Michigan Analysis Suggests Costs of Medicaid Expansion Outweighed by Economic Benefits

Medicaid expansion is likely to come with more economic benefits than costs on the state level, an analysis of Michigan’s roll-out of the program suggests. The results indicate that even if states bear 10% of the cost of Medicaid expansion, the reduced spending on health services that will be covered by Medicaid, economic stimulus through employment and increased income and non-income state tax revenues will be significant.

“The state-budget gains outweigh the added cost for at least the next 5 years and probably longer,” lead author John Ayanian, MD, MPP, from the Institute for Healthcare Policy and Innovation writes in the The New England Journal of Medicine.

As of 2017, states will need to pay 5% of the total cost, and that share will increase to 10% by 2020. According to the authors, while that added cost has been a barrier to states’ decisions to expand Medicaid, decision makers have generally overlooked the broader economic benefits of expanded Medicaid coverage when determining whether to opt in to the program.

Dr Ayanian and colleagues used a software model to evaluate the economic costs and benefits of Medicaid expansion in Michigan and found that state spending on Medicaid expansion would likely amount to $152 million in 2017 and $399 million in 2021.

However, the broad economic benefits of employment, increased personal income and increased state-tax revenues will cover the state’s cost for expanded coverage, they discovered.

Specifically, increased employment from Medicaid expansion peaked at 39,000 jobs in 2016, and an estimated 30,000 expansion-related jobs will still remain in 2021. An increase in personal income from this added employment ranging from $2.2 billion to $2.4 billion annually will also bring with it an additional $145 million to $153 million per year in tax revenue, their analysis showed.

The state of Michigan will also save approximately $235 million annually from spending reductions for mental health and other programs that had been paid for by the state and will now be funded by Medicaid.

Finally, the state will gain an estimated $200 million annually from additional non-income–related state taxes as well as from contributions from health plans and hospitals.

While the researchers note that their analysis has several limitations and can only be directly applied to the state of Michigan, they believe that their findings are relevant to the 30 other states that have expanded Medicaid coverage.

“State policy makers can consider these benefits along with health and financial effects for enrollees as they decide whether to continue or initiate Medicaid expansion,” they advise.

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