The congressional proposal to increase federal funding for Medicaid’s home and community-based (HCBS) long-term care program likely would benefit the US economy, although it could increase costs for those not receiving Medicaid.

The HCBS expansion is included in the current House version of  President Biden’s Build Back Better (BBB) social spending, climate, and tax plan. Sen Joe Manchin (D-WV) and nearly all Hill Republicans claim the roughly $2 trillion proposal would damage the US economy. But independent research suggests the home care provisions would produce an overall benefit.

Several elements of BBB—including paid family leave, the Medicaid HCBS expansion, and related provisions—are aimed at helping those receiving long-term services and supports and their families.

Short and long run benefits

In September, the economic research firm Moody’s Analytics projected the Medicaid home care provision alone would benefit the economy in the short run by increasing pay for direct care workers. In the longer term, it would make it possible for more women who now stay home to care for family members to re-enter the paid workforce.

It concluded, “The elderly and disabled population will receive higher-quality care from better trained and more highly paid direct care workers. Meanwhile, more of those people who now informally care for the elderly and disabled will be able to take other jobs. The economy will receive an immediate boost from this increased government spending along with a lift in long-term growth from higher labor force participation, particularly by lower-income females who are currently most likely to provide home care.”

Other studies have found that a substantial number of working age women either quit jobs or scale back hours to care for parents, spouses, or other family members with care needs.

Moody’s analyzed a $250 billion boost in federal HCBS spending, lower than Biden’s proposed $400 billion increase but higher than the $150 billion hike currently included in the House’s Build Back Better bill.

300,000 new jobs

It estimated a $250 billion expansion of Medicaid home care would create up to 300,000 new jobs by 2031 and increase real (inflation-adjusted) Gross Domestic Product (GDP) by about 0.2 percent. Moody’s has not updated its estimate to reflect the $150 billion increase.

When economists look at federal programs—either spending or tax cuts, they think in terms of multipliers. In other words, how much would a dollar of new spending or tax cuts boost GDP. Moody’s concluded that every additional dollar of  federal spending on Medicaid HCBS would boost the economy by $1.17.

That return would be comparable to programs such as universal pre-K education and child care. It would be only slightly less beneficial than an expansion of the Child Tax Credit and more beneficial than the multiple rounds of the economic impact checks the government distributed as pandemic relief in 2020 and early 2021. It would be far better for the economy corporate or individual income tax rate cuts.

One downside

While the Moody’s study looked at the overall inflationary effects of more HCBS spending, it did not address one complicating issue: If Medicaid increases pay for home care workers, their wages are also likely to rise for families that are not eligible for Medicaid and must pay out of their own pockets.

Because Medicaid is the primary payer of long-term care, it effectively sets the wage rate in many communities. In other words, private pay home care agencies would have to raise their wages to compete with Medicaid agencies for workers.

That could be especially true today when there are severe shortages of direct care workers. Moody’s analyst Bernard Yaros Jr. told me, “With or without the expansion, private home care costs will rise meaningfully in the near term.”

The burden on non-Medicaid families

Those wage increases benefit underpaid aides but add to the burden of millions of families that pay for care out of pocket.

In August, 2020, the Genworth Cost of Care survey found the average hourly cost of a home care aid was $24 and the average monthly cost was almost $4,600. Aides hired through agencies generally receive about half that amount as wages. Those expenses likely have risen substantially due to the pandemic.

Overall, increasing the federal contribution to Medicaid HCBS would be good for those families who rely on Medicaid to help support frail older adults living at home, good for the workers who help provide that care, and good for the economy. But it may have the unintended consequence of adding to an already challenging burden for middle-income households not on Medicaid.