To: Utah Senate,
Subject: Four Ways Healthy Utah Will Damage Utah's Economy
Date: Wed Feb 18 23:52:32 MST 2015
You have probably been told by Healthy Utah supporters that their proposed expansion of Medicaid will be a boon to the economy because it brings federal dollars back to Utah. While this argument sounds reasonable on the surface and in the short term, it fails to grasp the deeper and longer-lasting economic impacts of expanding Medicaid. Below are four ways that Healthy Utah will, in fact, have a negative impact on economic development and economic growth in Utah over time.
Healthy Utah creates harmful economic incentives: According to the Congressional Budget Office, expanding Medicaid will “reduce incentives to work” in two ways. First, “because [Medicaid] subsidies decline with rising income … making work less attractive. As a result some people will choose not to work or will work less.” Second, “[Medicaid] subsidies increase available resources – similar to giving people greater income – thereby allowing some people to maintain the same standard of living while working less.” Healthy Utah will expand the work disincentives of government-funded health insurance to a larger portion of the Utah population. And as basic economics teaches: People respond to incentives. Some individuals, of course, will be exceptions to the rule. But thoughtful analysis and fact suggest that, on average, Healthy Utah enrollees will respond as Healthy Utah’s incentives suggest they should respond.
Healthy Utah slows economic growth by shrinking the private sector and growing the public sector: Healthy Utah will directly increase the federal government’s share of Utah’s economy by hundreds of millions of dollars per year. Additionally, this direct increase in federal government influence will indirectly impact a larger share of the economy through regulation and investment crowd-out. The result will be an economy that responds more slowly to economic change, due to burdensome government regulations and less access to capital, which will lead to weaker income and job creation. For instance, one study estimates that the economic costs of Healthy Utah over time will translate into $805 less in personal income per household, or the equivalent of 14,125 jobs, and drop Utah from the 14th largest private sector in America to the 16th largest.
Healthy Utah will mean greater underemployment: Peer-reviewed research has shown that being eligible for publicly funded health insurance increases the likelihood that an individual will be employed part time, rather than full time. In other words, when given the choice between becoming more economically productive (and jeopardizing their cheap health insurance) or remaining employed part-time (and keeping cheap health insurance) many people choose the latter, resulting in less economic growth. Clearly some Healthy Utah enrollees will move on from part-time work to full-time employment when the opportunity arises (newly graduating college students, for example). But many others will enjoy having the privilege of cheap health insurance without the need to work full time, and will stay in that position as long as they reasonably can.
Healthy Utah will mean more unemployment: Peer-reviewed research has repeatedly shown that being eligible for publicly funded health insurance increases the likelihood that an individual will be unemployed. One recent study reported that enrolling in publicly funded health insurance decreases the likelihood of being employed two years later by up to 10 percentage points. Some unemployed Healthy Utah enrollees will certainly choose to take a job opportunity when it comes along, even if it jeopardizes their health coverage. But when you incentivize something you usually get more of it, even if it doesn’t’t make sense. That is a fundamental lesson of economics.
Thank you for your statesmanship and service to our state.
Director of Policy
Director of Public Affairs