The Economic Impact of the Senate Healthcare Reform Bill

One notable complaint about both the House and senate healthcare reform bills is the fact that there would be significant cuts in Medicaid offset by major tax cuts, primarily for the wealthy.  Focusing only on the senate version, only 5 or 6 of the 52 Republican senators oppose the senate bill.  Senators such as Susan Collins of Maine, Rob Portman of Ohio, and Shelley Moore Capito of West Virginia oppose the bill because the Medicaid cuts would severely hurt their states.  One question not being asked is “What states will benefit from this bill?”

The Medicaid cuts will affect primarily rural states and rural areas of major states such as New York and Pennsylvania.  These states and areas tend to be more conservative and represented by Republicans.  They have been the most vociferous supporters of the repeal and replace Obamacare movement.  For example, Kentucky, the state represented in the senate by Mitch McConnell, the majority leader, and Rand Paul, is an interesting example.  Senator McConnell is the primary driver of the senate bill, known as the Better Care Reconciliation Act (BRCA).  Senator Paul opposes it not because of the Medicaid cuts and tax cuts, but because it does not go far enough in repealing Obamacare.

However, the same can be said for New York.  Both New York and Kentucky accepted expanded Medicaid dollars, so both will lose from BCRA.  According to a Business Insider article, New York will lose 17% in Medicaid funding and Kentucky will lose 20%.  The two Democratic senators for New York, Charles Schumer, the minority leader, and Kirstin Gillibrand, oppose BCRA for the same reasons.  They don’t want Medicaid cuts so the wealth can receive tax cuts.

This does not answer the question I posed above.  What states will benefit from BCRA?  However, the answer is in where the wealthy live.  According to Fortune magazine, the number 1 metropolitan area where the wealthy live is New York City.  There is no area in Kentucky that falls within the top 10 areas where the wealthy live.  This means that even though both New York and Kentucky lose on the Medicaid side, New York gains from the redistribution of dollars from Kentucky (and other rural states) to New York (and other urban regions).  From an economics perspective, the economic stimulus from dollars in tax breaks for New York can offset the de-stimulus effect of the Medicaid losses.  Kentucky just loses, as does West Virginia, Ohio, and other primarily rural states.

Let’s do some rough calculations.  According to a Brookings Institution article, about 11.5% of households making $200k or more live in the New York Metropolitan area.  For Kentucky, it is less than 1%.  According to the Healthcare consulting firm, Avalere, New York loses $40.880 billion and Kentucky loses $7.894 billion.  The Congressional Budget Office (CBO) estimates the tax cuts at $772 billion.  If we apply our household percentages, it roughly means that New York will get about $62 billion of the tax cuts while Kentucky gets only about $5 billion.  That means New York nets a gain of about $21 billion while Kentucky loses a net $2 billion.  New York wins!  The table below gives the rough estimates.

	New York	Kentucky
Tax Cuts	$62.215	$5.410
Medicaid Cuts	$40.880	$7.894
Net Impact	$21.335	$(2.484)
In  billions of dollars

(Perhaps senators Schumer and Gillibrand should reconsider and support the bill.)

Seriously, if the senators from New York and Kentucky were only interested in the economic impact to their states, Senators McConnell and Paul would oppose the Medicaid cut/tax cut aspects of BCRA and senators Schumer and Gillibrand would support BCRA.  Why is the opposite true?  Senators Schumer and Gillibrand are adhering to the Democratic Party principle of supporting working families.  So even though on one hand there is an economic interest to support the provisions above for their state, Schumer and Gillibrand recognize that the loss to working families (both in and out of New York) outweigh the economic gains to New York.

For residents of red states, you have to ask yourself “Are my congressmen and senators working in my interest or in the interest of wealthy New Yorkers?”