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A Conservative Economist’s View of Medicaid Expansion

By Dr R Scott Poppen
. 1 Comment(s)

Utah’s Medicaid Expansion Community Workgroup has completed its work and given Utah Governor Gary Herbert several options that would expand insurance coverage for Utah’s 123,000 low-income uninsured.  Unfortunately, the governor will not make a final decision about expanding Medicaid until January.  Thus, the state will lose out starting January 1st on millions of dollars of available federal funds.  Even more concerning, the state’s uninsured, ineligible for or unable to afford insurance in the Affordable Care Act’s (ACA) Health Insurance Marketplaces, will continue to suffer. 

At the August 1st workgroup meeting, testimony and a white paper were received from Sven E. Wilson, PhD, a Professor of Public Policy in the Departments of Political Science and Economics at Brigham Young University.  Dr. Wilson is also a Research Economist at the National Bureau of Economic Research and a Senior Consultant in the Utah Department of Health.

Wilson prefaced his remarks by describing himself as a “conservative economist” who believes in individual responsibility and that free market and private sector approaches to solving problems of resource distribution are nearly always preferential to government intervention.  Nevertheless, he recommended that the state of Utah take advantage of the ACA’s option to expand Medicaid.


Wilson’s testimony and paper made these points.  Economic analysis does more than just analyze dollars spent but must factor in a broader perspective “that includes the things that affect human welfare and happiness---things like health, suffering, life expectancy, family relations, leisure time, and quality of life.”   The responsible economic analysis provides policymakers with a broad view of on-budget and off-budget costs and benefits from which they can choose.  But ultimately, the policy choice is made not purely on the basis of costs and benefits but on questions of values: “what is the proper role of government and what kind of society do the citizens of the state want to have?”

On-budget impacts to the state, based on data from Public Consulting Group’s (PCG) 2013 report, are minimal when compared to the cost of health insurance in the private market and the overall impact on the state’s budget.  The 10 year average cost to the state to fully expand Medicaid is $158 per patient per year with the federal government picking up the additional $3,040 per patient per year.  This cost compares very favorably with the average cost of private health insurance for an individual in Utah at $4,257 and family of $11,869.  After figuring that the average state budget would increase by 0.26% annually he concluded that “looking at the state budgetary costs alone, Medicaid expansion seems like a very good bargain.”  And this does not even take into account the new tax revenues generated from the influx of new federal money.

He then went on to describe the off-budget benefits of the Medicaid expansion.  Direct benefits to the newly insured are the most important and will be discussed below.  Reduction in uncompensated care to Utah providers will save the state’s insured citizens $815 million in costs currently shifted to them.   It will also likely produce efficiencies in health care as service in expensive emergency department settings moves to the outpatient arena.  The $3.12 billion in new revenues to the health care industry and $2.91 billion in economic impact over 10 years, even if significantly overestimated by PCG (and Wilson goes into great detail how such estimates are problematic and must be looked at with great skepticism), will more than compensate for the estimated 10 year cost to the state of $158 million for the full Medicaid expansion.  The ease in financial and emotional strain to families of the newly insured is immeasurable but certainly “exceeds the state’s budgetary costs many times over.”

Wilson also discussed possible off-budget cost of the expansion.  These negative impacts may include potential disruptions of insurance markets, denial or delay of medical services to all populations of patients, increases in the price of medical services to the non-Medicaid population, and diversion of scare state resources from the needs of education and law enforcement.  These negative impacts disproportionately impact the poor more than the affluent. 

Next in his paper is a discussion of the concept of “consumer surplus,” which Wilson considers to be the strongest economic argument for Medicaid expansion.  Consumer surplus is “the amount of money that consumers would be willing to spend on a good or service beyond what the market requires them to pay.”  Consumer surplus associated with health care and health insurance is very high.  As prices rise, consumer demand for health services changes little and displays the economic concept of price-inelastic demand.  Even the poor are willing to pay a lot for health care; studies have shown that even those on Medicaid are willing to spend on average an additional $1,900 a year for health care services.  If 100,000 poor Utahns are willing to spend $1,900 dollars a year for ten years, that is $1.9 billion of consumer surplus.  So how much is insurance worth to the poor if they were not insured?  Quite a lot ---and much more than the budgetary cost to the state.

Wilson argues that “if we put all the relevant costs and benefits on the table—meaning everyone’s benefits and everyone’s cost are given equal standing--the benefits to Utahns of using federal dollars over the next decade vastly out way the costs.” 

He was, however, very sympathetic to concerns by many of the conservative members of the study group who are convinced that federal support of the expansion is unsustainable in light of the federal government’s looming budget deficits.  Wilson views federal deficit spending as an existential threat to the continued survival of the country, “but standing up valiantly against the excess of the federal government does little to protect the state economically disadvantaged citizens.”  “It’s a good war” summarized Wilson in his testimony to the committee “but I don’t know that [Medicaid expansion]’s the right battle.”

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  1. nubwaxer

    if the poor join the mormon church wouldn't the church provide for those members, at the modest cost of 10% of your income? but if you're part of the 47% of the moochers and bums too bad.

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