A Project of State Budget Solutions

Introduction

Utah is known for its sound fiscal policies. Some of
Utah's policymakers, however, including Governor
Gary Herbert, have bought into the myth that
Medicaid expansion will improve health outcomes for
Utah residents and have no negative fiscal
repercussions for the state. These politicians claim
that they can expand Medicaid with free money for
the first three years because the federal government,
through the provisions of the Affordable Care Act
commonly known as Obamacarehas promised to
pick up the tab.

Nothing is free. If Utah expands its Medicaid
program, it will become increasingly dependent on
Uncle Sam, who is already straining under
unsustainable budget deficits for as far as the eye can
see. Utah will also pay a hefty economic price as
public sector spending via transfers and government
compensation crowds out the private sector. Utah
currently has a relatively large private sector, but
Medicaid expansion will change that.

This report, the second in a series, evaluates how
Medicaid expansion will undo the recent post-
recession growth in Utahs private sector, which will
directly impact the pocketbooks of Utahs families by
the reduction of personal income and the loss of jobs.

No. 3 September 10, 2014

Negative Impact of Medicaid Expansion on Utahs
Families and Private Sector
By J. Scott Moody, Chief Executive Officer and Chief Economist


66%
71%
76%
81%
86%
91%
1929 1938 1947 1956 1965 1974 1983 1992 2001 2010
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Calendar Years
Chart 1
Utah's Projected Private Sector Shrinks
under Obamacare's Medicaid Expansion
Calendar Years 1929 to 2013
Private Sector with Medicaid Expansion
Private Sector
Source: U.S. Department of Commerce: Bureau of Economic
Analysis and Federalism in Action

Page 2
No. 3 September 10, 2014

Impact of Obamacares Expansion of
Medicaid

Despite Utahs well-known reputation for sound fiscal
policies,
1
Utah will risk becoming overly dependent
on the federal government for financial support if
Utah expands its Medicaid program.

An increase in
public sector spending will cause economic instability.
Through transfers (Social Security, Medicare, and
Medicaid) and government compensation,
government spending crowds out the private sector
(see Appendix for details). Only the private sector is
able to generate new income and wealth in an
economy. If Obamacares Medicaid expansion blocks
the private sector from expanding, Utahs long-run
economic growth will suffer.

Chart 1 indicates this crowd-out over time and, in
particular, shows Utahs private sector already
reduced by 21.6 percentfrom 91.9 percent in 1929
to 72 percent in 2013. Utahs private sector currently
ranks as the 14
th
largest in the country (see Table 1).

Someone must pay for the high cost of Obamacares
Medicaid expansion on Utahs private sector. Most
likely, this will come in the form of either higher taxes
and/or borrowing at the federal level. This leaves less
money in the pockets of Utahns and businesses.
Ultimately, it will dramatically reduce the states
ability to invest and plan for the future.

This is even more concerning coupled with the
projected growth of the federal budget deficit over
the next ten years: an expected 34 percent increase
from $537 billion in 2014 to $722 billion in 2024.
This growing deficit is unsustainable given that in
2024 the interest payment on the national debt ($799
billion) is projected to exceed the budget deficit

1
Laffer, Arthur B., et. al., Rich States, Poor States: 2014 Edition,
American Legislative Exchange Council, April 15, 2014.
http://www.alec.org/publications/rich-states-poor-states/
($722 billion). Simply put, this means that the federal
government will be borrowing in order to pay only
the interest on the debt.
2


According to estimates from Governor Herbert,
Medicaid expansion will help to boost transfer
spending, mostly from the federal government, by
$258 million in its first full year.
3
If this occurred in
2013, that additional public spending would have
crowded out and decreased the private sector by up
to 0.25 percentage points. Even more troubling, as
Chart 1 displays, Medicaid expansion will reverse the
growth in the private sector following the Great
Recession and put the state on a downward
trajectory.

2
Congressional Budget Office, An Update to the Budget and
Economic Outlook: 2014 to 2024, August, 2014.
http://www.cbo.gov/sites/default/files/cbofiles/attachments/45
653-OutlookUpdate_2014_Aug.pdf

3
Roche, Lisa Riley, Gov. Gary Herbert Offers Utah Solution to
Medicaid Expansion, Deseret News, February 27, 2014.
http://www.deseretnews.com/article/865597533/Gov-Gary-
Herbert-offers-Utah-solution-to-Medicaid-expansion.html?pg=all

Only the private sector is able
to generate new income and
wealth in an economy. If
Obamacares Medicaid
expansion blocks the private
sector from expanding, Utahs
long-run economic growth will
suffer.

Page 3
No. 3 September 10, 2014


Table 1
Utah's Private Sector Ranking Falls 2 Spots Due to Obamacares
Medicaid Expansion
Private Sector Share of Personal Income by State and Rank
2013
State 2013 Rank State 2013 Rank
United States 70.5% -- Georgia 69.8% 25
Connecticut 76.7% 1 Virginia 69.6% 26
North Dakota 76.6% 2 Idaho 69.0% 27
New Hampshire 76.6% 3 Tennessee 68.6% 28
New Jersey 75.3% 4 Ohio 68.5% 29
Massachusetts 75.2% 5 Rhode Island 68.5% 30
Colorado 74.8% 6 Delaware 68.5% 31
Minnesota 74.7% 7 Louisiana 68.4% 32
Texas 74.5% 8 Missouri 68.2% 33
South Dakota 73.7% 9 Oregon 68.2% 34
Illinois 73.7% 10 Oklahoma 68.1% 35
Nebraska 73.2% 11 Montana 67.9% 36
Iowa 72.4% 12 Michigan 67.6% 37
Wisconsin 72.0% 13 Arizona 67.6% 38
Utah (Current) 72.0% 14 Vermont 67.1% 39
Nevada 71.8% 15 North Carolina 66.1% 40
Utah (with Expansion) 71.8% 16 Maine 65.9% 41
California 71.8% 16 Arkansas 64.7% 42
Wyoming 71.4% 17 Alabama 63.2% 43
Kansas 71.3% 18 South Carolina 62.6% 44
Pennsylvania 70.6% 19 Kentucky 62.3% 45
Indiana 70.6% 20 Hawaii 61.9% 46
Maryland 70.6% 21 Mississippi 61.2% 47
Washington 70.3% 22 Alaska 60.5% 48
Florida 70.2% 23 New Mexico 60.3% 49
New York 69.8% 24 West Virginia 59.4% 50
Source: U.S. Department of Commerce: Bureau of Economic Analysis and
Federalism in Action

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No. 3 September 10, 2014

Utahs policymakers
should not take these
numbers lightly and
should be concerned
about government
spending crowding out
the private sector. As
Chart 2 reveals, there
is a significant
correlation between
the size of the private
sector and household income. As a
negative result of Obamacares Medicaid expansion,
Utahs taxpayers will pay a steep economic price
resulting in significantly reduced personal incomes
and even fewer jobs.

Table 2 shows the negative economic impact of
Obamacares Medicaid expansion on the average
Utah household. Overall, Utahs long-run economic
growth will suffer; resulting in a downshifting of
personal income growth of $749 million. The
downshifting from expansion will impact the state in
two waysreduced household income for everyone
or fewer jobs. In reality, the solution will likely lie
somewhere in between. We can calculate this
economic cost in one of two ways:

$805 reduction in personal income for all
households with no private sector job loss

The loss of 14,125 private sector jobs but no
change in personal income.
In Table 1 and Chart 2,
we display how Utahs
private sector would
lose ground relative to
the other states. The
Beehive States ranking
would drop from having
the 14
th
largest private
sector in the country to
the 16
th
largestall else
being equal.

Conclusion

Remarkably, a Brigham Young University economist
recently stated that bringing Obamacares Medicaid
Expansion to Utah will have, . . . minimal risk to state
budgets and at considerable gain to the state
economy.
4
In essence, he is simply parroting the
free money mantra. Yet, as our research clearly
shows, there is nothing free at all; there will be
serious economic repercussions for the long-term
prosperity of Utahs economy. Medicaid expansion
will ensure that all Utah residents will be poorer as a
result.

Policymakers should ignore the siren call of free
money and carefully reconsider Governor Herberts
proposal to expand Medicaid. The answer to helping
more Utah families is not to accept more money from
the federal government, already hemorrhaging red
ink, through Obamacare. Instead, Utah must focus on
the same self-reliance that has made the state a
national leaderas witnessed by having the 14th
largest private sector in the country. Instead,
policymakers should work to further reduce
government programs, especially dependency on
federal funds. In fact, the future prosperity of Utahs
citizens and the health of its economy depends on it.

4
Wilson, Sven E., The Economics of the Healthy Utah Plan: A
Preliminary Analysis, Notalys, August, 2014.
http://le.utah.gov/interim/2014/pdf/00004061.pdf
Table 2
Estimated Economic Loss Due to Obamacare's
Medicaid Expansion
Area
Personal Income
Loss per Household
or
Job Loss
Equivalent
Utah -$805 or -14,125
Source: U.S. Department of Commerce: Bureau of Economic Analysis,
Census Bureau and Federalism in Action
Overall, Utahs long-run
economic growth will suffer;
resulting in a downshifting of
personal income growth of
$749 million.

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No. 3 September 10, 2014

Appendix

Personal income comes from two sources: the private
sector and the public sector. The distinction between
the two sectors is important because only the private
sector creates new income. The public sector, in
contrast, can only redistribute income through taxes
and spending. More specifically, public sector
spending consists of personal current transfer
receipts (Medicare, Medicaid, Social Security, etc.)
and government employee compensation (federal,
state, and local).

The economic loss estimates in this study are derived
from the significant positive correlation between per
household personal income with the private sector
share of personal income for 2013 as shown in Chart
2. Put simply, the bigger the private sector, the
greater per household personal income. When
examining the lower 48 states, the analysis finds that,
on average, a 1 percentage point decrease in the size
of the private sector yields a decrease in per
household income of approximately $3,273.
5


Expanding Medicaid in Utah by $258 million will shift
the composition of Utahs personal income toward
public sector spending and shrink the private sector
by up to 0.25 percentage points. That means in the
next few years, the average household in Utah would
see its income drop by up to $805, or the number of
jobs in the state will be reduced by 14,125. The
overall loss in personal income will be up to $749
billion ($805 multiplied by 930,700 households).


5
Alaska and Hawaii are excluded, as is common practice in state
analysis, due to their unique economic characteristics.

y = 327272x - 115737
R = 0.5699
$70,000
$80,000
$90,000
$100,000
$110,000
$120,000
$130,000
$140,000
$150,000
60% 62% 64% 66% 68% 70% 72% 74% 76% 78%
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Private Sector Share of Personal Income
Chart 2
Larger Private Sector Leads to Higher Income
Relationship Between Private Sector Share
and Per Household Personal Income
Calendar Year 2013
Source: U.S. Department of Commerce: Bureau of Economic Analysis, Census
Bureau and Federalism in Action. Excludes AK and HI.
Utah

Page 6
No. 3 September 10, 2014

This analysis estimates a reduction in the long-term
growth in the economy and does not necessarily
mean the elimination of existing household income
or jobs. It does mean that future income increases
and job creation will be lower than they would be in
the absence of higher taxes and spending. Also, the
analysis underestimates the long-term decline in the
private sector that will occur because of a slower
private sector growth rate.

Of course, correlation does not equal causation.
Fortunately, there are two states that allow for a very
strong natural experiment to better show
causationNew Hampshire versus Maine. These two
states are alike in many waysgeography, climate,
demographics, and culture. Yet, there is one area
where the two states diverge greatlypublic policy.

As shown in Chart 3, between 1929 and 1950, Maine
and New Hampshire had similar per household
incomes (adjusted for inflation) and private sectors
(as a percent of personal income). In 1951 Maine
enacted the sales tax, which led to increased public
sector spending and crowded-out the private sector.
Consequently, New Hampshires per household
income began to steadily pull away from Maine.
This trend accelerated in 1969 when Maine enacted
their income taxa few years after the federal
government enacted Medicaid. With this new source
of revenue, Maine was able to dramatically expand
its welfare system, especially Medicaid. In fact, as of
FY 2010, Maine had the third highest percentage of
population on Medicaid at 31 percent.
6


This difference in public policy has resulted in
dramatic differences in the size of each states private

6
The Henry J Kaiser Family Foundation, State Health Facts,
Medicaid Enrollment as a Percent of Total Population.
http://kff.org/medicaid/state-indicator/medicaid-enrollment-as-
a-of-pop/

$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
60%
65%
70%
75%
80%
85%
90%
95%
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Calendar Years
Chart 3
New Hampshire's Larger
Private Sector Leads to
Higher Income vs. Maine
Calendar Years
1929 to 2013
ME (Private Sector Share) NH (Private Sector Share) ME (Personal Income) NH (Personal Income)
Source: U.S. Department of Commerce: Bureau of Economic Analysis and Federalism in Action
Maine
Sales Tax
Enacted,
1951
Maine
Income Tax
Enacted,
1969

Page 7
No. 3 September 10, 2014

sector. Between 1929 and 2013, Maines private
sector shrank by 21.8 percent to 65.9 percent from
92.4 percent and is now the 41
st
ranked private
sector in the country. New Hampshire, on the other
hand, has seen its private sector
shrink by a much smaller 15.7
percent to 76.6 percent from
90.8 percent and is now the third
largest private sector in the
country.

Overall, New Hampshires
private sector in 2013 is 16.2
percent larger than Maines
76.6 percent and 65.9 percent
respectively. Consequently, New
Hampshires per household
income is now 30 percent higher
than Maines$124,734 and
$95,747, respectively. By taking
the bait in Obamacares Medicaid expansion scheme,
Utah will be following Maines downshifted economic
path rather than New Hampshiresand all Utahns
will be poorer as a result.

This negative economic impact due to Obamacares
Medicaid expansion is not unique to Utah. This
analysis has also examined expansion in Indiana
(proposed), New Hampshire (enacted) and in Maine
(defeated).

Indianas long-run economic growth will suffer a drop
in personal income of $9.5 billion.
7
The economic
costs range from:
$3,721 less personal income for all
households with no private sector job loss;
or,

7
Moody, J. Scott, Expanding Medicaid Will Hurt Indianas
Families, Lower Income and Reduce Jobs, Federalism In Action,
August 5, 2012.
http://www.federalisminaction.com/resources/studies/study-2


No change in personal income but the loss of
176,928 private sector jobs.

New Hampshires long-run
economic growth will suffer a
drop in personal income of $593
million under Medicaid
expansion.
8
The economic cost
ranges from:
$1,123 less personal
income for all households with
no private sector job loss; or,

No change in personal
income but the loss of 10,180
private sector jobs.

Maines long-run economic
growth will suffer a drop in personal income of $1.5
billion.
9
The economic costs range from:

$2,638 less personal income for all
households with no private sector job loss;
or,

No change in personal income but the loss of
30,988 private sector jobs.

8
Warcholik, Wendy, Expanding Medicaid Will Hurt New
Hampshires Families with Lower Income and Fewer Jobs, New
Hampshire Center for Economic Policy, February 17, 2014.
http://nheconomics.org/publications/volume-2-issue-1/

9
Moody, J. Scott, Expanding Medicaid Will Hurt Maines Families
with Lower Income and Fewer Jobs, The Maine Heritage Policy
Center, February 20, 2014.
http://www.mainepolicy.org/2014/02/expanding-medicaid-will-
hurt-maines-families-with-lower-incomes-and-fewer-jobs/
By taking the bait in
Obamacares Medicaid
expansion scheme, Utah will
be following Maines
downshifted economic path
rather than New
Hampshiresand all Utahns
will be poorer as a result.


Page 8
No. 3 September 10, 2014


State Budget Solutions

J. Scott Moody is the Chief Executive Officer and Chief Economist at State Budget Solutions. He may be reached at
jsmoody@statebudgetsolutions.org

Scott has over 17 years as a public policy economist. He is the author, co-author and editor of over 170 studies and books.
He has testified twice before the House Ways and Means Committee of the U.S. Congress as well as various state
legislatures. His work has appeared in Bloomberg, Forbes, CNN Money, State Tax Notes, The New York Post, Portland Press
Herald, Bangor Daily News and others.

His professional experience includes positions as CEO of The Maine Heritage Policy Center, Senior Economist at The Tax
Foundation and Senior Economist at The Heritage Foundation. Scott received his Bachelor of Arts in Economics from
Wingate University (Wingate, N.C.). He received his Master of Arts in Economics from George Mason University (Fairfax,
VA).

State Budget Solutions (SBS) is a non-partisan, non-profit, national public policy organization with the mission to change
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