How does health insurance affect labor productivity? We examine this question in the context of the US manufacturing sector by leveraging the quasi-exogenous variation across states in the adoption of Medicaid expansion in 2014. We conduct a difference-in-differences analysis of county-level labor productivity data and find a notable positive impact (2.5%) of Medicaid expansion on labor productivity in the US manufacturing sector. This finding remains robust using synthetic control method, falsification tests, and alternative productivity measures. Our analysis of underlying channels reveals that this positive impact is driven not by a reduction in employment but by increased economic output. In addition, we examine the heterogeneity of Medicaid expansion’s impact on labor productivity. We find that the positive impact on labor productivity is discernible only in counties with adequate health capacity. Furthermore, we observe that political partisanship plays a crucial moderating role in the impact of Medicaid expansion on labor productivity. Divided branches of government tend to attenuate the positive impact, while divided legislatures amplify it. By elucidating the impact of health insurance on labor productivity, the underlying channels driving this impact, and the conditions that can moderate this impact, this study advances the literature on policy, politics, and productivity.