Leung, PingSun

Nakamoto, Stuart Tadashi

English

ScholarSpace at University of Hawai'i at Manoa

Impact on Hawaii's Economy of Proposed Federal Cuts in Medicaid and Medicare Economic Fact Sheet #22 February 1996 Department of Agricultural and Resource Economics College of Tropical Agriculture and Human Resources University of Hawaii by PingSun Leung and Stuart T. Nakamoto· ~xecutive Summary. This fact sheet outlines the estimated impact of Federal cuts in Medicaid and Medicare on the State of Hawaii's economy. The response to the cuts will be some combination of the following: (1) General public absorbs reduction, (2) State and county governments absorb reduction, (3) Public cuts medical expenses. We estimate the impacts on the state economy in terms of sales, jobs, household income, and general excise tax collections. Over a seven year period and for the extreme cases, a $1.825 billion reduction in Federal Medicaid and Medicare will reduce business sales by up to $4.1 billion, cut up to 48,000 jobs, reduce household income by up to $2.8 billion, and decrease general excise tax collections by up to $71 million . Indices are provided to estimate the impact of Federal reduc-tions of any forseeable magnitude, and for any combination of the extreme cases. A proposal before the US Congress is to cut Federal aid to the states for Medicaid and Medicare. This fact sheet does not provide a benefit-cost analysis of the proposed cut. Its general objective is to measure the potential economic impacts on the overall State econ-omy. OBJECTIVES 1. Quantitative estimation of the aggregate impacts of Federal cuts on Hawaii 's econ-omy. 2. Some observations regarding impacts on different groups (distributional or equity aspects) BASIC PREMISE Either the Hawaii State and Local Govern-ments (HS&LG) or the general public will absorb the cuts in Federal funding. 1. If HS&LG, cost will be passed on to the general public in the form of a reduction in other services provided by HS&LG, or via increased taxes ( out-of-pocket pay-ment by general public). * Senior authorship is not assigned. PingSun Leung is a Professor, and Stuart Nakamoto a Professor and Extension Economist. The views expressed in this article are those of the authors and do not necessarily reflect the position of AREC, CT AHR, or the University of Hawaii. This analysis.was conducted in September 1995. Correspondence can be addressed to the authors at CTAHR-AREC; 3050 Maile Way, Gil 115; Honolulu , Hawaii 96822. Fax: 956-2811 , Tel: 956-7039 2. The general public will either pay the provider out-of-pocket, or will reduce the amount of medical goods and services that are consumed. METHODOLOGY The 1987 State of Hawaii input-output (I-0) model developed by the Department of Busi-ness, Economic Development, and Tourism (DBED&T) was used to measure the total economic impacts. The input-output model is a mathematical representation of the local economy. Like any other technique, input-output analysis has several weaknesses which are well documented elsewhere. However, input-output analysis has heen well accepted for the purpose of measuring economic im-pacts as attested by the numerous studies in which this technique has been used in the US and Hawaii. Among others, input-output analysis has recently been utilized to measure the economic impacts of the proposed Hono-lulu Rapid Transit System and the proposed long-term care program for Hawaii. SCENARIO DEVELOPMENT The possible impacts can be encompassed in three extreme case scenarios, and various combinations of the extreme cases. While the exact form of action is not known, some combination of the three extremes is the most likely outlook. Four combinations are pro-vided as examples. Extreme cases: Scenario 1. All public. General public ab-sorbs entire reduction, either via increased taxes or direct pay-ments to the provider. These translate to a reduction in per-sonal income and hence a reduc-tion in personal consumption expenditures (PCE). Scenario 2. All government. HS&LG ab-sorbs entire reduction via reduc-tion in other HS&LG expendi-tures. The cuts are assumed to be evenly distributed across gov-ernment. Scenario 3. Cut med. General public cuts medical expenses by the entire amount of federal reduction. Revenues of medical service providers are correspondingly reduced. Combinations Scenario 4. 1 &2. General public and HS&LG each absorbs half the reduction. Scenario 5. 1&3. General public absorbs half the reduction via a reduction in other PCE, and cuts their medical expenses by half. Scenario 6. 2&3. HS&LG absorbs half and general public cuts medical ex-penses by half. Scenario 7. 1,2,&3. General public absorbs 1/3, HS&LG absorbs I /3, and medical expenses are cut by 1/3 . RESULTS The tables summarize the aggregate impacts on the State economy based on a total reduc-tion of $1.825 billion ($572 million for Medi-caid and $1.253 billion for Medicare) over 1996 to 2002. Figures are not discounted. Table 1 presents total impacts over the seven-year period 1996 to 2002. These figures are converted to an average annual basis in Table 2 and in per capita and relative to totals in Table 3. Finally, results are standardized into terms of impact per million dollars in reduc-. tion, in Table 4. These figures can be used to estimate the impact of different levels of funding cuts, as well as different scenarios (ratios among the three extreme cases). DISCUSSION While the public in general absorbs the costs, the impact on various groups will depend on the actual action used. Specific details are not known, but the following are some general observations of such impacts associated with the extreme cases. Qualifiers such as "least" or "largest" are in reference to the scenarios considered. Impacts of other scenarios are linear relationships of the extreme cases. Scenario 1. Public pays all. • An increase in income taxes will tend to distribute the impact over the entire public in comparison to decreasing direct pay-ments to medical providers, which will mostly impact recipients of Medicaid and Medicare. Figures in Table 3 are the av-erage in both cases, but more accurately reflect the former case--i.e., all persons will pay. In the latter case, the impact on those affected will be larger to account for lower/no impact on non-recipients. • Medical providers will not be directly im-pacted. • • • • Impact on economy is from reduction in personal consumption expenditures. Business sales at lower end of scenarios ' but general excise taxes at higher end. Least impact on jobs lost, since consump-tion is spread throughout economy. Largest reduction in household income ( entire reduction assumed to be passed through as income reduction). Scenario 2. Government pays all. • Shortfall is made up from reduction in other government activities, so relative impact depends on current recipients of those other activities, e.g., agencies with a larger share of HS&LG budgets will have • • • • • • a larger dollar (but same percentage) re-duction compared to others. Selective cuts will have different impacts on differ-ent groups. Medical providers will not be directly im-pacted. Impact on economy is from reduction in HS&LG expenditures. Least impact among scenarios on business sales Largest impact on jobs lost, especially in government sectors. Least impact on household income . Least impact on general excise taxes . Scenario 3. Cut medical goods and services. • Recipients reduce their consumption of medical goods and services by the amount of the shortfall. Their personal consump-tion expenditures are otherwise not af-fected, i.e., there is no change in con-sumption patterns of other goods and services. • • • • • • Medical providers are severely impacted. Impact on economy is from large reduc-tion in medical services and related sec-tors. Largest impact on business sales. Jobs lost at higher end of scenarios. Loss of household income at lower end. Largest impact on general excise taxes lost. This publication is issued in furtherance of Cooperative Extension Work, Acts of May 8 & June 30, 1914, in coopera-tion with the US Department of Agriculture. Sylvia Yuen, In-terim Director and Dean, Cooperative Extension Service, Col-lege of Tropical Agriculture and Human Resources, University of Hawaii at Manoa, Honolulu, Hawaii 96822. The University of Hawaii is an Equal Opportunity/Affirmative Action Institution providing programs and services to the people of Hawaii with-out regard to race, sex, age, religion, color, national origin, ancestry, disability, marital status , arrest and court record, sexual orientation, or veteran status. Table 1.--Reduction in Key Economic Indicators (1996-2002) (in millions of dollars and number of jobs) 2 3 1&2 1&3 2&3 1,2&3 Al/Public All Govt. Cut Med. Scenario 4 Scenario 5 Scenario 6 Scenario 7 Business Sales 2,512 2,473 4,140 2,493 3,326 3,307 3,042 Jobs 25,239 47,810 44,108 36,524 34,673 45,959 39,051 Household Income 2,684 1,922 1,959 2,303 2,321 1,941 2,188 General Excise Tax Collection 59 29 71 33 65 49 52 Table 2.--Total Reduction in Key Economic Indicators, Average Year (in millions of dollars and number of jobs} 2 3 1&2 1&3 2&3 1,2&3 Al/Public All Govt. Cut Med. Scenario 4 Scenario 5 Scenario 6 Scenario 7 Business Sales 359 353 591 356 475 472 435 Jobs 3,606 6,830 6,301 5,218 4,953 6,566 5,579 Household Income 383 275 280 329 332 277 313 General Excise Tax Collection 8 4 10 5 9 7 7 Table 3.--Reduction in Key Economic Indicators in Relative Terms, Average Year {base year = 1994) 2 3 1&2 1&3 2&3 1,2&3 Al/Public All Govt. Cut Med. Scenario 4 Scenario 5 Scenario 6 Scenario 7 (in dollars per capita) Business Sales 304 300 502 302 403 401 369 Household Income 325 233 237 279 281 235 265 General Excise Tax Collection 7 4 9 4 8 6 6 (as a% of total personal income) Household Income 1.4% 1.0% 1.0% 1.2% 1.2% 1.0% 1.1% (as a % of total GET collections) General Excise Tax Collection 0.6% 0.3% 0.8% 0.3% 0.7% 0.5% 0.6% (as a% of total jobs) Jobs 0.6% 1.1% 1.0% 0.8% 0.8% 1.0% 0.9% Table 4.--Reduction in Key Economic Indicators, per million dollars of reduction (in millions of dollars and number of jobs) 2 3 1&2 1&3 2&3 1,2&3 All Public Al/Govt. Cut Med. Scenario 4 Scenario 5 Scenario 6 Scenario 7 Business Sales 1.376 1.355 2.268 1.366 1.822 1.812 1.667 Jobs 14 26 24 20 19 25 21 Household Income 1.471 1.053 1.073 1.262 1.272 1.064 1.199 General Excise Tax Collection 0.032 0.016 0.039 0.018 0.036 0.027 0.028 

Impact on Hawaiʻi's economy of proposed federal cuts in Medicaid and Medicare

http://scholarspace.manoa.hawaii.edu/bitstream/10125/54688/1/CtahrpsEconFact22Med.pdf

Impact on Hawaiʻi's economy of proposed federal cuts in Medicaid and Medicare

Abstract

Similar works

Full text

Available Versions

ScholarSpace at University of Hawai'i at Manoa