Economic and Employment Impacts of Medicaid Expansion Under the American Rescue Plan Act

Blog Featured | June 3, 2021

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By Michelle Ries, MPH, associate director

 

In a recent post, NCIOM project director Brieanne Lyda-McDonald discussed the March passage of the American Rescue Plan Act, including the Act’s provisions related to the Affordable Care Act and COBRA coverage that seek to decrease the number of uninsured individuals and make health coverage more affordable:

North Carolina is one of twelve states that have not expanded Medicaid eligibility to 138% of FPL for all residents. If North Carolina were to expand Medicaid eligibility, an estimated additional 373,000 residents would become eligible for Medicaid coverage. In addition to continuing the ACA provision that guarantees a 90% Federal Medical Assistance Percentage (FMAP; the percent of Medicaid expenses that the federal government will pay) for expansion populations [1]. the American Rescue Plan attempts to incentivize states to expand Medicaid eligibility by increasing the state’s FMAP for traditional Medicaid populations by five percentage points for two years. North Carolina’s FMAP for Federal Fiscal Year 2022 is 73.85%, which includes an increase of 6.2 percentage points from the regular base rate provided by the Families First Coronavirus Response Act of 2020.

The increased FMAP for traditional Medicaid populations could lead to an additional $1.7 billion in federal funds for North Carolina across the two years of the increase. Estimated new state costs for expanding Medicaid eligibility across the same two years is $490 million. Therefore, the overall effect on state spending would be an additional $1.21 billion in federal funds.

A recent analysis by the Commonwealth Fund looks closely at the economic and employment impacts of Medicaid expansion under the American Rescue Plan Act. Authors Leighton Ku and Erin Brantley project each state’s increase in federal funding under Medicaid expansion (its share of expansion expenditures for 2022–2024) and estimate the impact of these funding changes on economic outcomes.

Overall, the authors found that expanding Medicaid would increase federal revenue to the 14 states by $49 billion in 2022; state matching costs would be $5 billion. Expansion would lead to the creation of more than 1 million jobs nationwide. The states seeing the largest gain in jobs would be Texas (298,900), Florida (134,700), North Carolina (83,000), and Georgia (64,300). If all non-expansion states took advantage of the incentives to expand Medicaid, these states would expand their economies by $350 billion from 2022 to 2025, with additional positive economic impacts across the country.

In North Carolina, Ku and Brantley estimate:

  • 621,000 additional adults receiving Medicaid coverage
  • 378,000 fewer uninsured adults in the state
  • 83,000 new jobs in 2022 (more than half of these jobs would be in health care, remainder in other sectors including construction, retail, and finance)
  • Projected growth in personal income: $20.9 billion by 2025 (this is an estimate of how much individuals’ incomes would grow in the state due to increased employment)
  • State and local tax revenue gained: $141 million in 2022, $168 million in 2025, resulting from an increase in the state gross product

 

A recent study out of Georgetown University Health Policy Institute found that, in 14 counties in North Carolina, over 20% of workers are uninsured. These counties are all designated rural counties, underscoring the benefits of Medicaid expansion to rural areas. Study authors also identified the top sectors in North Carolina for low-wage uninsured workers. The highest percentages of uninsured workers in North Carolina are found in hospitality (16%), retail (15.4%), and construction (10.9%).

Under the American Rescue Plan Act, people whose incomes are between 100% and 150% of the federal poverty level (FPL) will have federal Marketplace insurance premiums fully subsidized for a silver-level plan and cost-sharing reduced so that those plans would have an average deductible of $177. These subsidy provisions will be in effect for two years. Combined with this provision, if North Carolina expands Medicaid to 138% of the FPL, adults with low incomes, including low-wage workers, will have additional opportunities to receive low- or no-cost insurance coverage.

As policymakers continue to debate Medicaid expansion in North Carolina, it is important to examine the economic and employment impact of this policy. Several NCIOM task forces have called on the North Carolina General Assembly to expand Medicaid eligibility to increase access to care, improve the opportunity for health, and improve economic stability for North Carolina residents, including 2020 task force recommendations on Serious Illness Care and Developing a Perinatal System of Care. Whether the state capitalizes on the incentives to expand Medicaid eligibility in the American Rescue Plan Act will depend on decision-makers in the General Assembly.