New economic analysis warns of significant job losses, higher health care costs if federal Medicaid cuts move forward 

PHOENIX (March 31, 2025)—A new economic impact report released by the Arizona Chamber Foundation with analysis prepared by Rounds Consulting Group reveals that proposed federal cuts to Medicaid funding could have severe and far-reaching consequences for Arizona’s economy, healthcare system, and workforce—particularly in rural areas and among small businesses. 

The report finds that for every $1 billion reduction in Medicaid spending, Arizona stands to lose: 

  • More than 36,000 jobs across multiple sectors
  • $1.7 billion in labor income
  • $3.7 billion in total economic activity
  • $138 million in state and local tax revenues 

Medicaid is a key component of Arizona’s healthcare system, providing insurance coverage for more than 2 million residents through the Arizona Health Care Cost Containment System (AHCCCS). Nearly three-quarters of AHCCCS’s $21 billion annual budget comes from the federal government. In several counties, particularly rural counties, close to 50% or more of the population relies on AHCCCS. 

“Regardless of the federal budget debate, Arizona cannot afford a cost shift of this magnitude that puts our economic competitiveness at risk. This report shows just how deeply proposed Medicaid cuts could affect jobs, local tax revenues, and the stability of our healthcare system,” said Danny Seiden, president and CEO of the Arizona Chamber of Commerce & Industry. “As Congress works to address the federal deficit, we urge lawmakers to consider the broader statewide impacts and ensure that Arizona’s workforce and economy aren’t caught in the crossfire.” 

The analysis also models more severe scenarios—including a $7.5 billion spending reduction—where projected economic losses would mirror those seen during the Great Recession, including the potential for nearly 300,000 job losses; a $14 billion reduction in labor income; and more than $30 billion in lost economic output. 

The study highlights other ripple effects, including the potential elimination of coverage for 30 percent of AHCCCS members—as many as 500,000 Arizonans—and a dramatic spike in uncompensated care provided by hospitals and clinics. As providers face revenue shortfalls, services in communities across Arizona may be reduced or eliminated, leaving remaining systems strained and increasing premiums for those with private insurance. Severe reductions also potentially threaten Arizona’s voter-protected Proposition 204 coverage, inviting litigation. 

“This particular policy issue is the single greatest economic development threat that we have analyzed since the Great Recession more than a decade ago,” said Jim Rounds, CEO of Rounds Consulting Group. “If Medicaid cuts are not crafted very carefully at the federal government level, significant job losses will occur in Arizona, in addition to recession-level reductions in state and local tax collections. Many Arizonans will lose their healthcare, and those who currently pay for private sector healthcare will see a significant increase in their premiums. The impacts will be even greater in the rural parts of the state and among small businesses.” 

Luis Cordova, Senior VP and economist at Rounds Consulting Group, added “This was one of the more complex analyses that we’ve completed, as it required capturing aa wide range of economic dynamics and suggests that finding a reasonable solution will be similarly complex.” 

The report comes as Congress considers a House budget resolution that directs the Energy and Commerce Committee to identify $880 billion in federal spending reductions. Among the policies under consideration: cutting the federal government’s share of Medicaid funding to states, imposing per-capita caps on federal dollars allocated to programs like AHCCCS, and implementing mandated work requirements. 

Arizona adopted work requirements in 2015, but litigation in other states delayed their implementation. The Hobbs administration is preparing to submit its work requirement implementation plan to the federal government this week.  

A policy brief can be found here.

Click here to view the full report.