The Iowa Legislature is currently working on a bill (SF 615) to impose work requirements on able bodied adult recipients of Medicaid. The bill passed the senate on Tuesday, March 27. It was passed with amendments by the house on Wednesday, March 28, and sent back to the senate. It will likely be passed and signed into law during the week of March 31, 2025.

On the face of it, it is kind of hard to figure out what this means. The governor apparently put forth the bill, but neither the governor’s office nor the departments of health & human services, public health, revenue, or management & budget provided any information to the Legislative Service Bureau on costs, savings, or fiscal implications of the bill.

Either they don’t know, don’t care to know, or don’t want anyone else to know the implications of SF 615. One can easily find estimates on the internet that 75 percent of Iowa adults on Medicaid already work, but it is hard to determine the potential exemption status of the other 25 percent.

To its credit, the Legislative Service Bureau did provide some important estimates to underpin the analysis presented here:

• The bill will generate Medicaid savings of $3.1 million to the State of Iowa in the first year
• The bill will generate savings of $17.5 million in the second and subsequent years
• The funding percentage split between federal and state is 88.4 percent federal and 11.6 percent state

This means that when the state saves $3.1 million in the first year, the federal government will save $23.6 million, and when Iowa saves $17.5 million the second year, the federal government will save $133.4 million. Summing these up, during the first year while the State of Iowa is saving $3.1 million it will be cutting health care expenditures in the state by $26.7 million. During the second year the state will save $17.5 million by cutting statewide health care expenditures by $150.9 million.

So far, this has all been derived directly from the estimates made by the Legislative Service Bureau.

The United States Bureau of Economic Analysis (BEA) generates estimates of expenditures for each state. Assuming the healthcare expenditures eliminated by SF 615 are spread through the system on an equivalent basis to Iowa’s overall health expenditures, they can be run through an input-output model to see how they will affect the entire Iowa economy. The model was set up using coefficients available from the BEA.

Four scenarios were set up – two each for first year and for second year reductions in health care expenditures. In the first scenario for each year, health care expenditures were cut, and no other changes were made. In the second scenario for each year, it was assumed that the State of Iowa’s estimated savings were concurrently returned to taxpayers as household income (equivalent tax cut scenarios spread proportionately to income distributions).

Scenario One: First year health care expenditure cuts without equivalent tax reductions

• State of Iowa savings – $3.1 million
• Health care expenditure cuts – $26.7 million
• Statewide payroll reductions – $17.3 million
• Statewide jobs reduction – 307 jobs
• Reduction in statewide returns to capital (profits, interest, rents, etc.) – $10.9 million

Job losses will fall predominantly in these sectors:

• Health care – 189
• Finance & real estate – 28
• Professional, management, & administrative – 23
• Wholesale & retail trade – 21

Additionally, a very rough estimate of state general revenue fund tax loss can be made by dividing state net tax deposits (Iowa Department of Revenue) by earnings by place of work (BEA) for Iowa. That calculation results in 8.75 cents in general fund tax deposits per dollar of payroll in the state.

This estimated tax loss would be $1.5 million. It would not include losses in non-general state income, such as the lottery or liquor, and it does not include local government receipts, but it would still amount to approximately half of the state’s anticipated savings from restricting access to Medicaid.

Scenario Two: First year health expenditure cuts with equivalent general tax reductions

• State of Iowa savings – $0 (all savings are distributed in an equivalent tax cut)
• Health care expenditure cuts – $26.7 million
• Statewide payroll reductions – $16.4 million
• Statewide jobs reduction – 287 jobs
• Reduction in statewide returns to capital (profits, interest, rents, etc.) – $10.0 million
• Estimated general revenue tax losses – $1.4 million

Job losses will fall predominantly in these sectors:

• Health care – 185
• Finance & real estate – 24
• Professional, management, & administrative – 21
• Wholesale & retail trade – 17

Scenario Three: Second year health expenditure cuts without equivalent tax reductions

• State of Iowa savings – $17.5 million
• Health care expenditure cuts – $150.9 million
• Statewide payroll reductions – $97.7 million
• Statewide jobs reduction – 1735 jobs
• Reduction in statewide returns to capital (profits, interest, rents, etc.) – $61.5 million
• Estimated general revenue tax losses – $8.5 million

Job losses will fall predominantly in these sectors:

• Health care – 1068
• Finance & real estate – 155
• Professional, management, & administrative – 128
• Wholesale & retail trade – 119
• Manufacturing – 38

Scenario Four: Second year health expenditure cuts with equivalent general tax reductions

• State of Iowa savings – $0 (all savings are distributed in an equivalent tax cut)
• Health care expenditure cuts – $150.9 million
• Statewide payroll reductions – $92.9 million
• Statewide jobs reduction – 1620 jobs
• Reduction in statewide returns to capital (profits, interest, rents, etc.) – $56.7 million
• Estimated general revenue tax losses – $8.1 million

Job losses will fall predominantly in these sectors:

• Health care – 1047
• Finance & real estate – 134
• Professional, management, & administrative – 121
• Wholesale & retail trade – 95
• Manufacturing – 33

Some thoughts

Regardless of the merits of imposing work requirements where the great majority are already working (recall that the governor and affected state departments declined to provide details regarding those merits), this is not simply a state budget reduction effort. It will significantly affect payrolls, employment, profits, and tax receipts across the state.

These effects are magnified by the fact that the federal government multiplies Iowa’s investment. For every dollar the state puts into these benefits the federal government contributes $7.62. That means that for every dollar the state saves with SF 615, the state forgoes $8.62 in economic activity that generates payrolls, employment, profits, and tax revenue. The state savings of $17.5 million per year will cost the state’s economy almost $151 million in expenditures (economic activity) per year.

The magnitude of these losses, particularly in the health care industry, will force providers to abandon billions of dollars worth of investments in facilities and infrastructure. These abandonments will not magically reappear if SF 615 is subsequently modified or repealed.

It should also be noted that, as expenditures fall, payrolls are cut, profits disappear, and jobs are axed it will be harder for Medicaid recipients to find the required jobs. This will remove more of them from Medicaid. This will save the state more money. For every dollar saved in this manner, another $8.62 in health care expenditures will be removed from the economy and the cycle of disruption to the state’s economy will continue to expand.

These are a costs that deserve more analysis than the governor or the statehouse has given.