Cast a skeptical eye on Medicaid economic impact predictions

labThis is the third of three blog posts discussing the findings of a recent state-funded report on the impacts of Utah’s pending decision on Medicaid expansion. See the other two posts here and here.

A recent state-funded analysis projected that expanding Medicaid under the provisions of Obamacare will create hundreds of millions of dollars in new economic activity and tens of millions of dollars in new tax revenues over a decade, presumably leading to thousands of new jobs in Utah. The key question about these projections is: Can they really be trusted?

As an economics major in college, I remember one of the introductory lessons in Econ 101 (or Econ 110, as it is numbered at BYU) talked about past attempts to project future economic outcomes. How did they do? Terrible. They couldn’t predict the economy very many months ahead, let alone years.

Why? Because mathematical models do not accurately or reliably describe the behavior of unpredictable human beings. Because statistical models cannot capture responses to unforeseen, economically harmful events which change individual and group economic reasoning and behavior. In short, because human intelligence and understanding of naturally unpredictable human behavior has limits which preclude broad comprehension and prediction, human attempts at boiling that complexity down to a mathematical/statistical formula have failed miserably.

So what does the projection that Medicaid expansion will generate hundreds of millions of dollars in new economic activity over 10 years really mean? Probably not much … except perhaps that an economist somewhere just got a fat, taxpayer-funded paycheck.

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  • RD Hunt

    I think you misunderstand the projection they gave, The total spending of medicaid under the expansion would be $2.9 billion dollars + $200 million or so of State dollars. So we can pretty much be assured that around $3.1 billion dollars of economic activity will occur.

    The State report does not include a study of second order effects, so really no economic theory is applied to the claims within it.

    It would be however, difficult to argue that the doctors and hospital workers hired to fill this new demand would not spend that income in the Utah markets they live in.

    The report if anything understates the economic benefit that the expansion would provide.

    Or the $810 million dollars decrease in charitable/uncompensated care costs, this also increases tax revenue as that is $810 million dollars that is not written off that otherwise would be, tho it could be argued that charitable spending will simply be reallocated.

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