As noted in the fiscal note, only a share of the potential universe will be affected. Figure 2 does not break down how many of the individuals work for non-exempt large employers for more than 20 hours per week.

Why Are Some Employees of Large Firms Working More Than 20 Hours Per Week on Medicaid?

Given that large firms generally offer healthcare to their employees, why are some employees at these firms on Medicaid?

• Although employed, wages are low enough to qualify for Medicaid.
  • For expansion adults, Medicaid eligibility is approximately 138% of the federal poverty level.
  • Industries that generally employ a larger share of low wage workers (and generally low margins) include:
    • Retail
    • Hospitality
    • Food service
    • Logistics
    • Warehousing
    • Healthcare support
• Some workers may work less than 30 hours per week, which is the Affordable Care Act (ACA) threshold for employer coverage, and as such, may not be eligible for health insurance benefits from their employer.
• Health insurance coverage is expensive. For example:
  • Premiums are too high relative to wages.
  • Deductibles are large.
• Family coverage is especially expensive, and ACA affordability only applies to single coverage, creating a “family glitch.” Workers in this situation with children may opt for Medicaid.
• Children qualify for Medicaid at higher income levels, meaning a worker may have their employer-sponsored insurance for themselves, but to reduce their costs, they use Medicaid coverage for their children.
• Employees may be on Medicaid for other reasons, such as:
  • Missing their employer’s enrollment period.
  • Waiting periods for employer coverage.
  • Medicaid redetermination timing.
• Some workers may qualify for Medicaid if they have disabilities, high medical needs, or qualify under medically needy pathways.

How the Bill Will Affect Healthcare Providers and Low Wage Workers

With this background, what is the likely economic impact on workers and employers from implementation? The answer to this question largely depends on how firms and employees respond.

To model the impact, CSI employed REMI Tax PI+ to estimate the impact on businesses, consumers, and health care providers by using REMI’s production cost and consumer tax (increase labor costs and prices) and a corresponding increase in revenue to healthcare providers. Appendix A contains details regarding this modeling. Below are the modeling results of how businesses, employees, and consumers could be affected in response to the proposed change.

Presented first is the direct, indirect, and induced economic impact for output (i.e., business sales) and employment followed by the broader overall impact as measured by gross domestic product (GDP), personal income, and other economic measures.

Direct, Indirect, and Induced Impact

If enacted into law, HB26-1327 would result in a net drop in jobs in the state. The health care industry is the only sector where employment would not decline.

The bill could drive positive direct and indirect employment effects due to increased revenue flowing to health care providers and their supply chains. REMI estimates that direct employment rises by 206 jobs in 2027, increasing to 562 jobs by 2030, before moderating slightly to 480 jobs by 2035. Similarly, indirect (supplier) employment increases by 34 jobs in 2027, 95 jobs in 2030, and 83 jobs in 2035, reflecting expanded demand for goods and services supporting the health care sector.

These gains are offset by negative induced employment effects, however, which capture broader impacts on households through higher costs and reduced demand for low-wage labor. Induced employment declines by 616 jobs in 2027, worsening to 1,826 jobs in 2030, and remaining elevated at 1,604 jobs lost in 2035.

On balance, total employment is projected to decline by 376 jobs in 2027, 1,170 jobs in 2030, and 1,041 jobs in 2035.

These results indicate that the negative household and labor market adjustments of HB26-1327 outweigh the positive effects in the health care sector.

Figure 4

Net business sales in the state also would decline. Due to the positive revenue effect on health care providers and their suppliers, the policy generates cumulative direct and indirect output (business sales) from 2027 through 2035 of $917 million, but that improvement is offset by an induced decrease of $2.4 billion stemming from the higher costs for lower wage workers and prices for consumers.

Figure 5

Individual workers also would be worse off under HB26-1327.

Figure 6 presents the impact of employment, GDP, output (business sales), personal income, disposable personal income, real personal income (inflation-adjusted personal income), and inflation. The far right column has the cumulative impact for the financial variables or the average annual impact for employment.

Overall, employment is, on average, lower by 862 jobs each year than it would be without the legislation. The cumulative decline in personal income is $283 million, the cumulative decline in disposable personal income is $248 million, and the cumulative decline in inflation-adjusted disposable personal income is $575 million. Pressure to raise prices to cover the increased costs for labor would raise the cost of living for everyone across the state by an estimated 0.027% in 2035.

Figure 6

Occupational Impact

Workers in low-wage industries would be harmed the most.

The impact is perhaps most clear when viewed through the occupational lens. Appendix B shows the employment impact for 2027, 2030, and 2035 sorted in the order of the largest declines in employment in 2035. The occupations with estimated increases of 19 or more in 2035 are shown at the bottom of the table.

Overall, as one might expect given the heavy concentration of lower wage workers within the sector, retail sales workers see the largest declines in employment. Jobs in that sector are reduced by 111 in 2035. Other job titles with disproportionate drops in employment include material moving workers, construction workers, food and beverage serving workers, motor vehicle operators (couriers), other installation/maintenance/repair occupation workers, cooks, and business operations specialists.

On the other end of the spectrum, new revenue flowing to health care providers shows up in increased employment for health diagnosing and health practitioners and other health care support occupations.

Bottom Line

Overall, the proposed fee on large employers for employees on Medicaid has profound economic effects and many of them are not positive. While the health care sector may enjoy marginal benefits from the new revenues that would flow to it, business output, along with overall economic growth, would suffer. Consumers would face higher prices and there would likely be declines in overall employment, especially in low wage sectors. Even more problematic is that these consequences may emerge without an assured increase in employer-sponsored coverage for workers.

Appendix: Modeling Assumptions

The Regional Economic Models, Inc. (REMI) Tax-PI+ model is a dynamic, multi-regional economic forecasting and policy simulation tool that integrates input-output, computable general equilibrium (CGE), econometric, and economic geography frameworks. It is used to estimate the economic impacts of policy changes across industries, households, and government sectors over time.

The REMI model structure allows for input-output relationships to capture inter-industry supply chains, while the CGE features allow prices, wages, and substitution effects to adjust in response to shocks. Additionally, the econometric components estimate behavioral responses using historical data and the spatial dynamics capture migration, commuting, and regional competitiveness.

Application to HB26-1327

HB26-1327 is modeled as a targeted increase in labor costs for large employers whose workers are enrolled in Medicaid. The primary shock is introduced as an increase in employer production costs (labor costs) in affected industries, including retail, accommodation and food services, administrative support, and logistics.

Design

The model incorporates a phased implementation: one-third of the policy impact in 2027, 2028, and 2029, with full implementation beginning in 2030. The total annual impact is set at $106 million. The shock is allocated across industries based on estimated Medicaid participation using Current Population Survey (CPS) data.

Industry Share of Impact

Certain businesses are disproportionately impacted. The model allocates the total impact according to the following shares: retail trade (35%), accommodation and food services (30%), administrative and support and waste management (15%), transportation and warehousing (10%), and other services (10%). The detailed sector impacts underneath these four broad sectors are estimated using the share of employment within the broad sectors. Other sectors that could be added with further evidence include health care and social assistance and construction. On the spending side, the model assumes 65% would be allocated to hospitals and 35% to ambulatory care. This spending side impact is modeled through an increase in industry sales, exogenous production in REMI.

Higher Consumer Prices

In addition to the employer cost side and increased revenue to healthcare providers, the model assumes that half of the increased employer costs will be made up through higher consumer prices through the consumer tax variable for the detailed industries.

Fiscal Recycling

Revenue collected from employers is modeled as an increase in state government revenue, which is then recycled into the economy through increased health care spending. This revenue is implemented as increased demand in hospital and ambulatory healthcare sectors, reflecting Medicaid reimbursement flows.

Behavioral Responses

REMI endogenously captures employer and worker responses, including changes in wages, employment, prices, and migration. Higher labor costs generally reduce employment in affected sectors, while increased health care spending generates offsetting economic activity in the health care sector. The model uses an immediate market share response.

Outputs

Among the sector and economic outputs, key outputs include changes in employment, GDP, personal income, industry output, and population. The model also captures indirect and induced effects through supply chains and household spending.

Appendix B: Occupational Impact