The Congressional Budget Office (CBO) reported the AHCA would increase the number of uninsured Americans under age 65 by 14 million in fiscal year 2018, eventually reaching 23 million more by 2026.3 A RAND analysis of an earlier version of the bill was similar: 14 million more uninsured in 2020 and 20 million in 2026.4

This report examines the potential economic effects of the AHCA from calendar years 2018 to 2026, including:

employment levels, measured as changes in the number of jobs created or lost due to policy changes

measured as changes in the number of jobs created or lost due to policy changes state economic growth, as measured by changes in gross state products in current dollars, adjusted for inflation; an aggregate measure of state economies, analogous to the gross domestic product at the national level

as measured by changes in gross state products in current dollars, adjusted for inflation; an aggregate measure of state economies, analogous to the gross domestic product at the national level state business output, as measured by changes in business receipts in current dollars at production, wholesale, and retail levels, encompassing multiple levels of business activity.

Our estimates are based on changes in federal funding gained or lost to states, consumers, and businesses. The AHCA significantly reduces federal funding for Medicaid. It lowers federal match funding for the 31 states and District of Columbia that expanded Medicaid, encouraging them to discontinue their expansions. It gives states an option to either adopt per capita allotments for Medicaid or fixed block grants; either option lowers federal Medicaid expenditures. Eliminating the tax penalty for individuals without health insurance reduces incentives to purchase insurance, raising the number of uninsured people. Restructuring premium tax credits and widening age-related differences in premiums are expected to shrink nongroup insurance coverage and reduce federal spending for health insurance subsidies. The AHCA is designed so that tax cuts take effect sooner than reductions in health insurance subsidies. Thus, state employment and economies could grow at first but shrink in later years as the coverage reductions deepen.

How Federal Health Funding Stimulates Job Creation and State Economies

Federal health funds are used to purchase health care. Then, fiscal effects ripple out through the rest of the economy, creating employment and other economic growth. This phenomenon is called the multiplier effect. Health funds directly pay hospitals, doctors’ offices, and other providers; this is the direct effect of federal funding. These facilities use revenue to pay their employees and buy goods and services, such as rent or equipment; this is the indirect effect of the initial spending. In addition, there are induced effects that occur as health care employees or other businesses (and eventually their workers) use their income to purchase consumer goods like housing, transportation, or food, producing sales for a diverse range of businesses. Similarly, when federal taxes are reduced, consumers or businesses retain income and can purchase goods and services, invest, or save. Due to interstate commerce, each type of effect can flow across state lines.

Both government spending increases and tax reductions can stimulate job creation and economic growth. The relative effects depend on how the funds are used. Government spending or transfers, like health insurance subsidies, typically have stronger multiplier effects in stimulating consumption and economic growth than do tax cuts. Tax cuts usually aid people with high incomes who shift much of their gains into savings, stimulating less economic activity.5,6,7 A recent analysis found that 90 percent of the AHCA’s tax cuts go to the top one-fifth of the population by income.8

This report estimates how the AHCA will change federal funds gained or lost for all 50 states and the District of Columbia from 2018 to 2026. We allocate federal funding changes, based on CBO estimates, for each state. We then analyze how federal funding changes ripple through state economies, using the PI+ economic model, developed by Regional Economic Models, Inc. (REMI).9 (See Appendix B. Study Methods.)

Findings

Overall Effects

As illustrated in Exhibit 2, most of the AHCA’s tax repeals begin almost at once, while coverage-related spending reductions phase in. The net effect initially raises the federal deficit. In 2018, the number of jobs would rise by 864,000 and state economies would grow. Health sector employment begins to fall immediately in 2018, with a loss of 24,000 jobs, and continues dropping to 725,000 health jobs lost by 2026 (Exhibit 3). Most other employment sectors gain initially, but then drop off and experience losses.