Medicaid Responsiveness, Health Coverage, and Economic Resilience:
A Preliminary Analysis
By Stan Dorn (The Economic and Social Research Institute), Barbara Markham Smith (Health Policy Innovation, Inc.) and Bowen Garrett (The Urban
Institute)
The Health Policy Institute of the Joint Center for Political and Economic Studies
September 27, 2005
With $10 billion in Medicaid spending reductions under consideration by Congress, the issue of Medicaid has returned to the forefront of the nation’s public policy debate. One recurring proposal to limit federal Medicaid spending would place firm caps on either Medicaid enrollment or federal Medicaid spending.
Such caps could dramatically restructure the program. Currently, individuals who meet their state program’s eligibility requirements are guaranteed coverage. Accordingly, when changed economic conditions increase the number of people who qualify for Medicaid, enrollment automatically rises. This capacity to expand in response to need has prevented millions of Americans from losing coverage in recent years. From 2000 to 2004, enrollment in employer-sponsored insurance (ESI) fell from 63.6 percent to 59.8 percent of all U.S. residents. Many workers who lost ESI became uninsured, but others instead qualified for Medicaid. If Medicaid had not been allowed to grow, and enrollment was instead capped at 1999 levels, the number of uninsured in 2004 would have been 6 million higher – roughly 52 million, rather than the 46 million estimated by the Census Bureau several weeks ago.
If health insurance premiums continue to grow much faster than total earnings, the next few years are likely to see further declines in employer-sponsored coverage and an ongoing rise in the number of uninsured. That rise could be much steeper if national policymakers undercut Medicaid’s capacity to expand.
Medicaid’s responsiveness to changing conditions may also have important implications for the economy as a whole, not just for individuals in need. When recession hits, more households have incomes low enough to qualify for Medicaid. Because Medicaid guarantees coverage to eligible individuals, enrollment automatically rises, which increases state and federal spending. Such spending stimulates the economy, limiting further job loss and contributing to economic recovery.
http://www.jointcenter.org/publications1/publication-PDFs/MediCaidFullReport.pdf
And…
Sailing into the Perfect Storm
Uwe Reinhardt, Ph.D., Princeton University
National Conference of State Legislatures Annual Meeting
August 19, 2005
Tax Cuts versus Added Health Spending
The tax cuts of 2001 and 2003 were passed on the (Keynesian) argument that it would put added money into the pockets of taxpayers who would then spend more and, thus, revive the economy.
An economist would find it hard to argue with this theory. It is standard fare in macro-economic policy and it works.
That same theory, however, also predicts that added government spending – be it on health care, education, roads, or mass transit – revives the economy as well.
For example, without the rapid growth of health spending during the 1980s and the jobs it added, the Reagan recovery of that decade would not have been nearly as robust.
Every added dollar of health spending diffuses quickly throughout the entire US and, most importantly, stays at home. Hardly any of it leaks abroad.
By contrast, good parts of a major tax cut may leak abroad in the form of offshore investments or spending on consumer goods made abroad.
The construction of new hospital facilities or of new golf resorts both are scored as “investments” in the national GDP accounts.
We always pretend that building golf courses boosts the economy, while building hospitals is a drag on the economy.
Does that make sense to you?
http://www.ncsl.org/print/press/UReinhardtslides_AMSeattle05.pdf
And…
The White House
August 8, 2005
To ensure the economy remains strong, President Bush has called on Congress to act on other aspects of his agenda. His plans include making his tax cuts permanent, restraining spending by the Federal government…
http://www.whitehouse.gov/infocus/economy/index.html
Comment: How many times have you heard it? The only way that we can keep the economy going is to cut taxes and cut federal spending. The establishment of a commission to find $10 billion in cuts for the Medicaid program is an extension of the administration’s principle that any cut in federal spending is good for the economy.
This year, health care represents 15.6% of our Gross Domestic Product (GDP). That’s a huge hunk of our economy.
Policies that increase the flow of funds to the health care delivery system benefit the economy, whether those are private funds funneled through private insurers or public funds funneled through public insurance programs. The primary difference is that more of the funds passing through the hands of the private insurers are diverted to administrative services. Although the funds that insurers consume also enter the economy, most of us would rather see those funds spent on health care instead of superfluous paperwork.
The lesson: Do not ever let the opponents of reform get away with stating that the taxes that would be required to pay for a national health insurance program would destroy the economy. The exact opposite is true. It’s difficult to think of a better way to nurture a healthy economy than to nuture our health care system.