By John Reichard, CQ HealthBeat Editor
October 20, 2008 -- Fueled by an endorsement Monday from Federal Reserve Board Chairman Ben S. Bernanke, momentum may be picking up for congressional passage of a new economic stimulus package, and this time around Medicaid may be on board.
Testifying before the House Budget Committee, Bernanke didn't specifically endorse inclusion of temporary assistance to the states with Medicaid expenditures, but he did say that an injection of federal dollars to boost state services would help the nation's faltering economy.
Medicaid wasn't a part of the stimulus package that became law earlier this year, but state officials and providers are making the case that the deepening downturn makes its inclusion more critical.
Asked Monday whether the odds of including Medicaid have grown, Executive Director Ray Scheppach of the National Governors Association said "very much so," because economists are advising congressional leadership that a temporary increase in federal Medicaid funding to the states "is one of the best counter-cyclical programs you can have."
States are now looking at a collective shortfall of $50 billion in the state fiscal year that runs from July 2008 to July 2009, Scheppach said in an interview. That leads to budget cuts and less spending, further weakening the economy. Unlike the federal government, states with shortfalls can't run deficits and must cut spending or hike taxes, weakening economic demand and adding to recessionary pressures.
But with Medicaid, the formulas for federal matching payments are all worked out, and states will quickly pull back on plans for Medicaid and other program cuts if they know that federal assistance is in the works, Scheppach said.
White House Press Secretary Dana Perino said Monday that President Bush also is open to the possibility of a second economic stimulus package this year. But Bush earlier this year strongly opposed an infusion of added federal dollars into Medicaid.
"We think that there's ample opportunity when Congress gets back to talk about lots of those ideas," Perino said Monday when asked the president's view of the Bernanke endorsement of a second stimulus package. "What we've seen put forward so far by the leaders in Congress, the Democrats, were elements of a package that we did not think would actually stimulate the economy. So we would want to take a look at anything very carefully.
Scheppach said however that passage of an economic stimulus package with Medicaid assistance has a chance in the lame-duck session of Congress, despite past opposition from the White House. He suggested that the White House might be open to negotiating on the subject in return for certain tax provisions, for example.
The governors didn't endorse a specific dollar amount in taking a general position in favor of including Medicaid in the economic stimulus package enacted in February (PL 110-185). But "we're looking at it much more seriously now" and governors in coming weeks may endorse a specific dollar amount in Medicaid assistance, Scheppach said.
Pressed by Rep. Rosa L. DeLauro, D-Conn., at the hearing on whether the overall stimulus package should be worth $150 billion, Bernanke wouldn't bite, but he didn't squawk either, saying the expenditure should be "significant."
Iris J. Lav of the Center on Budget and Policy Priorities told the budget committee that $50 billion of the package should go to the states, with about two-thirds of that used to temporarily boost federal Medicaid payments to the states. The center is a left-leaning think tank.
Congressional Democratic leaders have said they're looking at a package in the $150 billion to $300 billion range, with the lower number the more likely size of the package. They've also said that relief to the states should be part of the package.
Scheppach sees a growing sense in Congress that it should act soon on a new stimulus package. "The earlier the better" to get more bang for the buck, he said. There's growing awareness among lawmakers that the downturn may be akin to that in the early 1980s that produced double-digit unemployment rates. "I think that's beginning to sink in," he said.
One of the issues in giving relief to the states is whether it represents "moral hazard"—whether in effect the relief would contribute to a lack of fiscal discipline in the future on the part of the states.
Rep. Mike Simpson, R-Idaho, challenged the idea of moving to "bail out states." Simpson said "now we are going to prevent states from making difficult choices" that would be helpful in getting their fiscal houses in order.
Rep. Paul D. Ryan, R-Wis., complained about the limited impact of economic stimulus measures. "It might give you a pop in the quarter in which they take place, but then things go right back down," he told the hearing.
Enacting an overall stimulus package worth $300 billion would send the fiscal 2009 deficit to over a trillion dollars, Ryan said, asking what message that would send abroad about the ability of the United States to borrow funds.
But providers will seek to keep lawmakers focused on the more immediate impact they see of the economic downturn. "On behalf of the nation's most vulnerable seniors who need and depend upon access to quality nursing home care, we believe any economic stimulus package must include a state Medicaid relief component," said Bruce Yarwood, president of the American Health Care Association, a nursing home lobby.
