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
—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.
