Myths about Medicaid

Posted by White House

Today’s Wall Street Journal includes a story claiming that states will suffer through a deep fiscal crisis because of the Affordable Care Act. Unfortunately, the story relies on flawed studies and omits important information about some of the key benefits in the new law for states and their residents. Here are the facts:

Insuring More Americans Will Help Save Money for States: Under the new law, 32 million more Americans will have health insurance, thereby saving money normally spent on caring for the uninsured. And savings for states under the new law could be substantial. The Urban Institute has estimated that:

“…state and local governments would save approximately $70-80 billion over the 2014-2019 period by shifting this spending into federally matched Medicaid, clearly exceeding the new cost to states of the Medicaid expansion…”

And after detailing other potential savings, the same report concludes:

“In sum, states as a whole can probably achieve savings that significantly exceed their increased costs for low-income Medicaid adults.”

By insuring more Americans, the Affordable Care Act will substantially decrease the amount states spend to care for the uninsured, which in 2008 cost states $17.2 billion. Overall, boosted federal Medicaid support to states will decrease the share of how much they spend to cover their Medicaid enrollees’ health care expenses by 4.5 percent.

Administrative Costs Will Be Supported by the Federal Government: Today’s story wrongly claims that the new law “sticks states with a significant amount of the administrative costs” associated with their Medicaid programs. In fact, the Obama Administration recently proposed that the federal government cover 90 percent of the cost of updating state Medicaid systems to ensure these systems are as efficient as possible.

Even in These Tough Economic Times, States Continue to Make Improvements to their Medicaid Programs: A recent Kaiser Family Foundation survey found that nearly all states are proactively improving their Medicaid programs to provide better care and make these programs more efficient. These improvements, combined with substantial resources from the federal government, for example, through the newly launched Innovation Center, will help ensure states do not have to cut spending in other crucial areas to support their Medicaid programs.

Today’s Story Relies on Flawed Studies: The article cites deeply flawed analyses on the impact of the Medicaid expansion on Mississippi, Indiana, and Nebraska. As the Center on Budget and Policy Priorities notes:

“These studies, however, conducted by the consulting firm Milliman, Inc., have serious flaws. They produce overstated estimates of the costs of the Medicaid expansion because they rely on a number of problematic assumptions…”

One of the assumptions these studies make is that 100 percent of those who are currently eligible for Medicaid, as well as 100 percent of those newly eligible will enroll in the program. Neither the Congressional Budget Office, nor the Chief Actuary of the Centers for Medicare and Medicaid Services, made this assumption when they projected the Affordable Care Act’s impact on Medicaid enrollment because there is no evidence to support it. Medicare, which offers coverage to all Americans over the age of 65 does not have 100 percent enrollment. The studies also tended to overestimate per-capita Medicaid beneficiary costs, as well as the number of people who would opt out of private health insurance for Medicaid. You can read the full report by the Center on Budget and Policy Priorities here.

Under the new law, millions of Americans who have been uninsured will have coverage, the worst insurance company abuses will be banned and states will save money they would have spent caring for the uninsured. That’s a good deal for millions of Americans and state budgets.

Setting the Spending Record Straight

Posted by White House

The Wall Street Journal today ran an editorial bemoaning the increase in federal spending between FY 2008 and FY 2010.

What it doesn’t factor in, or provide context for, is the chain of events that led to these increases.

First, a large driver of federal spending was the onset of the economic collapse in late 2008 as automatic aid to people hit hard by the downturn, such as unemployment insurance and food stamps, kicked in. With more people temporarily eligible for these mandatory programs and less revenue coming in, the deficit increased substantially in FY 2009, which began on October 1, 2008. In fact, on January 7, 2009 -- before President Obama was sworn in -- the Congressional Budget Office (CBO) issued its Economic and Budget Outlook for Fiscal Years 2009-2019. In that document, CBO projected that government spending would rise from 20.9 percent of GDP in FY 2008 to 24.9 percent of GDP in FY 2009. In reality, government spending in FY 2009 turned out to be roughly what had been predicted a year earlier (24.7 percent). That is to say, this big increase of government spending occurred because of the economic meltdown the Administration inherited and the accompanying automatic increase in programs that assist those most hurt by it -- and this was already fully baked into the fiscal cake when the President took office.

Second, also in response to the recession, we needed to help close the huge gap between what the economy could produce and what it was producing in order to prevent a second Great Depression and even more devastating job losses. That’s why economists from across the spectrum supported a significant stimulus measure, and why the President signed into law the Recovery Act.

While the Recovery Act has become a subject of intense debate, it clearly has brought our economy back from the brink. Instead of four quarters of economic contraction, we now have had four quarters of economic growth. Instead of losing 750,000 jobs a month, we’ve now had nine months of private sector job growth. Recovery Act investments not only saved the jobs of thousands of teachers, firefighters, and police officers, but are also laying the foundation for economic growth in years to come as new roads, bridges, power plants, and rail are built. The Recovery Act added to government spending, but it was essential and beneficial to the nation’s economy.

While measures like these were needed to stave off recession and strengthen the economy, we also must restore fiscal sustainability over the medium- and long-term. However, doing so is made much more difficult because of past fiscal irresponsibility -- the previous Administration’s failure to pay for two large tax cuts and the Medicare prescription drug benefit.

What is required of us now is to make the tough choices to put our fiscal house in order.

The President has put forward a budget that contains more than $1 trillion in deficit reduction. He has put in place a three-year freeze on non-security discretionary spending -- in nominal terms based on levels that do not include any Recovery Act funding -- and vowed to enforce it with his veto pen. He convened a bipartisan fiscal commission to devise a plan to get our budget in primary balance and our country on a long-term, sustainable course, and looks forward to hearing back from them in December. Looking to the long term where the growth of health care costs is the single biggest driver of increased spending, the President signed into law the Affordable Care Act, which will reduce the deficit by more than $100 billion in its first decade and more than $1 trillion in the second.

The other side’s response to our fiscal imbalance is to make it worse by supporting tax cuts for the wealthiest 2 percent of households -- cuts that will increase our deficits by nearly $700 billion and do nothing at all to stimulate economic growth.

What should worry those concerned about government spending and our fiscal situation are not slanted arguments about how we got here, but plans like these that will put us deeper into a hole.

No Excuse for Holding Middle Class Tax Cuts Hostage

Posted by White House

In an oped for the Wall Street Journal this morning, House Minority Whip Eric Cantor took the Congressional Republicans' commitment to holding middle class tax cuts hostage to a new level by pledging to fight any effort to extend them without an extension for the top two percent of the wealthiest Americans.

Here’s what Cantor and the Republicans are holding hostage: a tax cut for all Americans on the first $250,000 of their income. Under the Obama plan, every middle class family would receive the immediate certainty and comfort of knowing their tax cuts were permanently extended. Every American making more than $250,000 per year they would receive a tax cut on the first $250,000 of their income. And for income above that amount, this change would leave their tax rates at or below the rates that existed when President Clinton was in office and when the economy created 23 million jobs.

And here’s what they’re holding middle class tax relief hostage for: having our nation borrow $700 billion that we can’t afford to provide an average tax cut of $100,000 to millionaires and billionaires. This tax cut would be, according to the non-partisan Congressional Budget Office, just about the worst way to jumpstart our economy and help create jobs. That is why the President remains focused on strengthening the middle class to help grow the economy.

Because these realities are pretty hard to defend, Mr. Cantor is forced to make tired claims about the impact on small businesses that are simply not based in fact. This isn’t about small businesses the way most Americans think about small businesses. By Eric Cantor’s definition half of the wealthiest 400 people in America would qualify as small businessmen.

Let’s be clear—even Eric Cantor’s colleague, John Boehner acknowledged that more than 97% of small businesses will get a permanent tax cut under the Obama plan, and beyond that many of the “businesses” that fall into the top 3% are not small businesses at all. In fact, the individuals the Congressional Republicans are referencing as small businesses include virtually every partner at major corporate law firms and billionaire hedge fund managers -- not exactly mom and pop stores or startup businesses.

If Eric Cantor was really focused on small businesses he would push his Republican colleagues in the House to support the Small Business Jobs Bill that would give eight new tax cuts to small businesses. The bill finally that passed the Senate last week would give essential assistance to small businesses and the President is looking forward to signing it into law as soon as the House passes it.

And let’s just be straight: time after time for the last 20 years that well-funded special interests and Congressional Republicans have fought together to ignore the deficit and keep lower taxes for the very most-well off Americans, they have always disguised their argument as concern for small business and small business jobs.

It’s time for Mr. Cantor and the Congressional Republicans to stop letting partisan games get in the way of giving middle class families the long-term relief they need.

The Right Comparison Between Recoveries

Posted by White House

The Wall Street Journal ran a graph this weekend claiming, “The private sector is adding jobs … but the recovery is slower than in past cycles.” In fact, even though it is not fast enough, the rate of job growth is actually faster now than was the case at comparable points of the past two recoveries.

How did the Wall Street Journal get it wrong? The problem is that their graph indexes job growth to the start of the recession, not the start of the recovery. The economy stopped contracting at the end of the second quarter last year and has since expanded for four straight quarters. So June 2009 is a reasonable date to pick for the start of the recovery, although the “official” date has not yet been set by the National Bureau of Economic Research (NBER). Private sector job growth started six months after GDP started expanding in the current recovery. By contrast, in the 2001 recovery private sector job growth did not begin until 22 months after the official NBER end date of the recession, and in the 1991 recovery job growth did not start until 12 months after the official NBER end date of the recession.

The graph below indexes jobs to the end of the economic contraction and beginning of recovery, not the start of the recession, and indicates that we have recovered more jobs so far than in the two most recent previous recoveries. The graph that follows makes that point even more strongly for aggregate work hours.

The headline of the Journal’s graph should have been that the recession that began in December 2007 was much more severe in terms of job loss than past recessions, even the 1982 recession. That’s because the most recent recession resulted from a financial panic that caused severe damage to household wealth and business and consumer confidence. The damage caused by financial crises is typically much more widespread, indiscriminate and longer lasting than that caused by other recessions. So the fact that private businesses have added jobs, on net, in each of the last eight months – and that job growth has come earlier than in the past two recoveries – could be taken as a sign that the medicine applied to the economy has helped it to begin the process of healing much earlier and robustly than would otherwise have been the case.

Despite job growth starting earlier than in the last two recoveries, the Administration is not satisfied that it is not even faster, and is seeking additional measures to speed job growth, such as through a small business lending fund. As President Obama said this weekend, the Administration is committed to “doing everything we can to accelerate job creation.”