The Dose

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Health Care & Life Sciences / Life Science & Biotech

Indiana's tax breaks for jobs cost at least three times more than Medicaid expansion

August 20, 2014

I thought I had heard all the arguments for Indiana to expand its Medicaid program as called for under Obamacare. But this month I stumbled upon a new one: It would cost a WHOLE lot less than all the tax breaks for company job expansions.

That’s the suggestion made in a new report from the Robert Wood Johnson Foundation and the Urban Institute. It first calculates the average annual amount the state of Indiana would be required to spend over the next decade to draw down the federal funding earmarked to pay for more than 300,000 Hoosiers to join the Medicaid program.

Then it compares that number—$110 million per year—to the amount Indiana’s city, county and state governments hand out in tax incentives to encourage private business expansion. The New York Times calculated those incentives in 2012 at $921 million per year.

That’s 837 percent more incurred on corporate tax breaks in exchange for jobs than the state government would spend on the Medicaid expansion.

Those figures may not be quite right. First, it's important to remember that not all companies that win tax breaks actually receive them, because some companies fail to create the jobs promised.

Also, the Medicaid expansion costs start out at basically nothing but then get larger over time. The Commonwealth Fund, in a report issued last year, made a similar comparison. It noted that even in as far out as 2022, Indiana is projected to spend no more than $279 million on a Medicaid expansion.

But that’s still less than one-third what Indiana’s state and local governments commit each year toward corporate jobs incentives.

Indiana is considering an expansion of health coverage using the money marked for a Medicaid expansion to instead bring more people into its Healthy Indiana Plan, which gives participants health savings accounts to pay for some of their care.

The state government has minimized its costs by expanding a tax on hospitals, the main entities that would benefit from an expansion of health insurance coverage.

Of course, the math looks different to state leaders than the way these reports present the situation. The state foots only a minority of the tab for tax incentives for corporate expansions, with most of the breaks coming from local governments.

On top of that, recent research by Ball State University has found that the state’s tax breaks for job expansions actually pay off by bringing in at least six new jobs—and the annual income tax revenue that goes with them—for every $1,000 in tax incentives.

Among local governments, however, they had to offer $1 million in tax incentives for every eight new jobs. It takes a long time for eight new jobs to produce $1 million in additional tax revenue, if they ever will.

Expanding Medicaid would certainly help health care businesses and create jobs in that sector. But a 2004 Mathematica Policy Research report commissioned by the state of Indiana concluded that every job created in the health care sector by additional spending on private health insurance coverage would be offset by more than three jobs not being created among other employers.

The Medicaid expansion does not rely completely on spending by other employers. But if the economic impact of the expansions comes anywhere close to the Mathematica analysis, it would not be a net job creator for the state.

The thing about Obamacare is that state taxpayers won’t save money—at least not in the short-term—by not expanding Medicaid.

That’s because Hoosiers are required to pay the various Obamacare taxes that will fund the Medicaid expansion, whether or not the state accepts the money for that expansion. If Indiana were not to expand its Medicaid program while every other state did, Hoosiers would pay $2 billion per year in taxes that would fund health care coverage in other states, according to the Commonwealth Fund report.

Many conservatives in Indiana would prefer to see both the Obamacare taxes and the business tax breaks go away—or at least be reduced substantially. But political dynamics make changing either one difficult if not impossible.

In that scenario, then, the cost-benefit analysis might prevail. A Medicaid expansion would bring Indiana $15.74 in federal money for every dollar the state spends itself. That math will continue to be hard to argue with.

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