Recessions and Health Care Budgets Essay
Recessions commonly have a negative effect on the budgets of health care organizations as well as the personal finances of individuals. How has the most recent recession changed health care in your community? Have these changes been entirely negative, or are there positive results as well? Explain. What do you believe are the best strategies for your community to enact to support any positive changes and to offset the negative changes? Why?Recessions and Health Care Budgets Essay
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The recent slowdown in U.S. health spending still is not fully understood. Is it a sign of lasting change to the workings of the U.S. health system? Or is it a transitory result of a very severe recession? Recent research makes clear that the Great Recession was an important factor. In work Sheiner presented at the American Economic Association meetings (slides and preliminary paper), she focused on the channels through which the business cycle can affect health spending.
Health spending may fall during recessions because people choose to spend less on health care, because insurance policies become less generous, because providers cut back on investments, and because states facing budgetary pressure cut back on Medicaid and other health programs. These are all demand-side channels.
But there may be supply-side channels as well. As households face financial difficulties, the supply of labor in the health-care industry may increase. For example, a nurse might choose to work more hours if a spouse loses a job. And this might lead to lower wages in the health industry, which could translate into lower health spending.Recessions and Health Care Budgets Essay
Sheiner’s paper, still preliminary, shows that both demand-side and supply-side channels appear important. Looking at both national data and state-level data, she shows that lower income translates into less health spending, and that employment in the health sector increases during recessions but wages fall. The goal is to get a better understanding of the separate contributions of supply-side and demand-side factors in explaining the health spending slowdown.
In considering “jobs legislation” in the weeks ahead, Congress will decide whether to extend the temporary increase in federal support for state Medicaid programs that last year’s economic recovery legislation provided. Failure to do so would lead to deeper state budget cuts that cost substantial numbers of jobs, as well as to what the evidence increasingly suggests would be severe cuts in the Medicaid program in many states that would cast hundreds of thousands, and perhaps millions, of low-income Americans into the ranks of the uninsured.
The next state fiscal year starts July 1, 2010 in most states, and governors are now submitting their budgets. About half of the governors who have submitted budget proposals to their legislatures in recent weeks have assumed a continuation of federal fiscal relief through the coming state fiscal year; the other half of governors who have issued budget proposals have not assumed its continuation. Proposals from governors who have not assumed a continuation of fiscal relief indicate what lies ahead if Congress fails to act.Recessions and Health Care Budgets Essay
The governor of Arizona, for example, has proposed cutting more than 310,000 low-income people off that state’s Medicaid program, including several thousand poor people with severe mental illness. California’s governor has proposed cutting a quarter million people off that state’s program. Both governors also propose completely terminating their state’s children’s health insurance programs and, between them, withdrawing coverage for over 1 million low-income children.
In addition, many governors are proposing deep cuts in Medicaid benefits and provider reimbursement rates on top of substantial cuts made in these areas last year. For example, Tennessee’s governor has proposed cutting off Medicaid reimbursement for hospitalized beneficiaries when the cost of an individual’s hospital bill reaches $10,000.
Adding to these concerns, many mainstream economists have warned that the deep state budget cuts which governors and state legislatures will have to institute if Congress does not act will place a major drag on, and weaken, the already-struggling economy. Goldman-Sachs and Moody’s Economy.com are among those who have sounded such warnings. Extending federal fiscal relief to states would both bolster the economy and lessen or avert what otherwise may be the most draconian cuts in the history of the Medicaid and CHIP programs.Recessions and Health Care Budgets Essay
Medicaid and Recessions
During a recession, the number of people qualifying for Medicaid services increases as people lose their jobs, income, and health coverage. At the same time, rising unemployment and declines in economic activity shrink state tax revenues, limiting a state’s fiscal ability to meet the increased need for Medicaid. Urban Institute researchers estimate that with every percentage-point increase in the national unemployment rate, an estimated 1 million more people enroll in Medicaid and CHIP (and another 1.1 million people become uninsured), while state revenues fall by 3 to 4 percent. [1]
Two recent reports show that enrollment increases during this recession are consistent with the Urban Institute estimates.Recessions and Health Care Budgets Essay
- The Office of the Actuary at the Centers for Medicare and Medicaid Services reports that the number of children and working-age parents enrolled in Medicaid increased by 6.5 percent, or 3.2 million people, in 2009. The Office of the Actuary projects that Medicaid enrollment will grow by another 5.6 percent in 2010, which translates into another 2.8 million beneficiaries, as unemployment remains at high levels and more people exhaust their unemployment benefits and fall into poverty.
- State Medicaid enrollment reports compiled by the Kaiser Commission on Medicaid and the Uninsured show that between June 2008 and June 2009, when the unemployment rate jumped from 5.5 percent to 9.5 percent, Medicaid enrollment grew faster than in any period since the program was created in the 1960s. Some 3.3 million more people, or 7.5 percent more, were enrolled in Medicaid in June 2009 than a year earlier. [2]
The sharp increase in Medicaid enrollment over the last year and a half shows that Medicaid is doing what it is meant to do in a recession — fulfilling a counter cyclical role (i.e., expanding to meet rising needs and thereby pumping more demand into a contracting economy) by extending coverage to individuals and families when they lose their jobs and health coverage. But at the very time when Medicaid is needed most, it is also a target for substantial cuts, because nearly all states are required to balance their budgets even as state revenues plummet.Recessions and Health Care Budgets Essay
Nearly all states faced budget deficits for the current state fiscal year (which runs from July 1, 2009 to June 30, 2010 in most states). States have cut programs and, in many cases, have also raised taxes to close these shortfalls. But because state revenues are coming in below projections due to the weak economy, budget shortfalls for the current fiscal year have reopened in the majority of states, and states must close new shortfalls of $35 billion (which bring the total shortfall that states will have had to close in 2010 to over $190 billion, the largest amount ever). The fiscal year ahead will be worse. States face new shortfalls estimated to reach $180 billion for the fiscal year that starts July 1, 2010 in most states, and states now have largely exhausted their “rainy day” reserves and other sources of “one-time” revenues or savings. Many states will face a need to institute very deep cuts to balance their budgets for the year ahead.[3]
States Have Already Instituted Significant Medicaid Cuts
Many states have already implemented various cost-containment and efficiency measures to trim their Medicaid budgets. These states are finding it increasingly difficult to identify ways to reduce Medicaid expenditures much farther without making cuts that adversely affect low-income beneficiaries, such as by reducing benefits or access to health care providers.Recessions and Health Care Budgets Essay
The assistance provided in last year’s economic recovery legislation was instrumental in preventing cuts that would have sharply affected beneficiaries. A recent report by the Government Accountability Office (GAO) found that without the additional Medicaid funds provided in the economic recovery legislation, “[states] could not have continued to support the substantial Medicaid enrollment growth they have experienced…[The] funds were integral to maintaining current eligibility levels, benefits, and services and to avoiding further program reductions.” [4] It allowed states that were planning to cut back Medicaid eligibility and end health insurance for substantial numbers of low-income people to shelve such plans. Several states that had already instituted such cutbacks were also able to reverse them.[5]
But with state budget gaps so large — the fiscal relief provided in the recovery legislation closed just 30 percent to 40 percent of state budget shortfalls — and Medicaid enrollment and costs rising so swiftly, many states still felt a need to institute Medicaid reductions. To receive the increased federal support for state Medicaid costs that the economic recovery legislation provides, a state must maintain its Medicaid eligibility levels. As a result, the Medicaid cuts that states have adopted over the past year have focused on reducing benefits, cutting payments to providers, and increasing cost-sharing charges for beneficiaries.
For example, a number of states, including Michigan, Nevada, and Utah, have dropped coverage of dental and/or vision services for adult beneficiaries. [6] Some 39 states also have reduced or frozen Medicaid reimbursements to hospitals, nursing homes, or other providers.[7] Recessions and Health Care Budgets Essay