Federal Medicaid Cuts Would Harm Kentucky’s Health and Economy

By Jason Bailey
July 7, 2011

Among the budget options being debated in Washington are cuts in federal support for the Medicaid program. A new report by Families USA finds that in addition to impacting Kentuckians’ health such cuts could put billions of dollars of economic activity and thousands of jobs at risk.

Some proposals in the debate over the deficit would cut Medicaid funding not by addressing the underlying causes of growing health care costs but by shifting costs to strapped state governments, beneficiaries and providers. Representative Paul Ryan’s plan, for example, would turn Medicaid into a block grant that would provide less and less support than the current program over time. His proposal would cut federal Medicaid funding by 5 percent in 2013; 15 percent by 2014 and 33 percent at the end of ten years.1 Other Medicaid options being considered would have comparable cuts.

Medicaid is a cornerstone of Kentucky’s health care system, and provides health coverage to around 800,000 seniors, low-income children and parents, pregnant mothers and people with disabilities. Medicaid costs less than private insurance once you adjust for health status, and its costs have been growing at the same pace as the health system as a whole and slower than private insurance.2 Cuts in federal support would harm those enrollees, who would face even less access to providers, fewer benefits, or even the elimination of coverage.

Cuts would also be harmful to the Kentucky economy because of the important role of Medicaid funding in creating health care jobs, and the impact of spending by people with those jobs on the economy. Families USA estimates that a 5 percent cut would put 3,670 jobs and over $400 million of business activity at risk. At full implementation, cuts at the level of the Ryan plan would put at risk 24,190 jobs and $2.7 billion of business activity.

  5 Percent Cut 15 Percent Cut 33 Percent Cut
Lost Federal Funding $202,642,000 $607,926,000 $1,337,436,000
Business Activity at Risk $416,088,000 $1,248,263,000 $2,746,178,000
Jobs at Risk 3,670 11,000 24,190

An important new study published by the National Bureau of Economic Research highlights the link between Medicaid and better health.3 In the study those with Medicaid were 25 percent more likely to say their health was good or excellent than those without insurance, and were 40 percent less likely to say their health had worsened in the last year.

The full Families USA report is available here.4

The Kentucky Center for Economic Policy is a non-profit, non-partisan initiative that conducts research, analysis and education on important state fiscal and economic policy issues. KCEP seeks to create economic opportunity and improve the quality of life for all Kentuckians. Launched in 2011, the Center receives support from foundation grants and individual donors and is a project of the Mountain Association for Community Economic Development (MACED).

Medicaid & Economy.pdf

  1. Edwin Park and Matt Broadus, “What If Ryan’s Medicaid Block Grant Had Taken Effect in 2000?” Center on Budget and Policy Priorities, April 12, 2011, http://www.cbpp.org/files/4-12-11health.pdf.
  2. Edwin Park, “Medicaid Block Grant or Funding Caps Would Shift Costs to States, Beneficiaries, and Providers,” Center on Budget and Policy Priorities, January 6, 2011, http://www.cbpp.org/files/1-6-11health2.pdf; Leighton Ku, “Medicaid Costs Are Growing More Slowly than Costs for Medicare or Private Insurance,” Center on Budget and Policy Priorities, November 13, 2006, http://www.cbpp.org/files/11-13-06health.pdf.
  3. Amy Finkelstein, et al, “The Oregon Health Insurance Experiment: Evidence from the First Year,” NBER Working Paper No. 17190, July 2011, http://www.nber.org/papers/w17190.
  4. Families USA, “Jobs at Risk: Federal Medicaid Cuts Would Harm State Economies,” June 2011, http://familiesusa2.org/assets/pdfs/Medicaid-Cuts-Hurt-State-Economies.pdf.