Federal Policy Threatens Arizona’s Health Care Economy and Tax Revenues

The failure to extend the enhanced premium tax credits (ePTCs), coupled with Medicaid cuts and restrictive immigration policies, not only puts Arizona families at risk of losing their health insurance, but it will also reduce state and local tax revenues at a time when Arizona is already expecting sluggish tax revenue growth.   

According to the Joint Legislative Budget Committee, in FY 2025, Arizona saw the slowest annual growth rate in sales tax revenues since Fiscal Year 2011 at a tepid 2.7 percent. At the Finance Advisory Committee (FAC) meeting earlier this month, the consensus projection for sales tax growth in FY 2026 was 2.8 percent, warning of significant downside risks to that forecast. 

Arizona already heavily relies on sales tax revenues. The state has the lowest top individual income tax rate (of states that have an individual income tax) and a corporate tax code with favorable income apportionment and reporting rules.    

The FAC panel warned that at the current rate of growth predicted for all tax categories, Arizona will be unable to maintain investments made last year in child care, higher education scholarships, and housing and homelessness services. The reality is stark: Arizona continues to fund child care below pre-Great Recession levels despite population growth and the rising cost of care over the past two decades.  

Given this precarious budget outlook, failing to extend the ePTCs will further threaten the state’s scarce state and local tax revenues. According to a recent Commonwealth Fund analysis, not extending the ePTCs could leave 141,000 Arizonans without health coverage. The drop in health care spending from those individuals could lead to 5,800 lost jobs and $43 million in lost state and local tax revenue.    

As FAC panelists noted, the health care sector is a pillar of Arizona’s economy and a key driver in local jobs and spending. Medicaid cuts, including the requirement that states lower their hospital assessment fees by .5 percentage point beginning in FY 2028, could force a reduction in services, a loss of health care facilities in certain communities, and dangerous economic effects in cities and towns anchored by health care sector employment and the spending of such workers.   

Economist Jim Rounds published a report earlier this year that found that for every $1 billion in Medicaid cuts, Arizona loses 36,000 jobs and $143 million in state and local tax revenue. Therefore, while Medicaid cuts do not have a direct effect on state and local tax revenues, their knock-on effects could be devastating.  

Additionally, other changes, particularly around immigration, will adversely impact Arizona’s health care economy and state and local tax revenues. The American Hospital Association (AHA) recently opposed a federal Executive Order raising the H-1B visa filing fee to $100,000  

The AHA cited that of the nearly 400,000 H-1B petitions approved in FY 2024, 16,937 of those were for medicine and health occupations. Such positions often fill critical needs and are a complement to a native-born workforce, wherein failure to fill such positions could result in net job losses in local health care economies. The loss of health care facilities and services will then reverberate through the greater economy due to loss of consumer spending from the previous healthcare workforce.  

Lastly, increased immigration enforcement and changes to status policies could further erode Arizona’s home health care workforce. As Arizona’s population continues to grow older, and the need for care rises, demand for home health care, especially in older communities like Payson, will continue to increase. According to KFF, immigrants make up one in three home care workers and 28 percent of the long-term care workforce. Research by KPMG links recent declines in the home health workforce to current federal immigration policy.  

As noted in previous Arizona Center analyses, declining access to health, child, and elder care is not just a family issue; it is an economic crisis that slows small-business growth, pushes caregivers out of the workforce, and drags on state and local revenues. Allowing the anti-hunger Supplemental Nutrition Assistance Program (SNAP) to go unfunded adds additional stress on families and local economies.