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Medicaid Caps Would Increase Uninsured, Erode Recession Buffer, Study Says

MAY 9, 2005 -- Preliminary results of a study released Monday by the Economic and Social Research Institute say if Medicaid had been capped at enrollment levels that existed in the program in 1999, the number of uninsured would stand at 50 million rather than 45 million. Capping Medicaid spending "could create a serious risk of deepening future recessions," said Stan Dorn, a researcher at the institute.

Although the Bush administration denies that it aims to shift into block grants the optional part of the program, which accounts for two-thirds of its overall spending, critics say the proposal to give states flexibility in managing optional populations and optional benefits amounts to much the same thing. The administration counters that it is trying to find ways to extend basic coverage to more people as states rein in Medicaid spending by clamping down on coverage of optional populations.

"Medicaid may play a crucial role in helping the country recover from recession," Dorn said at a Washington forum sponsored by the Joint Center for Political and Economic Studies. Under Medicaid's entitlement structure, enrollment and outlays rise as the economy worsens, providing a buffer against rising lack of insurance and an automatic economic stimulus to counter a downturn.

Citing U.S. Labor Department data, Dorn said that during recessions, the Unemployment Insurance (UI) program reduces the total loss of real Gross Domestic Product by 15 percent to 17 percent. Based on his analysis of data gathered by the U.S. Commerce Department and the Urban Institute, Dorn added that "during recent economic downturns, Medicaid and UI appear to have provided economic stimulus of comparable magnitude.

"The African-American community has a large stake in this issue. Among African-Americans, Medicaid covers 44 percent of all children, 72 percent of poor children, 38 percent of poor adults, and 38 percent of poor seniors," Dorn said, citing U.S. Census data. Dorn also said unemployment rates rise faster for African-Americans during economic downturns—three times faster, for example, from 2001 to 2004, based on U.S. Labor Department data. "African-Americans disproportionately suffer from health problems like hypertension and diabetes," he said. "The health consequences from losing Medicaid or losing employment can thus be quite severe."

Dorn said caps on spending or enrollment would eliminate much of this automatic feature, leaving it to policymakers to decide whether they should intervene with stimulus spending, and that process likely would occur too slowly, causing any possible fiscal intervention to come too late.

Dorn said Medicaid cost growth can be reduced without capping spending or enrollment, and he credited the Bush administration for offering specific proposals to do so, such as limits on asset transfers and curbs on the ability of states to increase federal Medicaid matching funds through dubious accounting practices. He also cited greater use of home- and community-based care, tighter payment rules for drugs and integrated systems of care for those eligible for both Medicare and Medicaid.

While Medicaid now has a counter-cyclical economic effect, that impact is lessened by state constitutional requirements for balanced budgets, Dorn said. The result is that states must cut Medicaid spending just when laid-off workers need the most help and the economy needs the most stimulus. A fix for that problem would be to boost federal matching rates automatically by up to three percent during economic downturns, he said.

Gary Karr, spokesman for the Centers for Medicare and Medicaid Services (CMS), said states already are limiting enrollment of optional populations as they cope with rising Medicaid budgets. The administration aims through its flexibility proposals to give states more power to shape benefit packages for optional populations, a strategy that will mean more people will have basic coverage than if states drop entire categories of optional populations.

Karr said it is a positive development that other groups including the institute endorse proposals to limit asset transfers and expand home and community-based care. The administration's overall goal is not "an arbitrary cap," Karr said, but less rigid rules that allow more people to be covered at a lower cost.

Dr. Louis Sullivan, who moderated the event, noted that things were much the same 15 years ago when he was Health and Human Services secretary in President George Bush's administration. "We are still trying to expand coverage and rein in costs," he said, but today the concern is that reining in costs will harm coverage.

The Economic and Social Research Institute describes itself as "a nonprofit, nonpartisan institute that conducts research and studies directed at enhancing the effectiveness of social programs."

The center says its mission is to illuminates the major public policy debates through research and analysis, and information dissemination in order to "improve the socioeconomic status of black Americans and other minorities."

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