Press Release: Future Economic Recessions Will Be More Severe

Future Economic Recessions Will Be More Severe If Medicaid Caps Are Adopted, Expert Warns

WASHINGTON – As Congress moves forward with plans to trim $10 billion from Medicaid over the next five years despite growing demand for health care from poor populations, some state and federal officials are considering caps on enrollment and other steps to lower anticipated spending. The nation’s 53 million Medicaid enrollees—many of whom are members of minority groups—aren’t the only ones with reason to be alarmed.

 Everyone who has a stake in the health of the national economy should be concerned about the unintended consequences of some proposed changes in the massive health care program, according to preliminary research presented at a recent forum convened by the Health Policy Institute of the Joint Center for Political and Economic Studies and by the American Public Health Association.

Medicaid caps and cuts could, of course, create medical hardships for millions of poor people, but Stan Dorn, a senior policy analyst at the Economic and Social Research Institute in Washington, told the forum that some proposed policies could do significant damage to the economy as a whole. Proposals to convert Medicaid into a block grant or otherwise to cap federal spending would water down Medicaid’s ability automatically to cushion the widespread effects of economic downturns, he said. Like spending for unemployment insurance benefits, which rises and falls in response to economic changes, Medicaid blunts the severity of recessions, he said.

Rigorous studies have shown that unemployment insurance has reduced the erosion of the Gross Domestic Product by 15 to 17 percent in five recessions since 1969. Dorn said that Medicaid spending levels associated with changed unemployment rates closely follow that pattern and could have a similar effect. In the 2001 recession and several years of high unemployment that followed, Medicaid spending increases related to higher enrollment were essentially the same size as changed unemployment insurance spending, he said. Accordingly, he concluded that Medicaid and unemployment insurance may have a comparable impact in helping the economy recover from recession.

Dorn emphasized that a definitive conclusion about the impact of Medicaid flexibility on the economy’s ability to recover from recession would require intensive and time-consuming research that cannot be completed in time to inform congressional deliberations about Medicaid that are slated to begin after Labor Day. However, since precisely such research has already been conducted on the unemployment insurance program, the striking similarities between spending on unemployment insurance and on Medicaid suggest that Medicaid may play a comparable role as one of the nation’s most important recession-fighting tools. This general dynamic is well understood by economists at the Federal Reserve, the Congressional Budget Office and the Urban Institute, said Dorn, who has been active in Medicaid policy for more than 20 years.  “The consequences of upsetting Medicaid’s responsiveness to broader economic trends could be severe,” he said.

Even without widespread Medicaid caps, the U.S. Census Bureau estimate of the number of uninsured Americans has continued to rise, growing from 40 million in 1999 to about 45 million in 2003, Dorn said. If caps on Medicaid enrollment and spending had been in place during that period, he said, the nation’s uninsured population in 2003 would have surged to at least 50 million rather than 45 million, and the economic sluggishness of the past four years could have been substantially worse.

The damage caused by such Medicaid caps and cuts would probably be felt acutely by the black community. Medicaid covers 44 percent of African-American children, 72 percent of poor black children, 38 percent of poor African-American adults and 38 percent of poor black seniors.

Joint Center president Togo Dennis West Jr. said decision makers must understand Medicaid’s influence on the American economy. “Medicaid is the nation’s largest single health and long-term care program,” he said. “The crisis in Medicaid is not just an issue for poor communities. Its impact is now felt in all local economies and in the budgets of every state government. Medicaid has an enormous impact on the national economy.”

The forum was moderated by Louis W. Sullivan M.D., secretary of Health and Human Services in the George H.W. Bush administration. Sullivan is in partnership with the Joint Center to expand access to health care among minorities by increasing racial and ethnic diversity in the health care work force.

The conflict between expanding Medicaid coverage and reining in costs must be resolved carefully, without harming minorities whose access to essential health services relies on these programs, he said. “We have a paradox of better health status today than in 1900, but a wider gap in health status between the nation’s white population and its minorities,” Sullivan said.

Medicaid is an entitlement program that expands automatically when more people fall into economic distress. With health care costs continuing to rise, many governors are looking to cut Medicaid spending in order to balance their budgets. Proposals include trimming millions of Medicaid recipients from the rolls, cutting payments to doctors and hospitals, capping enrollment growth, and limiting covered services.

    “Policy makers can take any number of approaches that could help achieve Medicaid’s budget targets without changing the program’s basic structure—or policy makers could just crudely cap growth,” Dorn said. “One approach has the potential of leaving the country in fine shape, but the other approach could undermine the economy’s ability to recover from future recessions.” 

Dorn urged federal officials to consider using unemployment rates as automatic triggers for future increases in federal matching funds for state Medicaid programs. The concept was used successfully by Congress two years ago. Medicaid cuts were prevented or limited in 31 states, he said, but that was a temporary policy, enacted after prolonged national debate. Making such increases automatic would enable this economic stimulus to start without the delay of a political struggle and give the economy a boost exactly when it is most needed. That could make future recessions shorter and more shallow.

When recession strikes, the economic toll is always felt particularly acutely in the African American community. Black workers frequently suffer more job loss than their white counterparts. Because African-American households, on average, have many fewer assets, they have less to fall back on in hard times. When they lose their jobs, even otherwise healthy people are at higher risk of heart disease, mental illness, lung cancer and domestic violence. In addition, other members of the family are more likely to experience health problems. Job loss increases mortality rates by 37 percent among previously healthy workers, according to one study. Moreover, people of color suffer disproportionately high rates of high blood pressure and diabetes, making them more vulnerable to the health problems that can accompany job loss and increasing the importance of necessary health care, Dorn said.

Also participating in the forum were Dr. Georges C. Benjamin, executive director of the American Public Health Association, Dr. Gail C. Christopher, director of the Joint Center’s Health Policy Institute, and Dr. Warren A. Jones, former executive director of the Mississippi Division of Medicaid.

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The Joint Center for Political and Economic Studies, a nonpartisan, nonprofit organization, conducts research and analyses on public policy issues of concern to African Americans and other minorities, promotes their involvement in the governance process, and operates programs that create coalitions within the minority, business, and other diverse communities. For more information, visit www.jointcenter.org.

Founded in 1872, the American Public Health Association is the oldest, largest and most diverse organization of public health professionals in the world. The association aims to protect all Americans and their communities from preventable, serious health threats and strives to assure that community-based health promotion and disease prevention activities and preventive health services are universally accessible in the United States. APHA represents a broad array of health providers, educators, environmentalists, policy-makers and health officials at all levels working both within and outside governmental organizations and educational institutions. For more information, visit www.apha.org.

The Economic and Social Research Institute is a nonprofit, nonpartisan institute that conducts research and studies directed at enhancing the effectiveness of social programs, improving the way health care services are organized and delivered, and making quality health care accessible and affordable. ESRI is widely recognized as among the nation’s leaders in providing objective, reliable health policy analysis. For more information, visit www.esresearch.org. 

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