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Executive Summary This report presents statewide and industry-level economic impacts that would be realized if Alabama were to undertake Medicaid expansion under the Affordable Care Act

Economic Impact by Industry of Medicaid Expansion in Alabama under the Affordable Care Act

Samuel Addy, Ph.D and Ahmad Ijaz Center for Business and Economic Research Culverhouse College of Commerce The University of Alabama September 2013

Commissioned by

Alabama Hospital Association

Note: This report reflects the analysis and opinions of the authors, but not necessarily those of the

faculty and staff of the Culverhouse College of Commerce or the administrative officials of The University of Alabama

Contents

Executive Summary

This report presents statewide and industry-level economic impacts that would be realized if

Alabama were to undertake Medicaid expansion under the Affordable Care Act (ACA) The study builds on and adds to the excellent 2012 work titled “An Economic Evaluation of Medicaid

Expansion in Alabama under the Affordable Care Act” by David J Becker, Ph.D and Michael A Morrisey, Ph.D of the Department of Health Care Organization and Policy, School of Public Health, University of Alabama at Birmingham Together, the two studies provide a nearly

comprehensive economic perspective on the impacts of the expansion on the state economy

The ACA provides for federal matching to states of 100 percent in 2014-2016, 95 percent in 2017, 94 percent in 2018, 93 percent in 2019, and 90 percent from 2020 on; this federal matching assistance percentage is much higher than the 68.5 percent Alabama currently receives for Medicaid To address uncertainty regarding how many newly eligible Alabamians would sign up for the new program and cost, Becker and Morrisey considered three scenarios with annual averages of low take-

up (234,455 people at a cost of $10 billion), intermediate take-up (292,635 costing $12.5 billion), and high take-up (494,629 costing $21.1 billion) over the 2014-2020 period The intermediate take-up scenario is believed to be most likely, but all three scenarios are considered in this report

The economic impacts presented in this report focus on output, value-added, earnings, and

employment Output refers to overall business activity—often measured by revenues or sales—and contains value-added, which is the contribution to gross domestic product (GDP) or the value of goods and services produced on a value-added basis The contribution to GDP is overall business activity less business-to-business (also called “intermediate”) transactions Earnings impacts are part

of value-added and are the wages and salaries for the jobs recognized by the employment impact For the Alabama economy and over the 2014-2020 period, the expansion will increase (i) overall business activity by about $22 billion to $47 billion, (ii) GDP by roughly $14 billion to $29 billion, and (iii) worker earnings by approximately $8 billion to $17 billion Aggregate impacts of the

intermediate take-up scenario are $28 billion in overall business activity, which includes $17 billion contribution to GDP, which in turn contains $10 billion in earnings The Becker and Morrisey study mentioned above showed that taxes generated from Federal funds inflow alone to Alabama for the program would more than cover the Alabama portion of program costs

Average annual impacts of the expansion on Alabama are: (i) employment—about 24,600 jobs with low take-up, 30,700 with intermediate take-up, and 51,900 with high take-up; (ii) earnings—around

$1.0 billion with low up, $1.3 billion with intermediate up, and $2.1 billion with high up; (iii) contribution to GDP—roughly $1.7 billion with low take-up, $2.1 billion with intermediate take-up, and $3.6 billion with high take-up; and (iv) business activity—nearly $2.8 billion with low take-up, $3.5 billion with intermediate take-up, and $5.9 billion with high take-up

take-From an economic perspective, Alabama will significantly gain jobs and the associated income, grow its GDP, increase business activity, and generate much-needed tax revenues if it undertakes Medicaid expansion under the ACA Every industry would benefit from the expansion although healthcare and related industries naturally benefit the most For example, annual jobs impacts for the

intermediate scenario include about 11,300 in health care and social assistance; 6,400 in retail trade; 5,500 in professional, scientific, and technical services; 1,400 in administrative and other support services; 1,200 in accommodation and food services; and 1,100 in finance and insurance

Average Annual Economic Impacts of ACA Medicaid Expansion in Alabama by Industry, 2014-2020

Contribution Business Employment Earnings to GDP Activity High Take-Up Scenario (Jobs) ($, Millions) ($, Millions) ($, Millions)

Agriculture, Forestry, Fishing and Hunting 82 2.3 2.9 8.8 Mining, Quarrying, and Oil and Gas Extraction 8 0.7 1.9 2.7

Health Care and Social Assistance 19,072 904.7 1,221.4 2,128.1 Arts, Entertainment, and Recreation 429 4.6 8.5 18.6 Accommodation and Food Services 2,109 31.5 62.7 126.0 Other Services (except Public Administration) 1,229 30.2 41.0 81.0

Intermediate Take-Up Scenario

Agriculture, Forestry, Fishing and Hunting 49 1.3 1.7 5.2 Mining, Quarrying, and Oil and Gas Extraction 5 0.4 1.1 1.6

Health Care and Social Assistance 11,290 536.2 723.8 1,261.1 Arts, Entertainment, and Recreation 254 2.7 5.0 11.0 Accommodation and Food Services 1,247 18.7 37.1 74.5 Other Services (except Public Administration) 726 17.9 24.3 47.9

Low Take-Up Scenario

Agriculture, Forestry, Fishing and Hunting 39 1.1 1.4 4.2 Mining, Quarrying, and Oil and Gas Extraction 4 0.4 0.9 1.3

Real Estate and Rental and Leasing 714 9.3 182.0 214.6 Professional, Scientific, and Technical Services 4,399 269.0 369.0 585.3 Management of Companies and Enterprises 61 4.8 6.9 12.2 Administrative and Support and Waste Management and Remediation Services 1,140 24.6 37.8 64.6

Health Care and Social Assistance 9,045 429.6 579.9 1,010.3 Arts, Entertainment, and Recreation 203 2.2 4.0 8.8 Accommodation and Food Services 999 15.0 29.7 59.7 Other Services (except Public Administration) 582 14.3 19.4 38.4

Note: Pharmacies are in Retail Trade; some health-related facilities (labs, information technology, imaging, etc.) are in Professional, Scientific, and Technical Services; but Health Care and Social Assistance contains the bulk of healthcare activities

Economic Impact by Industry of Medicaid Expansion in Alabama under the Affordable Care Act

Introduction

This report presents statewide and industry-level economic impacts that would be realized if

Alabama were to undertake Medicaid expansion under the Affordable Care Act (ACA) The

objective is to inform and enhance the decision making process on whether the state should

undertake the expansion This study builds on the excellent and objective 2012 report titled “An Economic Evaluation of Medicaid Expansion in Alabama under the Affordable Care Act” by David

J Becker, Ph.D and Michael A Morrisey, Ph.D of the Department of Health Care Organization and Policy, School of Public Health, University of Alabama at Birmingham Specifically, cost

estimates for Medicaid expansion in Alabama under the ACA developed in the Becker and Morrisey study were used to determine economic impacts that were not covered in their study Together, the two studies provide a nearly comprehensive economic perspective on whether Alabama should undertake Medicaid expansion under the ACA

The economic impacts presented in this report focus on output, value-added, earnings, and

employment for the Alabama economy Output refers to total or gross business activity often measured by revenues or sales This overall business activity impact includes value-added, which is the contribution to gross domestic product (GDP) or the value of goods and services produced on a value-added basis The contribution to GDP is overall business activity less business-to-business transactions that are also called intermediate transactions Earnings impacts are part of value-added and are the wages and salaries for employment impact jobs

The Becker and Morrisey 2012 report presented overall business activity and related tax impacts statewide of Medicaid expansion Federal funds inflow to Alabama We consider the impacts of total spending (both Federal and State) for Medicaid expansion under the ACA in Alabama Fiscal impacts were beyond the scope of this study, but there is no need to consider fiscal impacts since Becker and Morrisey showed that Alabama taxes generated from just Federal funds inflow to the state for the program would more than cover the Alabama portion of program costs

To deal with uncertainty regarding how many newly eligible Alabamians would sign up for the program and the associated cost, Becker and Morrisey considered three scenarios—low,

intermediate, and high take-up—over the 2014-2020 period The intermediate take-up scenario is believed to be most likely, but we consider and present impacts for all three scenarios at both

statewide and industry levels

Becker and Morrisey Summary

Becker and Morrisey 2012 rightly noted that under the ACA, Medicaid eligibility is expanded to adults (ages 19-64) with family incomes less than 138% of the federal poverty level who are not currently eligible for Medicare The ACA provides for federal matching to states of 100 percent in 2014-2016, 95 percent in 2017, 94 percent in 2018, 93 percent in 2019, and 90 percent from 2020

on This federal matching assistance percentage (FMAP) is much higher than the 68.5 percent FMAP Alabama currently receives for Medicaid

The study considered impacts over 2014-2020 focusing on five major areas: (i) Medicaid enrollment

of newly eligible individuals; (ii) State and Federal spending on the expanded population; (iii) Impact

of Federal funds inflow for the expansion on economic activity in the state; (iv) Alabama state budgetary impact of Federal funds inflow for the expansion; and (v) Potential health effects of the expansion To address uncertainty regarding how many newly eligible Alabamians would sign up for the program and cost, they considered three scenarios with annual averages of low take-up (234,455 people at a cost of $10 billion), intermediate take-up (292,635 people and cost of $12.5 billion), and high take-up (494,629 people at a cost of $21.1 billion) The intermediate take-up scenario is

believed to be most likely

They concluded that Medicaid expansion under the ACA would grow Alabama’s economy, create a net positive effect on the state budget, increase the number of people with health insurance, and improve health For the three scenarios of estimates of new Alabama Medicaid enrollment under the expansion, statewide economic activity increases by about $16 billion to $34 billion and

generates net tax revenues of $749 million to $1.6 billion Under the likely intermediate take-up scenario, approximately $20 billion in increased economic activity will be realized from 2014 and

2020 along with a net increase of $935 million in tax revenues

Analysis and Results

Economic impact analysis measures the effects of a specific economic activity or event on a

specified geographic area; the ACA-related Medicaid expansion on Alabama in this case Impact studies provide information that can be used to facilitate positive economic impacts and/or mitigate potential negative ones and are therefore important decision-making tools that can enhance the quality of decisions made The analysis typically focuses on one or more of the major economic indicators mentioned earlier—overall business activity, contribution to GDP, earnings, and

employment The purpose of an impact study usually determines which economic variable(s) should

be the focus In this study, the focus is on changes in all four major economic indicators for the state economy that increased economic activity resulting from Medicaid expansion will bring about

Spending estimates for Medicaid expansion in Alabama associated with the ACA in the Becker and Morrisey report were reviewed and used to derive the statewide and industry-level impacts for the same three scenarios The analysis made use of multipliers from the Regional Input-Output

Modeling System (RIMS II), an input-output application developed and maintained by the U.S Department of Commerce’s Bureau of Economic Analysis A description of the general

methodology for economic impact estimation is detailed in the Appendix

Federal and state spending for the expansion directly and indirectly impacts the whole state

economy through direct and significant effects on four major health-related sectors: professional services; hospital services; pharmacy services; and other health services These sectors will use the funds to provide healthcare and in the process pay their workers and their suppliers and service providers (e.g., for equipment, materials and supplies, utilities, travel, and janitorial and security services); they may also pay taxes and distribute profits The direct impacts or effects of the

expansion-related payments create indirect effects through successive rounds of increasingly wider demand for products and services for both supplier networks and consumers, but with diminishing effect at each round In this way the initial expansion spending propagates through the entire

economy, but the ripple effect converges and is captured by multipliers for the direct effect sectors The multipliers for each major expansion-related healthcare sector capture the total economic impact of the expansion by incorporating all the direct and indirect effects Table 1 shows the distribution of expenditures for these sectors over 2014-2020

Table 1 Distribution of Heath Care Expenditures (Percent)

Source: Becker and Morrisey (2012), Appendix Table 3

Table 2 shows estimated state and federal costs of the expansion for each scenario The cost to the state includes both its share and new administrative costs to be incurred due to the expansion For each scenario, the data in Tables 1 and 2 are used to determine direct spending associated with the expansion on the four health-related sectors mentioned earlier (Table 3) Under the intermediate take-up scenario, total direct spending for the program is roughly $12.5 billion, rising from $1.757 billion in 2014 to $1.852 billion in 2020 Hospitals receive the highest amounts, followed by

professional services while pharmacy and other health services receive somewhat similar spending amounts

Table 2 Federal and State Cost Estimates Associated with Alabama Medicaid Expansion

Federal Costs 1,718 1,721 1,716 1,636 1,636 1,653 1,630 11,710 Total Costs 1,757 1,760 1,755 1,761 1,780 1,817 1,852 12,482

Federal Costs 1,376 1,379 1,375 1,311 1,311 1,324 1,306 9,382 Total Costs 1,407 1,410 1,406 1,411 1,426 1,456 1,484 10,000 Source: Becker and Morrisey (2012), Table 4

Table 3 Direct Spending Associated with Alabama Medicaid Expansion ($, Millions)

The spending amounts in Table 3 were used to derive the economic impacts using RIMS II

multipliers for the four sectors with some modifications For spending on professional services, multipliers belonging to the professional, scientific, and technical services sector were used as the larger sector contains professional services Similarly, retail trade sector multipliers were used for spending on pharmacy services and also ambulatory health care services multipliers were used for spending on other health services The modifications were necessary because stand-alone

multipliers are available for hospitals, but not for professional services, pharmacy services, and other health services The overall effect of the modifications or adjustments was conservative impact estimates as the analysis ultimately involved smaller multipliers than would typically be expected For example, pharmacies would be expected to have higher multipliers than the retail trade sector average The direct spending amounts shown in Table 3 are in 2012 dollars and thus were first deflated into 2010 dollars to determine employment impacts because the employment multipliers are based on 2010 dollars

Table 4 shows annual economic impacts statewide that would occur from the direct Medicaid

expansion spending for each scenario together with the estimated number of enrollees as well as the average over the 2014 to 2020 period The annual impacts can be aggregated to see the total impact over the seven-year inclusive period The aggregate impacts of the expansion on the Alabama economy is to increase (i) overall business activity by $47.1 billion with high take-up, $27.9 billion with intermediate take-up, and $22.4 billion with low take-up; (ii) GDP by $28.6 billion with high take-up, $16.9 billion with intermediate take-up, and $13.6 billion with low take-up; and (iii) worker earnings by $17.0 billion with high take-up, $10.1 billion with intermediate take-up, and $8.1 billion with low take-up

The annual averages show that the expansion will have the following significant impacts on the Alabama economy:

1 Raise employment by 51,918 jobs with high take-up, 30,722 jobs with the likely

intermediate take-up, and 24,613 with low take-up;

2 Increase earnings because of the additional jobs by $2.123 billion with high take-up,

$1.256 billion with intermediate take-up, and $1.007 billion with low take-up;

3 Grow GDP by $3.575 billion with high take-up, $2.116 billion with intermediate

take-up, and $1.695 billion with low take-up; and

4 Provide additional business activity of $5.893 billion with high take-up, $3.487 billion with intermediate take-up, and $2.794 billion with low take-up

Table 4 Annual Economic Impacts of Medicaid Expansion in Alabama under ACA

High Take-Up Scenario

Employment (Number of Jobs) 51,134 51,235 51,038 51,320 51,872 52,907 53,924 51,918 Earnings ($, Millions) 2,091 2,095 2,087 2,098 2,121 2,164 2,206 2,123 Contribution to GDP ($, Millions) 3,522 3,528 3,515 3,534 3,572 3,644 3,714 3,575 Overall Business Activity ($, Millions) 5,806 5,815 5,794 5,825 5,888 6,005 6,121 5,893 Estimated Number of New Enrollees 521,566 510,744 497,979 488,391 482,517 481,531 479,673 494,629

Intermediate Take-Up Scenario

Employment (Number of Jobs) 30,260 30,320 30,200 30,368 30,696 31,303 31,906 30,722 Earnings ($, Millions) 1,238 1,240 1,235 1,242 1,255 1,280 1,305 1,256 Contribution to GDP ($, Millions) 2,084 2,088 2,080 2,091 2,114 2,156 2,197 2,116 Overall Business Activity ($, Millions) 3,436 3,441 3,429 3,447 3,484 3,553 3,621 3,487 Estimated Number of New Enrollees 308,572 302,169 294,617 288,945 285,469 284,886 283,787 292,635

Low Take-Up Scenario

Employment (Number of Jobs) 24,232 24,291 24,194 24,332 24,591 25,084 25,566 24,613 Earnings ($, Millions) 991 993 989 995 1,006 1,026 1,046 1,007 Contribution to GDP ($, Millions) 1,669 1,673 1,666 1,676 1,693 1,727 1,761 1,695 Overall Business Activity ($, Millions) 2,751 2,757 2,747 2,762 2,791 2,847 2,902 2,794 Estimated Number of New Enrollees 247,224 242,094 236,044 231,499 228,714 228,247 227,366 234,455

Tables 5-8 show the industry-level annual economic impacts that would occur from the Medicaid expansion for each scenario and the average over the 2014 to 2020 period Every industry would benefit although healthcare and related industries naturally benefit the most This is because the changes are specific to healthcare and the Medicaid expansion spending works directly through the four main health-related sectors (see Table 3) Health Care and Social Assistance shows the largest impacts because it contains the bulk of healthcare activities Retail Trade contains pharmacies and also health-related professional services such as labs, information technology, imaging, accounting, and legal service providers are in Professional, Scientific, and Technical Services

Table 5 Industry-Level Employment Impacts of Medicaid Expansion in Alabama under ACA (Number of Jobs)

Annual

Agriculture, Forestry, Fishing and Hunting 81 81 81 81 82 84 85 82 Mining, Quarrying, and Oil and Gas Extraction 8 8 8 8 8 8 9 8

Finance and Insurance 1,835 1,826 1,819 1,829 1,849 1,885 1,922 1,852 Real Estate and Rental and Leasing 1,493 1,486 1,481 1,488 1,504 1,534 1,564 1,507 Professional, Scientific, and Technical Services 9,146 9,156 9,106 9,164 9,262 9,455 9,637 9,275 Management of Companies and Enterprises 128 127 127 128 129 132 134 129 Administrative and Support and Waste Management and Remediation Services 2,388 2,373 2,365 2,377 2,402 2,450 2,497 2,407

Health Care and Social Assistance 18,731 18,816 18,795 18,862 19,065 19,430 19,803 19,072 Arts, Entertainment, and Recreation 426 423 421 424 428 437 445 429 Accommodation and Food Services 2,095 2,079 2,071 2,082 2,105 2,147 2,188 2,109 Other Services (except Public Administration) 1,219 1,211 1,207 1,213 1,226 1,251 1,275 1,229

Annual

Agriculture, Forestry, Fishing and Hunting 48 48 48 48 48 50 50 49 Mining, Quarrying, and Oil and Gas Extraction 5 5 5 5 5 5 5 5

Finance and Insurance 1,079 1,080 1,077 1,082 1,094 1,115 1,137 1,095 Real Estate and Rental and Leasing 878 879 876 881 890 908 925 891 Professional, Scientific, and Technical Services 5,425 5,419 5,388 5,423 5,481 5,594 5,702 5,490 Management of Companies and Enterprises 75 76 75 76 76 78 79 76 Administrative and Support and Waste Management and Remediation Services 1,402 1,404 1,399 1,406 1,422 1,450 1,478 1,423

Health Care and Social Assistance 11,118 11,135 11,121 11,161 11,282 11,496 11,717 11,290 Arts, Entertainment, and Recreation 250 250 249 251 253 258 263 254 Accommodation and Food Services 1,229 1,230 1,226 1,232 1,245 1,270 1,295 1,247 Other Services (except Public Administration) 716 717 714 718 726 740 754 726