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Medicaid cuts would hurt Mo. economy, study says

Monday, February 7, 2005 | 12:00 a.m. CST; updated 7:23 a.m. CDT, Saturday, July 12, 2008

JEFFERSON CITY — Gov. Matt Blunt talks a lot about economic development. He also talks a lot about making government more efficient through cuts and cost-saving initiatives.

But a new study suggests those two priorities may conflict.

A report released last week by St. Louis University economists concludes the government-run Medicaid health care program is an economic boon. And cutting it, as Blunt proposes, would hurt the economy.

For every dollar the state spends on Medicaid, it receives an additional $1.57 to $2.68 from the federal government, depending on the precise program. That money is paid to doctors’ offices, hospitals, pharmacies and nursing homes, which use it to pay employees, who presumably spend much of their paychecks in their communities.

Based on a computer calculation of such multiplier effects, the St. Louis University economists conclude the federal Medicaid money generated more than $5.8 billion in economic activity last year and supported nearly 80,000 Missouri jobs.

Cutting state Medicaid spending automatically triggers an even larger cut in federal Medicaid money for Missouri.

Blunt says his budget would cut

$626 million in combined state and federal Medicaid spending.

St. Louis University economists Heather Bednarek and Muhammad Islam figure there would be no economic impact by cutting the state Medicaid money because it still would be spent on other state government programs.

But the loss of the federal Medicaid money under Blunt’s budget could cost Missouri $689 million in economic activity and more than 9,000 jobs, according to their preliminary calculations.

“Clearly, everybody is aware of the health impact of a program like Medicaid,” Bednarek said. “But our point is we want to at least demonstrate, or recognize, that there actually is an economic component to this Medicaid spending.”

Blunt dismisses that notion.

“I refuse to accept the idea that a social welfare program acts as a form of economic development,” Blunt said when told about the study. That assumes “the government spends money better and more efficiently than the private sector, which I think is inherently false.”

Indeed, there is ample room to critique the study’s methods and conclusions.

Bednarek acknowledges the study focuses solely on Medicaid expenditures — not the source of those expenditures.

“That money comes from somewhere, and that would be the taxpayers,” said State Treasurer Sarah Steelman, an economist, who like Blunt is a Republican.

Whereas expenditures may spur the economy, taxes dampen it — and the St. Louis University economists were not able to account for the tax impact in Missouri. Doing so would be difficult, because the federal Medicaid money comes from taxes collected nationally.

Also unexamined by the study is how the federal money would be used if it were not spent on Medicaid in Missouri. That calls for a lot more information, perhaps even speculation. And that’s part of the reason some economists see multiplier effects as too simple of an approach for determining economic effects.

If Missouri spends less federal money on Medicaid, would the federal government simply direct the money to other states? Or would that money go toward other federal purposes — perhaps roads or schools — that could still bring some benefit to Missouri?

“The world’s a complicated place, and the indirect consequence of where that spending goes is difficult to assess without knowing the alternative,” Joseph Haslag, an economist at MU, said while speaking generally about government spending.

Economists are divided about whether government taxing and spending helps spur the economy. It depends partly on how those tax revenues are spent, and whether the private sector would have put the money to a more productive use.

Amy Blouin, executive director of the Missouri Budget Project, which advocates for the poor, suggested to lawmakers last week that a modest tax increase would have a better economic effect than cuts to state services such as Medicaid.

But Blunt frequently describes tax increases as job killers. He proposed the Medicaid cuts to avoid a tax increase.

“People who believe a social welfare program is a form of economic development have an entirely different understanding of economic development than I do,” Blunt said. “I believe economic development is doing things that spur free enterprise.”


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