Public Policy

Where’s the Stimulus?


With much of the national discussion on healthcare policy still dominated by the Affordable Care Act, which was signed into law March 23, 2010, it’s easy to forget that the healthcare industry received a big influx of money through 2009’s federal stimulus. In all, the American Recovery and Reinvestment Act gave the go-ahead for roughly $160 billion in new health-related spending. So where has that money gone, and did it achieve the Obama administration’s overall goal of stimulating the economy?

As with all economic matters, there’s no simple answer, and economists may never reach consensus. Nor has all the money yet been spent, although the vast majority is now spoken for. Nevertheless, several reports and policy experts have provided at least a glimpse of whether certain monies were indeed well spent. Here’s a look at some of the main areas of interest to HM, including funding meant to expand access to care, boost research funding, and increase medical infrastructure.

$98 Billion for Medicaid

You’ve got this sort of laissez-faire chaos of people out there selling stuff, some of which is good, some of which isn’t, to people who don’t know much about what they’re buying. And that has created real problems.

—Maggie Mahar, healthcare fellow, Century Foundation, Washington, D.C.

By far the biggest chunk of healthcare money went to states to help shore up their Medicaid programs, in exchange for assurances that they would not tighten eligibility requirements. Another sizable fraction went to help unemployed people maintain their health insurance coverage through the government’s COBRA program by subsidizing 65% of their premiums. Those subsidies eventually increased to $34.3 billion through subsequent legislation, according to the U.S. Congress Joint Committee on Taxation.

Both types of spending provide assistance for lower-income people, and studies have broadly concluded that stimulus spending is more effective when directed at poorer people who are more likely to spend than save additional income. James Feyrer, PhD, associate professor of economics at Dartmouth College and a research associate at the National Bureau of Economic Research, says the stimulus’ support for low-income households yielded more than two dollars for every dollar spent.

The key question, Dr. Feyrer says, is whether government spending changes behavior. “Any money that you spend that doesn’t change anybody’s behavior isn’t going to have any stimulus effect,” he says. Because the extra Medicaid funds were contingent on states maintaining their eligibility rules, they had no choice but to spend the new money. That infusion theoretically put more cash into the pockets of the poor, increasing their own propensity to spend and delivering a boost to the economy.

But this funding model comes with a major caveat: Now that the stimulus money has run out, Dr. Feyrer says a reverse effect could take place. “The hope is that the economy will come roaring back in such a fashion that when you pull the stimulus away, it will be less painful,” he says.

That hasn’t happened, however, meaning that the loss of stimulus funds is proving particularly painful for cash-strapped states. Looming budget gaps in Medicaid and other programs for the poor could result in economic contraction. A similar effect could be in play now that COBRA subsidies have lapsed.

$22.6 Billion for Health IT

A meta-analysis by the Office of the National Coordinator for Health Information Technology concludes that HIT has had a predominantly positive effect on healthcare, mainly on quality and efficiency. In principle, most observers agree that electronic health records (EHRs) are good for medicine. In reality, however, critics say the stimulus’ huge cash incentive to get doctors and hospitals to demonstrate “meaningful use” of the technology has exposed a major weakness.

Maggie Mahar, a healthcare fellow at the Century Foundation in Washington, D.C., contends the funds should have been kept in reserve until experts could better advise doctors and hospitals about which systems would work best for their specific practices, with an eye toward ensuring that the records could be linked.

“Instead, you’ve got this sort of laissez-faire chaos of people out there selling stuff, some of which is good, some of which isn’t, to people who don’t know much about what they’re buying. And that has created real problems,” Mahar says. “Some places have very good EHR in place, up and running. Other places have bought stuff that they’d now like to throw out the window and have to replace.”

$2.8 Billion for Community Healthcare Services

SHM has long supported efforts to address the nation’s PCP shortage. In October, federal officials announced that they had made some headway on that front by nearly tripling the size of the National Health Service Corps. The loan-repayment and scholarship program grants $60,000 awards to providers in exchange for two-year commitments to medically underserved communities. In 2008, about 3,600 clinicians, mainly PCPs, were enrolled in the corps. This year, the number surpassed 10,000, boosted by $300 million in stimulus money and $1.5 billion from the ACA.

As a matter of healthcare policy, then, the program has arguably been a big success. From a purely economics angle, however, Dr. Feyrer suggests the program’s effect is likely to be more modest, because the award acts like a two-year salary boost for doctors who would likely still be employed, just somewhere else.

Conversely, infrastructure projects like the building of hospitals and community centers could have generated a fairly robust economic boost if they wouldn’t have been completed in the absence of stimulus money. A May 27 report by the Connecticut General Assembly’s Office of Legislature Research, “Health Care Centers and Providers as Economic Drivers,” attempted to quantify the return on stimulus-funded investments in the state.

Among its conclusions, the report found that roughly $11.4 million in improvement grants yielded an estimated economic impact of $18.6 million. Similarly, $16.2 million in funds to renovate existing health centers or increase space through construction of new or expanded services sites yielded an impact of $26.3 million.

$10 Billion to the NIH

A big chunk of the National Institutes of Health’s monies went toward highly rated research projects stuck in backlog. As Dr. Feyrer points out, such funding is less likely to have a short-term stimulus effect. For a quick economic shot in the arm, the main question is whether funds will help create jobs that otherwise would not have existed. Over the long haul, however, Feyrer agrees that increased medical research can yield economic rewards.

Similarly, Mahar says comparative effectiveness research (CER) could provide sizable long-term returns. “Every penny we’re spending on comparative effectiveness research should, down the road, pay off in a big way,” she says. Already, stimulus-funded studies are beginning to emerge from such efforts as a Seattle-based research consortium focused on objectively analyzing cancer diagnostic tools, screening tests, and treatments.

Such research is not without its detractors, who have criticized what they view as government intrusion into personal healthcare decisions. CER also produces winners and losers, making it more politically vulnerable. “No one wants to see their revenue stream cut, even if their overpriced device is no better than other devices,” Mahar says.

Bottom Line

So has healthcare-related stimulus spending really paid off? If early indicators seem mixed, future economic studies may provide more clarity—to a point. After all, Feyrer says, no economist can know what a world without a stimulus would have looked like, meaning the arguments won’t end anytime soon.

Bryn Nelson is a freelance medical writer based in Seattle.

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