Editor’s Note: In addition to Dr. Leighton Ku (photo and bio above), the authors of this post include Dr. Peter Shin, an Associate Research Professor and Director of the Geiger Gibson Program in Community Health Policy at the George Washington University School of Public Health and Health Services, and Brian Bruen, a Lead Research Scientist and Lecturer at the Geiger Gibson Center.
As the nation struggles to climb out of the Great Recession, many people also want us to improve access to health care. But some believe it is inappropriate to spend more for health care while budget deficits are large and the economy is still weak. Is the promotion of health care access inconsistent with economic growth? While policies like expansions of community health centers or Medicaid fiscal relief can strengthen health care access by creating more primary care and bolstering insurance coverage, do they also stimulate economic growth and the creation of jobs?
Community Health Centers
Last year’s economic stimulus bill—the American Recovery and Reinvestment Act of 2009 (ARRA)—provided $2 billion for community health centers. Health centers are nonprofit primary care providers located in medically underserved areas, governed by patient-majority boards, and offering comprehensive primary care services to low-income patients regardless of their ability to pay. In 2008, some 1,100 health center grantees operated about 7,500 clinics or delivery sites and served more than 17.1 million patients, relying predominantly on federal grants and Medicaid payments.
Between March and December 2009, the federal government allocated ARRA funds to health centers through four types of grants: Capital Improvement Program grants to upgrade health center facilities ($852 billion); Facility Investment Program grants for “shovel-ready” construction projects ($509 million); Increased Demand for Services grants to expand services at existing health centers ($342 million); and New Access Point grants to support new health centers that did not previously receive federal grants ($156 million). Anecdotal reports indicate that health centers are using the grants for the intended purposes. For example, one health center is using grant funds to hire a new physician and nurse, and to upgrade and expand medical and dental exam rooms.
How Health Care Investments Can Stimulate the Economy
While additional health care expenditures increase the federal deficit, they also stimulate economic growth in the near term. Federal investments have important direct and indirect financial benefits; economists describe “multiplier effects” as funds flow through local economies. Direct economic effects occur when federal revenue flows to local firms, in this case the health centers. Indirect effects occur when health centers use new funds to hire staff, pay medical supply companies, and meet normal operating expenses like rent or utilities. For capital improvement grants, health centers use the funds to pay construction contractors, equipment supply firms, and so on. Induced effects occur when workers, whether medical staff or construction workers, use their salaries for everyday expenses, like mortgages or groceries, which generate income for real estate firms or food stores. The dollars are reused many times as they cycle through the community. A dollar invested supports more than a dollar’s worth of local economic activity. Analyses by Capital Link, based on analyses using the IMPLAN input/output economic model, estimated that ARRA’s $1.85 billion investment in health centers will lead to $3.2 billion in additional local economic activity.
Stimulus Funding for Health Centers Is Well Targeted
It is too early to definitively evaluate the effectiveness of the stimulus efforts, but preliminary evidence is promising. We examined the targeting of these funds, focusing on county-level unemployment rates and changes in county unemployment rates since the recession began. We matched grant recipients with their counties, based on the location of each center’s main office. There were 723 counties with one or more health centers receiving ARRA grants, and 2,417 counties without such grants (Figure 1). Health centers in all fifty states and the District of Columbia (as well as in U.S. territories) received ARRA funds. On average, counties receiving ARRA health center funds received about $2.6 million in new grants, although the actual levels varied, depending on the types of grants received and the number of health centers per county.
ARRA funds were well targeted to communities that experienced more serious economic downturns. Counties receiving ARRA health center funds had an average unemployment rate (for the period January to November 2009) that was almost a full percentage point higher (9.6%) than the average rate for nonrecipient counties (8.7%) (p < .001). The counties that received ARRA funds had experienced significantly steeper increases in unemployment rates (4.4 percent) since the recession began—from 2007 to 2009—than nonrecipient counties (4.0%) (p < .001). The targeting means that economic benefits and job creation, as well as increased primary care access, focused on the communities that needed the most help.
Medicaid Stimulus Efforts
ARRA played a larger role in its provision of $87 billion to increase federal Medicaid matching rates from October 2008 through December 2010. Under the terms of fiscal relief, states pay a smaller share of total program expenses provided that they maintain Medicaid eligibility standards. All the states that accepted the higher matching rates—which turned out to be all fifty states—gained higher matching rates, but those with elevated unemployment rates got larger increases. For example, in the fourth quarter of FY 2009, Florida’s surging unemployment led to a 12 percentage point Medicaid matching rate increase, while North Dakota—comparatively better off—gained a 7 percentage point increase. Mark Zandi, the chief economist of Moody’s Economy.com, estimated that each $1 billion investment in state fiscal relief generates $1.4 billion in heightened economic activity, a multiplier rate that was much greater than the equivalent impact of tax cuts. Since ARRA required that states preserve Medicaid eligibility standards during tough times, it enabled Medicaid to cover record-high levels of low-income Americans and to prevent more people from becoming uninsured.
A potential point of “leakage” is that federal stimulus funding can be offset if states cut state funding for services or reduce taxes due to the recession. But one main intent of Medicaid stimulus was “state fiscal relief,” recognizing that state Medicaid savings could be used to support spending for other state services. States could also use the federal funds to avoid increasing state taxes or dipping into state “rainy day” funds, which are less effective in stimulating the economy. In a parallel fashion, many states cut state funding for health centers, partly because federal funding was being increased.
From one perspective, state cuts dilute the effects of additional federal funding. However, in periods of fiscal distress, sparing state health dollars helps preserve funding for other essential services, like education. While states have been forced to cut their budgets, those cuts would have been even more severe if fiscal relief funds had not been available. The President’s Council of Economic Advisers conducted preliminary analyses of the effects of Medicaid fiscal relief and concluded that it had positive effects on state and local employment: “State fiscal relief helped create jobs through preventing cuts to services and avoiding tax increases.”
While macroeconomic evidence suggests that the Great Recession has ended or is close to ending, reemployment statistics remain bleak, and states could be facing even deeper budget problems than last year. Thus, discussions about economic stimulus and job creation remain high on the congressional agenda.
There is substantial, if not complete, evidence that federal investments in health care can stimulate economic growth, and that recent efforts funded under ARRA were well targeted to areas in greater distress. From a financial perspective, the federal investments help preserve or increase business activity and jobs, particularly in communities with high unemployment. From a health perspective, they improve access to health care—through Medicaid coverage or access to primary care services—in low-income communities that have been hurt by the recession.
Congress has a number of pending proposals that could lead to further health care investments. Last week, the Senate passed a jobs bill that extends Medicaid fiscal relief from December 2010 through July 2011, to help states still experiencing severe budget problems for their coming fiscal years. President Obama has proposed to boost federal grants for community health centers by another $290 million next year. The evidence suggests that federal health investments can both help improve access to health care and promote economic growth. The exact nature, size, and timing of such policies can change their effects with respect to both health access and economic growth, but health investments can help advance both of these dual policy goals.
On a longer term basis, both congressional and presidential health reform proposals would expand Medicaid eligibility using elevated federal matching rates and would further augment community health center funding, but would also seek to reduce the overall federal deficit and health care cost growth over the next decade or more. Analyses indicate that Medicaid expansions are an efficient way to expand health coverage, and that primary care provided by community health centers can contribute to an overall reduction of medical expenditures in the long term. Investments in the near term and efforts to save in the long run are appropriate policies both for health care and the economy.