Homestretch 4 - The Exchange, public option and CO-OPs

[This is the fourth in a series of six articles summarizing the leading categories of issues at stake in the final stages -- the homestretch -- of the debate on national health insurance and health care reform.]

The
55% of Americans who favor a government insurance plan and health reform advocates are rejoicing over yesterday’s news from Senate Majority Leader Harry Reid (D, NV). Yesterday, Reid stated that the bill he intends to send to the Senate floor next month will include a "public option" – a federal government created insurance plan offered to Americans who do not get medical coverage through their employers -- with the condition that states could opt out of the program. Reid’s move is being hailed as a bold and vital move by health reform supporters throughout the country and a major milestone for health insurance reform as it moves forward in both houses. This is not to say that Reid’s model of the public option is a definite or that amendments will not attempt to eliminate or alter the public option in the Senate bill.  

Majority Leader Reid and House Speaker Nancy Pelosi (D-San Francisco) are advancing separate healthcare bills, each containing different provisions for the public option. House Democrats may have the support to pass a bill that would create a nationwide government plan without any option for states not to offer the plan; however Speaker Pelosi has stated that the opt-out alternative could be included in a reconciled bill. Both the Senate bill and the House bill will need to be reconciled later this year before final legislation could be sent to the White House for President Obama's signature.

All three of the current versions of the bill in Congress (Senate HELP, Senate Finance and the House Tri-committee bill--H.R. 3200) include a health insurance Exchange, which would serve as the marketplace for qualified plans that follow new insurance provisions. The Exchange would create a competitive marketplace that offered choices of plans, which would have to follow a common set of regulations. The Exchange has several advantages including choice, price competition and portability if you choose to change jobs. In all three proposals, the Exchange would be a place where individuals without access to employer-sponsored coverage could purchase insurance. Small employers could also purchase plans for their employees through the Exchange. In both the Senate Finance bill and H.R. 3200, eligibility for employers would be phased in starting with smaller employers. 

Conservative Democrats and some Republicans supported a Consumer Operated and Oriented Plan (CO-OPs) program. The Senate Finance bill included a CO-OP program, which would encourage the creation of non-profit health insurance companies run by the members. Members would be required to use the profits to lower premiums, improve benefits or improve the quality of the care consumers receive. In order to be included in the Exchange, CO-OPs would have to follow the same regulations as the private plans. Many health reform advocates maintain that CO-OPs have failed in the past and will fail this time too. Additionally, the Congressional Budget Office does not find significant savings in the CO-OP model, whereas it does with the public option planSenate Finance Committee Chairman Baucus has said that he chose to include the CO-OP over the public option in the Finance bill because he felt it would garner greater support, but he is still open to the public option


Despite the disagreement among policy makers regarding the potential success of CO-OPs, much of the debate has now turned to the
public option.  With Reid’s announcement, the question seems to have become not if there will be a public option, but what form the public option will take. Reid’s opt-out model allows states to withdraw from the public plan in 2014, a year after the public plan goes into effect. Senator Olympia Snowe (R-ME), the only Republican on the Senate Finance committee to vote for the Finance committee version of the bill, supports the “trigger” model of the public option. The trigger would only put a public option into effect in states that do not meet standards of affordability. Snowe stated yesterday that she was disappointed with Reid’s decision to go with the opt-out model over the trigger model.   

The Insurance industry has released a report which argues that the public option will raise costs to those people with private insurance plans, in order to offset the reduced cost of the public plan. In fact, public health insurance actually costs less than private insurance. However, the public option as proposed by Reid would be offered through the Exchange, which would only be available to those individuals without employer sponsored insurance. And only a fraction of people would choose the public option, according to the Congressional Budget Office. Moreover, the Exchange would serve as a regulator of benefit plans, and Reid’s proposal also requires the government plan to negotiate provider rates, instead of relying on Medicare rates, which are often lower than private reimbursement rates. 

Congress must produce a bill that creates competition in the health insurance market, in order to successfully lower costs and provide quality choices to consumers. A majority of Americans, policy makers and advocates see the public option as the best way of doing this. H.R. 3200 and Reid’s proposal can achieve this but we cannot lose focus on the overall goal of passing health insurance reform this year. If an opt-out or trigger can create competition while lowering costs and providing quality care, then they should be considered to keep the momentum going. The ultimate goal is quality affordable health insurance for all Americans.

Maria Shriver Report on Women: Update Policies to Reflect the American Workforce

Compared to their parents and grandparents, today’s families are experiencing a transformation in how they navigate work and caregiving responsibilities. This change has profound implications for what the government and business must do to respond to the needs of workers, particularly female workers, and their families.

The recently issued Shriver Report: A Woman’s Nation Changes Everything, a study by Maria Shriver and the Center for American Progress,* contributes to the ongoing national discussion about the current state of women in the United States. Among the findings is that although women have made strides in the workforce, more can and should be done to increase these achievements.

According to the report, although many women have always worked, women now, for the first time, make up half (49.9 percent as of July 2009) of all workers on U.S. payrolls. This is a dramatic change from just over a generation ago: in 1969, women made up only a third of the workforce (35.3 percent). Women are also increasingly taking on the dual roles of breadwinner and caregiver: nearly four in ten (39.3 percent) mothers are primary breadwinners, bringing home the majority of the family’s earnings, and an additional quarter (24 percent) of mothers are co-breadwinners, brining home at least 25 percent of the family’s earnings. The recession is accelerating these trends by leading to massive job losses, especially within male-dominated industries, with men accounting for three out of every four jobs lost (73.6 percent).

The report recognizes that while the composition of the national labor force has shifted and the typical family structure has changed, government and business institutions have failed to catch up with these realities. As a nation where both men and women generally work outside the home, our country’s workplace policies and social safety net must be updated to reflect the current realities of today’s workers. The report calls on policymakers to reform government incentives and requirements for employers to ensure equality for women workers and to support employees’ dual work and care responsibilities by addressing these issues:

  • Equal Pay: Although women make up half of the labor force, they have not achieved equality in pay. The typical full-time, full-year female worker brings home 77 cents for every dollar earned by her male colleagues. And, for specific groups of women—including women of color and disabled workers—the wage gap is even larger.
     
  • Equal Opportunity: Continued sex segregation in employment has prevented women from accessing higher paying jobs in nontraditional fields. Low-income women in particular need access to job training that will lead to career pathways with family-sustaining wages and benefits.
     
  • Anti-Discrimination: Anti-discrimination laws, including Title VII and the Pregnancy Discrimination Act, must be reformed so that employers cannot disproportionately exclude women from workplace benefits.
     
  • Family and Sick Leave and Social Security: Our social insurance system needs to be modernized to include paid family and sick leave as well as social security retirement benefits that take into account time spent out of the workforce caring for children and other relatives.
     
  • Child and Elder Care: Workers need better support from the government with direct subsidies for child care, early education, and elder care to help them cope with their family and work responsibilities.
     
  • Flexible and Predictable Schedules: More flexible and predictable work schedules are needed to help employees balance work and family more efficiently.

The Sargent Shriver National Center on Poverty Law’s Women’s Law and Policy Project and Community Investment Unit continue to work on issues of employment, education and skill development, and financial opportunities with the goal of promoting women’s economic progress and achieving gender equity in the workplace.   Eliminating sex-based discrimination and establishing policies that recognize the everyday reality of workers’ caregiving responsibilities are necessary for ensuring the economic security of women and their families. Better training and educational opportunities, stricter enforcement of fair employment laws, and the creation of policy where fair employment protections do not exist are all imperative in empowering women to increase their earning power, develop economic self-sufficiency, and support their families’ well-being. 

For more information about the Shriver Center work contact Wendy Pollack, director of the Women’s Law and Policy Project at wendypollack@povertylaw.org, or Karen Harris, supervising attorney of the Community Investment Unit at karenharris@povertylaw.org.

*Please note that the Sargent Shriver National Center on Poverty Law is named in honor of Maria Shirver’s father, Sargent Shriver, but is not the author of the report.

Homestretch Part 3: Affordability Measures

[This is the third in a series of six articles summarizing the leading categories of issues at stake in the final stages -- the homestretch -- of the debate on national health insurance and health care reform.]

Health insurance reform is crucial for the success and prosperity of American families. However it will only succeed if there are affordability measures in place for families, individuals and small business owners.   Congress now has three bills that have passed out of committee and must be reconciled to create the final bill. The key will be to take the best elements of each bill to ensure Americans adequate and affordable health insurance.   In all three bills, almost all individuals are required to carry health insurance. The goal of the individual mandate is to encourage the use of primary care providers and preventive care, while reducing the use of emergency rooms for non-emergency care. This could prove problematic for individuals who do not qualify for subsidies but cannot find an affordable plan, and for low-income individuals. However, with adequate subsidies and affordability measures, Congress can ensure that health insurance is affordable for everyone.

Individual and Employer mandate
All three bills require that almost all individuals have health insurance and those who do not will be required to pay a penalty. However, each of the bills has a different method of penalizing certain individuals. Both Senate bills (Health, Education, Labor and Pensions (HELP) and Finance) impose a tax penalty of $750 per individual per year and per adult per year, respectively. The Senate HELP bill exempts people whose incomes are below 150% of the Federal Poverty Level (FPL), people without coverage for fewer than 90 days, members of Indian tribes, and residents of states without an Exchange in place. The Senate Finance Committee exempts certain individuals as well, including, individuals with incomes below 133% FPL, individuals with religious objections, individuals who can prove financial hardship, American Indians, and if the lowest cost plan exceeds 8% of an individual’s income. 

The House Tri-Committee bill (H.R. 3200) imposes a penalty of 2.5% of income up to the cost of the Exchange’s national average premium. The House bill exempts dependents, individuals with religious objections or financial hardship. 

The three bills also include employer mandates which require employers to contribute to their employees’ cost of insurance. An employer mandate is necessary to ensure that costs do not get passed to employees and that employers do not drop employee insurance with the adoption of the Exchange. However, these mandates must be carefully designed as not to impose higher costs on small business owners or discourage the hiring of low-income individuals.

The Senate Finance bill would impose a tax on employers with more than 50 employees that do not offer coverage. They would be taxed for each employee that receives a tax credit through the Exchange. This provision may discourage employers to hire low-income individuals who would be more likely to receive credits in the Exchange. Additionally, the Finance bill would require an employer with more than 200 employees to automatically enroll employees into the employer’s health insurance plan. Employees may choose to receive coverage from another source. 

The Senate HELP bill requires employers to offer health insurance and pay 60% of the premium cost. Under this bill, employers will be subject to a $750 penalty for each full-time employee and $375 for each part-time employee who is uninsured and not offered insurance. The provision exempts employers with 25 or fewer employees. 

H.R. 3200 requires employers to offer coverage and pay at least 72.5% of premium for an individual and 65% of premium for a family. The penalty for not following this requirement is to pay 8% of the employer’s total payroll into the Health Insurance Exchange Trust Fund. Certain employers would receive exemptions from the penalty. For small employers with a payroll of less than $750,000 a year, the penalty would be imposed on a sliding scale instead of the flat assessment rate of 8%. 

Subsidies
The key to successfully mandating health insurance without creating a financial imposition on low and middle income families, is implementing adequate
subsidies for people to buy insurance through the Exchange. The goal of the subsidies is to limit the premium cost to individuals based on a sliding scale. The House bill does the best job of limiting the percentage of an individual’s income that goes toward premiums. However, the Senate HELP bill provides the best subsidies or individuals below 150% FPL. The Senate Finance bill has improved their subsidies substantially; however more could still be done.   It is also important to keep in mind that Medicaid eligible individuals, non-citizens and non-Legal Permanent Residents will not qualify for the subsidies, with the exception of some Medicaid eligible individuals under the Senate Finance bill. Here is a table of the subsidies for income tiers under each bill:

 

Senate Finance Committee

Senate HELP Committee

H.R. 3200**

100%

2%

NA*

NA

133%

3.7%

NA*

NA

150%

4.5%

1%

1.5-3%

200%

7.0%

3.3%

3-5%

250%

9.5%

5.6%

5-7%

300%

12.0%

7.9%

7-9%

350%

12.0%

10.2%

9-10%

400%

12.0%

12.5%

10-11%

 *The HELP bill raises Medicaid eligibility to 150% FPL and excludes Medicaid recipients from receiving subsidies. Both the Senate Finance and H.R. 3200 bills raise the eligibility to 133% FPL. However, under the Senate Finance individuals can choose to enroll in the Exchange and receive subsidies. 

**H.R. 3200 provides for subsidies on a sliding scale within an income bracket and designates an initial subsidy level and a maximum subsidy level for each bracket (i.e. individuals between 133%-150% FPL will receive subsidies that limit their premiums somewhere between 1.5% and 3% of their income.)

Out-of-pocket caps
Under the current health insurance system, a large number of Americans—including those who have health insurance-- pay for many services, treatments and tests out of their pockets, particularly for preventive care. The three health insurance reform bills would set a cap for what individuals and families could pay out-of-pocket in a year. The out-of-pocket caps must be substantial enough that individuals do not face underinsurance if faced with an illness or accident. That is, the caps should be low enough that insurance kicks in before families face financial insecurity and are unable to pay for necessary care. The below
chart depicts the proposed caps included in the three bills as compared to the standards that would protect Americans from underinsurance.  

 

Senate Finance Committee

Senate HELP Committee

H.R. 3200**

Standard that would protect Americans from Underinsurance

133%

16%

N/A*

4%

5%

150%

14%

8%

5%

5%

200%

16%

6%

12%

10%

250%

13%

13%

16%

10%

300%

14%

11%

16%

10%

350%

12%

18%

13%

10%

400%

11%

16%

14%

10%

*The Senate HELP bill expands Medicaid to 150% FPL, so individuals in this income bracket would qualify for Medicaid

**As estimated by House Ways and Means as of July 31, 2009.

There is still much work to be done as the three health insurance reform bills come together, in order to ensure that comprehensive health insurance is truly accessible and affordable for Americans. The groundwork for such a solution is here. As Congress negotiates to create one final bill, they must keep in mind that the mandate and subsidies must complement each other to ensure quality, affordable health insurance choices because this is what Americans need and this is what they demand

Health care advocates throughout the country are urging Americans to call their Senators and ask them to support the affordability provisions in the Senate HELP bill. If you aren’t sure who your Senators are you can find out on Families USA’s website at http://ga3.org/familiesusa/leg-lookup/search.html

Expansion of Public Programs for Low-income Individuals

Without passage this year of health insurance reform containing an expansion for low-income families, states will spend more on their programs for the poor than they currently pay out.  A recent Robert Wood Johnson Foundation report shows that within a decade the number of people without health insurance could increase by more than 30 percent in more than half of the states and in every state, the number of uninsured would increase by at least 10 percent.

Currently, only certain groups of low-income people are eligible for publicly provided health insurance—Medicaid—referred to below as “traditional eligibles.” Left out are approximately 60 million uninsured low-income adults between 18 and 65 who do not qualify for Medicaid, no matter how needy they may be, since that program has always targeted children, their parents (or other adult caretakers), the disabled and those over 65.  In fact, low-income adults below 200% of poverty account for just over half of the non-elderly uninsured. They do not have access to the care that can prevent a treatable problem from becoming an illness requiring hospitalization (and often becoming prematurely disabled or dying) and resulting in expensive bills (where the costs are often shifted onto other payers). 

The expansion of the Medicaid program can ably fill this enormous gap in coverage, and, in fact, is included as a provision in the three main bills aiming to reform the health insurance system. House Resolution 3200 America’s Affordable Health Choices Act (H.R. 3200), the Senate HELP Committee Affordable Health Choices Act (Senate HELP), and the Chairman Max Baucus’ Senate Finance Committee’s Mark (Chairman’s Mark) all seek to expand coverage to low-income adults. Click here to see a table format displaying the specific provisions in two of the bills addressing the expansion of public coverage or read further.

As you will see in the following descriptions of the competing proposals, the House version is more helpful on most issues. The Shriver Center supports the most helpful provision in each case—we favor more comprehensive, more affordable and higher quality coverage.

Expanding Access to Medicaid
H.R. 3200 and the Senate HELP Bill would expand Medicaid to all individuals up to 133% of the federal poverty line (FPL) and 150% FPL, respectively. The Chairman’s Mark concedes to states to make the final decision. States would have the option to expand Medicaid coverage to childless adults with 133% FPL as the minimum eligibility.

Cost Sharing Between the Federal Government and the States for Expanded Medicaid
Medicaid financing is currently shared across state or local governments and federal government following the formula set forth in the federal matching percentage for each state (officially known as the Federal Medical Assistance Percentage, or FMAP).  On average, the federal government pays for 57% of Medicaid costs, but this varies from a floor of 50% to a high of 76% in 2010.  However, states are receiving an enhanced FMAP as a result of the American Recovery and Reinvestment Act (ARRA) to help support Medicaid during the economic downturn, when demand for Medicaid increases and states can least afford to support their programs.

State governors are worried about the cost of Medicaid expansion and the reform proposals address these concerns. H.R. 3200 proposes full federal funding (100% FMAP) for new traditional eligibles between states’ eligibility levels as of June 16, 2009 and 133% FPL and traditional eligibles currently covered by waivers. Under the Chairman’s Mark, states would receive assistance in financing the cost of the Medicaid expansion through a percentage point increase in the FMAP. The percentage point increase in the FMAP for each state would depend on the “neediness” of that state (i.e. low Medicaid enrollment proportional to unemployment rates). By 2019 all states will receive a FMAP increase of 32.3% for the newly eligible (e.g., Illinois’ FMAP would be 82.3%).

Increase in Provider Rates
Currently, provider payment rates vary across states since state Medicaid programs have broad flexibility to set rates. On average, hospital fees are estimated to be 5% below Medicare rates, physician fees 40% below, and managed care rates about 15% below Medicare rates. Average Medicaid fees across the United States for primary care physicians are at 66% of Medicare fees.

H.R. 3200 phases in increases in payments for primary care services in fee-for-service and managed care to Medicare payment rates (80% of Medicare in 2010, 90% in 2011, and 100% in 2012 and after). The cost of the rate increases would be 100% federally financed over a 2009 base. An Energy and Commerce Committee amendment requires states to specify and get approval for the payment rates to be paid under the state’s Medicaid program. The amendment also requires an annual report on Medicaid payment rates and methodologies and an explanation of the process used to allow providers and the public opportunity to review and comments on rates.

The Chairman’s Mark does not specifically address provider rates but would establish a bundled payment demonstration project for up to 8 states for acute and post-acute care. The proposal also would establish a “Global Payments” demonstration project (providers are paid standardized per-patient annual fees designed to cover care for the entire year) for up to 5 states from 2010 to 2012 for large safety-net hospital systems. The Mark further sets forth the establishment of a CMS Innovation Center designed to test, evaluate, and expand in Medicare, Medicaid, and CHIP (Children’s Health Insurance Program) different payment structures and methodologies to foster patient-centered care, improve quality, and slow Medicare costs growth. Finally, the proposal would establish demonstration projects in Medicaid and CHIP to allow pediatric medical providers organized as accountable care organizations to share in cost savings.

Changes to Medicaid’s Benefits
In H.R. 3200, those eligible for Medicaid would continue to receive the traditional Medicaid benefits package (all “medically necessary” services). Under The Chairman’s Mark, all newly-eligible adults would receive a benefit package that meets minimum quality coverage requirements as determined by the new law. These packages are not likely to be as comprehensive as Medicaid.

In the Chairman’s Mark, all newly-eligible adults would receive benefits that meet the minimum requirements (including prescription drugs) as established by the Deficit Reduction Act. The Proposal would require states to offer premium assistance and wrap-around benefits to Medicaid beneficiaries who are offered Employer-Sponsored Insurance if it cost-effective to do so in 2013.

Choice of Medicaid or the Exchange
Some of the health insurance reform proposals would create a Health Insurance Exchange (the Exchange), which has been described as “a new entity intended to create a more organized and competitive market for health insurance by offering a choice of plans, establishing common rules regarding the offering and pricing of insurance, and providing information to help consumers better understand the options available to them.” One goal of an Exchange is to offer enrollees a choice of health insurance plans, and some proposals, including H.R. 3200, include a public plan option to foster competition among plans on the price of coverage and minimize the tendency for the plans to vary benefits in order to attract healthier than average enrollees.

Each of the proposals addresses the overlap of Medicaid and the Exchange a little differently. The Senate HELP proposal stipulates that people eligible for Medicaid would receive health insurance through the state and would, thus, be ineligible for the Exchange. H.R. 3200 would allow newly eligible individuals, the childless adults, to choose coverage through the Exchange, if they were enrolled in health coverage that qualifies under the new quality provisions during the six months before becoming Medicaid eligible.

Specifically, in H.R. 3200, non-traditional (childless adults) Medicaid eligibles may enroll in coverage through the Exchange if they were enrolled in qualified health coverage during the 6 months before becoming Medicaid eligible. States must enter into a “Memorandum of Understanding” with the Exchange to coordinate enrollment of individuals in Exchange-participating health plans and under the state’s Medicaid program. There is a “Medicaid screen and enroll obligation” requiring states to auto-enroll non-traditional Medicaid-eligible individuals in Medicaid if they apply for coverage in the Exchange and are found to be Medicaid eligible. For traditional eligibles, states can opt to use the same auto-enrollment process or use presumptive eligibility and follow Medicaid enrollment procedures. States may be authorized to determine eligibility for affordability credits through the Exchange.

Under the Chairman’s Mark, once the Exchange is fully operational, individuals below 100% FPL would be ineligible for the tax credit. However, beginning in 2014, individuals between 100-133% FPL could choose between Medicaid and tax credits for the Exchange. Senator Baucus recently updated the Chairman’s Mark to accept an amendment by Rep. Rockefeller (D, WV) that allows individuals above 133% FPL who receive only wrap-around Medicaid benefits to be eligible for tax credits through the state Exchange. The Chairman’s Mark also would require states to establish a Medicaid enrollment website to promote seamless enrollment between Medicaid and tax credits through a state exchange. These state Exchanges may contract with state Medicaid agencies to determine eligibility for Medicaid, CHIP, and tax credits for state residents if the contract lowers overall administrative costs and reduces the likelihood of eligibility errors and disruptions in coverage. Lastly, states would not have to maintain current eligibility levels for Medicaid coverage of non-pregnant, non-disabled adults with incomes above 133% FPL until Exchanges are fully operating or Jan. 1, 2014. States could cut back this eligibility as of Jan.1, 2010, if they are facing budget deficits or expect to face deficits in the coming year.

Maintenance of Effort (MOE) by the States
While states generally have flexibility to change optional eligibility levels for their state Medicaid programs, ARRA’s provision of additional funding for states in the form of an enhanced FMAP requires states to maintain eligibility levels and enrollment procedures from July 1, 2008 to be eligible for enhanced funds.

Under H.R. 3200, Medicaid eligibility standards, methodologies, or procedures (including waivers) may not be more restrictive that what was in place as of June 16, 2009. However, an Energy and Commerce Committee amendment provides an exception to the MOE for certain waivers that permit individuals to receive a premium or cost-sharing subsidy for individual or group health insurance coverage.

The Chairman’s Mark would require states to maintain existing Medicaid income eligibility levels for all Medicaid populations. The MOE for coverage above 133% FPL would expire when the state exchange becomes fully operational (expected to be 2013).
 

Three Cheers for the Stimulus Bill

The devastating effects of the financial crisis continue to be felt by millions of Americans and many are “booing” the stimulus bill, when in fact they should be cheering.

The purpose of the stimulus’ $787 billion in new spending and tax cuts was to keep the economy from spiraling even further out of control by saving and creating 3.5 million jobs over 2 years and helping states with their budget shortfalls. A number of different indicators reveal that the stimulus bill, officially called the American Recovery and Reinvestment Act (ARRA), is doing its job.

Unemployment: Last Hired
In August, nearly 1 in 10 Americans in the labor force were unemployed and prospects for new jobs are not all that promising. This is neither new nor surprising. Historically, unemployment lags behind other indicators of economic recovery and typically does not decline until 6 to 12 months after the economy picks up. The stimulus bill is cushioning the blow of unemployment by creating 2.5 million jobs by the end of 2010 that would otherwise not exist. It is also providing 2.5 million people with extended unemployment benefits through an increase of 1.3 billion per month in unemployment benefit levels. Clearly, the unforgiving job market is hurting many families, but without the stimulus bill it would be much worse.

GDP: Moving on Up
GDP growth is positively correlated with an increased standard of living. As the GDP rises, so do our lives. The non-partisan Congressional Budget Office (CBO) estimated, and others agree, that the stimulus bill added 2-3 and nearly 3 percentage points to GDP growth in the second and third quarters of 2009 respectively. Moreover, GDP is projected to be“1.4 percent to 3.8 percent higher in the fourth quarter of 2009 than it would have been without the stimulus” and similar percentages are expected for the fourth quarter of 2010. This upward trend is the result of the stimulus bill’s success in raising both confidence in the economy and demand, without which GDP, and our lives, would be stagnant.

Budget Cuts
States face a combined $350 billion in projected budget gaps for the next 2 years. Over the same time period state governments will receive $140 billion from the stimulus bill for Medicaid, education funding, and construction/infrastructure projects. Many states have already used some of these funds to avoid cuts to critical programs and to pay for immediate short-term projects. Virginia, for instance, reversed plans to lay off thousands of school personnel and close mental health facilities, while New York canceled major cuts to senior’s prescription drug benefits and school funding. Additionally, many states are using recovery funds for “shovel ready” projects such as paving and street repairs. These immediate uses of stimulus monies create jobs quickly and raise the demand for goods and services, thereby bolstering state economies.

Deficit: Penny Foolish but Pound Wise
Clearly, both the federal government and the states currently have huge deficits. Yet, failing to enact the stimulus bill would have been penny wise and pound foolish. Although the stimulus funds and tax cuts have increased current deficits significantly, their long term effects are minimal. The stimulus bill will add a mere 3 percent to the federal budget shortfall through 2050. Moreover, while the U.S. will likely face a huge deficit in the coming decades, such budget woes are the result of increasing health care costs—and not the stimulus bill. In sum, the benefits of the stimulus bill far out weigh its costs.
 

Three Cheers for the Stimulus
The economic crisis was a long-time in the making and will take a long time to undo. The stimulus bill has not only helped to cushion the blow of this recession, but also started us on the path to recovery. Its positive effects are clear and instead of criticizing we should be rejoicing.