ALBUQUERQUE, N.M. — Until the Great Recession changed everything, New Mexico’s economy was driven by federal contracts, construction and extraction of natural resources.
Federal spending is down and not likely to recover. Construction took a big hit, joined now by falling copper, oil and natural gas prices. New Mexico desperately needs a new engine to power its economy.
New Mexico Voices for Children, which advocates for government spending and programs intended to improve the well-being of children, says Medicaid spending is such an engine of economic growth. Calling Medicaid “the sole bright spot in the state’s current economy,” Voices argues that not spending more on Medicaid than levels proposed in the state budget for the 2017 fiscal year “will likely harm the state’s economy” and jeopardize our citizens’ health.
There are good reasons to fund Medicaid, a state-run, largely federally funded program that finances medical services for low-income citizens. There is evidence that Medicaid spending does help our economy.
But to call Medicaid spending an engine of economic growth is quite a stretch. Indeed, this is an argument that poverty is good for us: As long as we stay poor enough, the federal funds will keep flowing, propping up one sector of our economy – an economy that is in dire need of diversification, better wages and greater wealth, none of which Medicaid is in a position to provide.
The good Medicaid does is undeniable. A landmark study of Oregon’s system found that Medicaid “virtually eliminated out-of-pocket catastrophic medical expenditures and reduced the probability of having to borrow money or skip paying other bills because of medical expenses by more than 50 percent.” It is reasonable to believe that happens here.
The state of New Mexico decided to accept the federal government’s offer to pay most of the cost to expand Medicaid coverage to low-income, able-bodied, working-age adults in part because economic models forecast that increased employment and economic activity would result. Before the expansion in 2013, Medicaid benefited almost exclusively low-income children, disabled adults and Medicare-eligible adults. The feds pay about 70 percent of the traditional program. They pay 100 percent of the cost of expansion now, they’ll pay 95 percent in 2017, then 90 percent starting in 2020.
The University of New Mexico Bureau of Business and Economic Research estimated in 2012 that this expansion of Medicaid coverage would bring $4 billion in additional federal money into the state from 2014 to 2020, increase state economic activity by up to $8 billion in that period and add 8,600 jobs. BBER is revising its estimates because expansion enrollment has been much greater than first projected. Still, you don’t need a computer to tell you an infusion of that magnitude into a state with a 20 percent poverty rate is helpful.
This is all good stuff, but an economic engine should reduce poverty and increase wealth. Medicaid is not designed to do that.
The same Oregon study found that Medicaid did nothing to improve or worsen Medicaid recipients’ employment or earnings. Instead, Medicaid did what it was supposed to do: improve health and protect the household from financial ruin. The poor remained poor.
There are an estimated 425,000 New Mexicans living below the federal poverty line ($24,250 for a four-person household). If all 8,600 jobs created by Medicaid over a six-year period went to them and the wages were high enough, our population in poverty would decline all of 2 percent.
Like Social Security, unemployment insurance and any other transfer payment program, Medicaid operates at the whim of the government. As with the federal contracts that were once so abundant here, if Congress changes its mind, the economic benefit disappears.
Economies need to grow if they are to create jobs and wealth. Medicaid growth is limited by federal largess and by the ability of the state to come up with its matching dollars. Legislators are beginning to wonder if those matching dollars will be available over the long term.
The Legislative Finance Committee recommended that $78.8 million, or 34 percent, of the $232 million of the state’s anticipated increase in fiscal year 2017 revenue should go to the Medicaid program to address growth in enrollment and utilization and to replace federal funds. Voices says that’s not enough. In all 834,000 New Mexicans, 40 percent of our population, receive some form of Medicaid. Total state spending on Medicaid is almost $1 billion, about 15 percent of all state general fund expenditures.
Medicaid is an essential part of a social safety net. It helps keep people healthy, and healthy people are more likely to attend school and show up for work. We need Medicaid for what it does: improve health and protect households from financial ruin. Medicaid should not be confused with an economic development program.
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