Chris Conover (contributor)Florida Governor Rick Scott’s stunning reversal on Medicaid expansion came on the same day a report was released that said expansion would create 71,300 jobs by 2016. Ron Pollak, the head of FamiliesUSA (which sponsored the study) even said that if the state says no to the federal funding, it “would be an act of fiscal malpractice.”  Admittedly, the governor has not yet said whether this potential impact on jobs influenced his turnabout, impact. But given the anemic pace of the current economic recovery, there’s little doubt that this side-effect of Medicaid expansion might be an important factor for states that for now are either sitting on the fence or have tentatively elected not to proceed with expansion.[1]

But is it true?  At the national level, this claim is demonstrably false. The Medicaid expansion will destroy more jobs than it creates. At the state level, the answer is more complicated. It depends on the ratio of newly eligible Medicaid recipients who are below poverty relative to the number who are above poverty. So now let’s unpack these conclusions to better understand them.

Nationally, Medicaid Expansion is a Job Killer
There’s abundant empirical evidence that on balance, expanding Medicaid will reduce employment. Admittedly, it will increase employment in the health sector and have positive spillover effects on industries that support that sector. Indeed, it is this positive impact that proponents have championed in their efforts to sway state policymakers to expand the program.

But at the national level, this is one-sided book-keeping, i.e., a shell game that ignores that every dollar going into the U.S. Treasury to finance this expansion is a dollar taken out of the private economy. That dollar would have been spent (i.e., “created” or supported jobs) anyway: the Medicaid expansion simply transfers the decision about how to spend that money to Washington, D.C.

But that makes it sound as if the expansion is a wash, creating as many new jobs as it destroys. Sadly, the reality is much worse. Every additional dollar of new taxes shrinks the economy. Virtually anything we tax we get less of, whether that be labor, consumption, or savings. Based on dozens of studies of this so-called “deadweight loss” or “excess burden” that inevitably accompanies higher taxes, I have calculated that currently every added dollar of federal taxes essentially shrinks the economy by 44 cents. Thus, if we convert this to jobs, we will lose 144 jobs for every 100 health sector-related jobs that are induced by expansion.

Technically, it’s worse than this. On average, health sector jobs pay more than other jobs in the rest of the economy.[2] Thus, we will lose even more than 144 jobs for each 100 health-sector-related jobs.

My figures may be conservative. President Obama’s former economic advisor, Christina Romer, calculated in a seminal paper published before her stint as CEA chief, that tax increases used to support increased spending (as opposed to deficit reduction) reduce the size of the economy by $2 to $3 for every dollar of new taxes raised. In that case, every new Medicaid-related job actually costs the economy at least 3 to 4 jobs elsewhere (i.e., 1 job that effectively was shifted into the health sector plus another 2-3 lost because the economy shrank as a consequences of the  adverse effects of taxes used to bankroll the expansion).

At the State Level “It’s Complicated”

Unfortunately, at the state level, the issue gets much more complicated. Until and unless Obamacare is repealed, it is the law of the land, so most of the damaging effects of higher taxes will occur on each state’s own taxpayers regardless of what the state decides about Medicaid expansion. While the federal bribe (or ransom, if you prefer.[3]) is quite generous, it will require states to come up with 10 percent matching funds for expanded benefits and 50 percent of new administrative costs. The job losses associated with those added state taxes will offset at least some of the job gains coming from the infusion of new federal dollars into a state.

But this is where things get even more complicated. Leave aside the fact that the new Florida study assumes that the newly covered number by Medicaid will be nearly 80 percent larger than previous estimates. What’s more important is the baseline used to calculate the purported 71,000 job increase resulting from the expansion. The study focused on the economic impact of all the new federal dollars associated with Medicaid expansion in the year 2016, i.e., implicitly comparing to today’s status quo. But it completely failed to consider that if Florida did not expand Medicaid, the federal government would end up providing even larger subsidies to would-be Medicaid eligibles who are near-poor.

States that expand Medicaid effectively are denying these near-poor individuals private coverage under the exchange. Avik Roy and Scott Gottlieb already have done more than an adequate job in explaining the adverse consequences this will have on the health of these individuals, including an elevated risk of death.