The Affordable Care Act is a substantial reform of the U.S. health care insurance system. Using the RAND COMPARE model, researchers assessed the act's potential economic effects on Pennsylvania, factoring in an optional expansion of Medicaid, and found the state would enjoy significant net benefits, including a growth of $3 billion in the state's GDP annually and more than 35,000 jobs.

Cover: The Economic Impact of Medicaid Expansion on Pennsylvania
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The Economic Impact of Medicaid Expansion on Pennsylvania

by Carter C. Price, Julie M. Donohue, Evan Saltzman, Dulani Woods, Christine Eibner

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Research Questions

  1. What health and economic effects would the Affordable Care Act have on the state of Pennsylvania?
  2. How will Pennsylvania's decision to expand Medicaid or not affect coverage, the state budget, and the state economy?

The Affordable Care Act is a substantial reform of the U.S. health care insurance system. Using the RAND COMPARE model, researchers assessed the act's potential economic effects on Pennsylvania, factoring in an optional expansion of Medicaid, and found the state would enjoy significant net benefits. With or without the expansion of Medicaid, the act will increase insurance coverage to hundreds of thousands of Pennsylvanians, but the COMPARE model estimates that the expansion of Medicaid eligibility would cover an additional 350,000 people and bring more than $2 billion in federal spending into the state annually than if the state did not expand. Should the state expand Medicaid, the additional spending will add more than $3 billion a year to the state's GDP and support 35,000 jobs. But Medicaid expansion is not without cost for the state; the estimated cumulative effect on Pennsylvania's Medicaid spending will be $180 million higher with the expansion than without between 2014 and 2020. Substantial reductions in uncompensated care costs for hospitals are possible even without expansion, but savings to hospitals for uncompensated care funding are even larger with the Medicaid expansion, amounting to $550 million or more each year.

Key Findings

More Pennsylvanians Would Have Health Coverage

  • With the Medicaid expansion, the model estimates that in 2016 all but 5 percent of nonelderly Pennsylvanians (about 500,000 people) will have insurance coverage, compared with 13 percent (about 1,330,000 people) who would be uninsured under pre-ACA policies, and 8 percent (about 850,000) with the ACA but without the expansion of Medicaid.

Expansion Would Have a Positive Economic Effect

  • In 2016, federal inflows are estimated at $4.7 billion without Medicaid expansion as opposed to $7.2 billion with expansion. Therefore, Medicaid expansion would result in $2.5 billion more in federal funds to Pennsylvania. Because outflows to the federal government will be nearly $6.7 billion in either case, the net benefit is only positive in 2016 with expansion. From 2014-2020, the cumulative flow of federal dollars will be $16.5 billion higher with the expansion Medicaid.

Benefits Would Have a Long-Term Cost, With Uneven Regional Results

  • By 2020, new state Medicaid spending is projected to be $611 million with the expansion, or $118 million without it. The Medicaid expansion would increase state spending by approximately 10 percent over current levels. These costs will be partially offset by tax revenue generated from provider taxes, which would be greater under the expansion than they would otherwise. Under either scenario, substantial differences in the net flow of funds are predicted at the regional level, as well as in the number of those insured.

The research described in this report was sponsored by The Hospital & Healthsystem Association of Pennsylvania and was conducted within RAND Health, a division of the RAND Corporation.

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