in the context of the recent recession: how the spending of these programs can actually bolster the economy. The analysis is a review of 29 studies of 23 states, as well as one national study conducted by Families USA.

The study’s main finding is “Medicaid spending generates economic activity, including jobs, income and state tax revenues, at the state level.” The study finds it does so in two ways: the trickle-down (or “multiplier”) effect, and the Federal Medical Assistant Percentage (FMAP). According to the study, the trickle-down effect varies according to the size of the health care sector in a given state, the extent to which the state relies on Medicaid, and the FMAP for that state, but it is always there. The FMAP is a federal match program in which the federal government provides at least one dollar of federal money for every one dollar of state money spent on Medicaid. It’s determined using a formula that compares the state’s average income to the national average income. The FMAP for Mississippi, the poorest state, is 76%; that is, 76% of the dollars spend on Medicaid in that state come from the federal government. New York’s FMAP is the minimum, 50%.

The authors make the point that the FMAP means Medicaid pulls at least as much money into the state as the state is spending, and, at times, significantly more. For example, if Mississippi were to cut $1 of Medicaid out of its budget, it would lose $4.17 of healthcare spending in that state. Since that $4.17 will no longer be circulating in the state, the state’s economy has lost more by limiting spending than it gained by saving. For every dollar New York cut, it would lose two in spending. This is an important point as legislators look for ways to trim budgets.

Although none of the state-specific studies analyzed are devoted to New York, the national study, conducted by healthcare watchdog group Families USA, does have New York-specific information. Published in April ‘08, the study uses the Regional Input-Output System (RIMS II) to quantify the trickle-down effect of Medicaid cuts proposed by President Bush last year. The study estimated that $1.5 billion in lost federal funding would result in $1.1 billion in lost wages, $3.1 billion in lost business activity, and 25,500 lost jobs for the state.