by Dr. Roy Cordato
Senior Economist, Emeritas
In December 2018, I wrote the following: “As a general rule, the public and politicians should never view economic impact studies as anything more than an attempt by special interests to manipulate public opinion for their own benefit.” There is no better example of this than the frequently cited 2014 study underwritten by the Cone Health Foundation and the Kate B. Reynolds Charitable Trust that contends that Medicaid expansion in North Carolina would “create” over 40,000 jobs in the state by 2020.
Because I have written extensively about the fundamental flaws in similar economic impact studies, I will not review those arguments here. But there is one conclusion of those analyses that I would like to emphasize here. It is what I have referred to as “the dirty little secret” of economic impact studies: they are designed so they can only give one kind of result – positive. As I have observed previously, the “possibility that a subsidy or government spending project can generate negative results for the economy, i.e., lose jobs, reduce incomes, or shrink GDP, is ruled out…”
In an email to the John Locke Foundation, a representative from Regional Economic Modeling Inc. (REMI), the impact model used in the Cone/Reynolds study, recently acknowledged, “increasing government spending (as if it were mana from heaven) will not have a negative impact.” This is precisely the case with the Cone/Reynolds study. Federal money funding 90 percent of the expansion is viewed as “manna from heaven” and so is all the labor and other resources that will be used when spending it. All resources that are absorbed by this spending, including labor, are treated as if they would have no other uses and would, therefore, be costless in terms of lost jobs or GDP. This is a ridiculous assumption, particularly in a state where the unemployment rate is below 4 percent. From the very beginning, this study was never going to show job losses from Medicaid expansion. Given its methodology, that result is ruled out. From the very beginning, the question never was whether or not expansion would create jobs, but simply how many would it create.
The problems with the study are compounded though, well beyond the errors in economic thinking that plague economic impact studies generally. Both the Cone Foundation and the Kate B. Reynolds Charitable Trust are strong advocates for Medicaid expansion. The Cone Foundation describes itself as the supporting organization of Cone Health, which is a network of hospitals and other health care providers in the Piedmont Triad region of North Carolina. According to Governor Cooper, state Medicaid expansion would require a combination of federal and state taxpayers to foot the bill to cover an additional 500,000 North Carolinians. It also could significantly expand Cone’s customer base and would certainly increase its revenues. Medicaid expansion would, indeed, mean a wealth transfer from state and federal taxpayers to health care providers like Cone Health. Since the Cone Foundation receives its funding from Cone Health (and most of its board is appointed by Cone Health) the Cone Foundation benefits when Cone Health does. As the Foundation states on its website “Cone Health Foundation’s…advocacy strategy is closely aligned with that of Cone Health.”
The Reynolds Charitable Trust appears to be more ideologically motivated. On the philanthropy’s web site, they note that their “strategy is to achieve strategic goals that support equitable access to opportunity and effect systems change.” If nothing else, Medicaid expansion is meant to bring about “systems change.” The president of the trust is a member of Governor Roy Cooper’s Early Childhood Advisory Council, which recently sent a letter to the General Assembly “calling on them to support Medicaid Expansion.”
The fact is that neither of the funders of this study can be seen as “truth seekers” that are simply trying to provide objective analysis to the public. Both are pursuing a pro-Medicaid expansion agenda.
Furthermore, the Cone/Reynolds study is not only funded by special interests, but it’s lead author, a professor from George Washington University’s Center for Health Policy Research, describes himself as a researcher, a public policy analyst, and an “advocate” whose “career has been built around the effort to…improve access to affordable health care for vulnerable populations.” And despite the fact that the title of the study is “The Economic and Employment Costs of not Expanding Medicaid in North Carolina: A County-Level Analysis,” neither the lead author nor his three co-authors from George Washington University list degrees or any other credentials in economics. This speaks volumes given that the funders could have gone to any of the major research institutions in North Carolina, all of which have world-class economics departments, to find truly qualified economists to perform this analysis. This would be the equivalent of a study of the health effects of smoking that was paid for by the tobacco companies and authored by “researchers” who do not have degrees or expertise in medicine or biology.
In assessing the economic effects of Medicaid expansion, the people of North Carolina are presented with a study funded by two special interest advocacy groups, written by four authors with no credentials in economics, and a lead author describing himself as an “advocate.” Furthermore, the study is using an economic model designed to never show job or GDP losses. Those who use this as a basis for claiming that Medicaid expansion will create 40,000 jobs in the state may also be interested in the bridge I have for sale.