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Increasing Federal Medicaid Funding Could Help Stimulate US Economy

Armen Hareyan's picture

Congressional Budget Office Director Peter Orszag on Tuesdayduring a Senate Finance Committee hearing said temporarily increasingthe federal medical assistance percentage for Medicaid likely would helpstimulate the economy, but the impact would vary by state, CQ HealthBeat reports. Congressional Democratsmight push for inclusion of a temporary increase to the FMAP in an economicstimulus package. A 2.9-percentage-point FMAP increase was included in a 2003stimulus package, which lasted for five calendar quarters and boosted federalMedicaid outlays over that period by $10 billion, according to Orszag.

Orszag said, "Additional federal aid to states that are facing fiscalpressures or are already in recession would probably stimulate theeconomy," adding, "However, federal aid to states whose budgets arerelatively healthy may provide little stimulus, especially if those states usethe aid to build up their 'rainy-day' funds instead of increasing spending orreducing taxes." He added that when states experience falling revenuesbecause of an economic downturn, they cannot freely borrow money to cover thecosts of their programs, and instead must cut spending or increase taxes.

He said, "Consequently, the behavior of state and local governments oftenserves to reduce aggregate demand further," adding that in 2003,"more than half of the states reported that the increased matching ratesenabled them to avoid or delay making cuts -- or to make smaller cuts -- totheir Medicaid program." CBO recently gave increasing federal assistanceto the states a "medium rating" based on cost-effectiveness inboosting economic demand to counter a recession.

According to CQ HealthBeat, "Support for FMAP increasesappears to be developing largely, but certainly not wholly, along partylines." It is unclear whether Medicaid provisions would be included in aneconomic stimulus bill (Reichard, CQ HealthBeat, 1/22). Talksbetween House Speaker Nancy Pelosi (D-Calif.) and House Minority Leader JohnBoehner (R-Ohio) are focusing on the size of proposed rebates, as well as theDemocrats' call for increases in Medicaid, food stamp and unemployment benefitpayments, among other issues (Taylor, AP/Foster'sDaily Democrat,1/22).

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Governors "on abipartisan basis" also are calling for FMAP increases amid projections ofdeclining state revenues, CQ HealthBeat reports. The National Governors Association in its guidelines for a stimulus package saidthat 17 states have projected deficits in fiscal year 2008 totaling more than$14 billion, and 15 states have projected deficits totaling $30 billion in FY2009. According to NGA, this fiscal year, FMAPs declined in 20 states and areexpected to be reduced in 17 states in FY 2009. NGA said that blocking the cutsand temporarily increasing all states' FMAPs would prevent Medicaid cuts amidanecdotal evidence that enrollment in the program is increasing, according to CQHealthBeat.

Congressional Priorities

A recession could threatenaccess to health care and serve as the catalyst for a comprehensive health caresystem overhaul, according to Brian Biles, a George Washington University health policy professor and former assistantsecretary of HHS under President Clinton. Biles spoke at aforum on Friday sponsored by the Alliance forHealth Reform andthe Robert Wood Johnson Foundation that examined lessons from theattempt to overhaul health care in the 1990s. Biles said that "in the U.S.,where health care is employment-based and when people lose jobs they losehealth care, with a recession ... could come the commitment to do somethingabout it."

According to CQ HealthBeat, panelists said that a health systemoverhaul "would have to top the congressional agenda and require asingular dedication from the president." In addition, the panelists saidlawmakers should aim to simplify proposals and resolve details afterlegislation is enacted, as well as work to pass legislation in the beginning ofthe congressional session, CQ HealthBeat reports (Webber, CQHealthBeat, 1/22).


"Forspecial interests, the stimulus bill is an irresistible opportunity to grabsome taxpayer money," and although the "president and congressionalleaders have agreed to do something," the "question is what," a USA Today editorial states. The editorial continues,"Lobbyists have no shortage of ideas," including sending"billions more to states to help them shore up their Medicaid funds."According to USA Today, "Not all of these are necessarily badideas, but they should be considered on their own merits and not be tossedwilly-nilly onto the stimulus package." The editorial continues,"Encouragingly, both sides seem to have subscribed to the mantra that anystimulus bill be 'timely, temporary and targeted.' That argues for quick,simple, one-time tax rebates for individuals and short-term investmentincentives for business" (USA Today, 1/22).

Reprintedwith permission from kaisernetwork.org. You can view the entire Kaiser Daily Health Policy Report, search the archives, and sign upfor email delivery at kaisernetwork.org/email . The Kaiser Daily Health PolicyReport is published for kaisernetwork.org, a free service of The Henry J.Kaiser Family Foundation.