In Brief:
- Cuts to Medicaid and the Supplemental Nutrition Assistance Program are on the table as strategies to reduce the federal budget deficit.
- The public health consequences of reducing funding to these programs have been widely discussed, the economic impacts less so.
- An analysis by the Commonwealth Fund suggests the cost to states could be greater than the savings to the federal government, including the loss of as many as a million jobs in 2026.
One in five Americans depends on Medicaid for health insurance. Much has already been written about the public health consequences of cutting Medicaid funding, but a new report from the Commonwealth Fund shows it could also have big impacts on state economies.
Medicaid cuts over the next 10 years could amount to $880 billion to meet deficit reduction goals, with an additional $230 billion in reductions to the Supplemental Nutrition Assistance Program (SNAP). The Commonwealth analysis concludes that the combined economic losses to states from cuts at these levels could reach over $1.1 trillion.
The report is the latest in an ongoing series of issue briefs from the nonprofit, which makes grants to support research on health-care issues and to improve practice and policy, "particularly for society’s most vulnerable, including people of color, people with low income, and those who are uninsured," according to the organization's website.
Medicaid dollars don’t go to people, says Leighton Ku, director of the Center for Health Policy Research at George Washington University and lead author of the report. They go to hospitals, doctors’ offices, pharmacies and nursing homes. SNAP funds go to grocery stores.
The cuts would have a ripple effect throughout the economy, says Ku. “If you’re a nurse who’s lost her job because your clinic closed down, you have a harder time paying your rent, paying for groceries, for transportation,” he says.
It remains to be seen how Congress might implement federal spending cuts, or whether politics might affect how individual states are treated. To get a general sense of the consequences, Commonwealth assumed they would be made in even amounts across the decade and proportionally among states.
Job losses from Medicaid cuts alone could reach nearly 900,000 in 2026, and more than a million if reductions in SNAP funding are taken into account.
Unsurprisingly, losses are greatest in states with the largest populations (see chart). If cuts are proportional, more red than blue states would be among those sustaining the largest economic losses, according to Commonwealth's analysis.
Following from job losses, revenue from state and local taxes would decrease. There has been more discussion about Medicaid cuts than SNAP, Ku says. The analysis includes a look at the combined tax impacts from both.
States with more taxpayers could suffer more but, again, there is a bipartisan mix among those that could lose the most tax revenue.
In the first year of a Medicaid cut, the federal government could save something on the order of $95 billion, says Ku. “But on the other hand, the hole that’s blown in state economies is more than $100 billion, so it harms states more than the federal government saves.”
The rationale for cuts is that fraud and waste is so prevalent that they won’t affect care. Ku notes that the economic reality is that there is no such thing as a “harmless” cut.
“If you reduce the federal funding, there will be negative economic repercussions for states,” he says. “That just has to happen.”
