Recession threatens health safety net

Unemployment often leads to the loss of health care coverage.  That's because most people are enrolled in health insurance through their employers.  While under COBRA they can continue coverage after being laid-off, without wages people can not afford the cost of the health insurance premiums. 

To make up for the loss of health insurance, people turn to publicly-funded programs such as Medicaid and CHIP.  Although nondisabled adults are usually not eligible for such programs, even if they have no income, many children and some adults are eligible.  National studies show that when the unemployment rate goes up by one percentage point, an additional 1 million people enroll in Medicaid and CHIP to secure health care coverage.

This in turn increases costs for these programs by $3.4 billion annually.  States are responsible for paying between 40 - 45 percent of this increased cost; the federal government is responsible for the rest.

Unfortunately, these increased costs come precisely at a time when states are least able to afford them.  A one percent increase in unemployment will cause a state's revenue to fall by 3-4 percent.  With falling revenue, states can not afford increased Medicaid and CHIP costs.

Families USA  has issued a report describing this dilemma in detail.  It makes the point that as part of passing a stimulus package to get the economy back on track, Congress should help states shoulder these increased medical care costs. 

"Including financial help for states in a federal economic recovery package will help them preserve the Medicaid and CHIP health care safety net. This assistance is vital to prevent program cuts that will cause people to lose health coverage altogether or to lose access to critical health care services. Not only would this federal assistance help provide economic security to the families who depend on these programs, but a federal investment in Medicaid and CHIP would provide an immediate stimulus to state economies, increasing business activity, jobs, and wages.

"There are two important components to how the federal government can provide this financial help. First, an increase in the share of the cost of the Medicaid program paid by the federal government (called the Federal Medical Assistance Percentage or FMAP) should be part of any economic recovery legislative package. This report quantifies, on a state-by-state basis, the potential magnitude of the financial stimulus that would be gained from the most recent Senate proposal to increase the federal investment in Medicaid.

"Second, states must be reassured that the CHIP program will be adequately funded. Although Congress passed legislation—with broad bipartisan support—to reauthorize CHIP on two occasions in 2007, President Bush vetoed those bills. Congress, therefore, temporarily extended the program through March 2009, a deadline for congressional action that is fast approaching. The new Congress should act quickly to reassure states that extending and expanding CHIP as part of an economic recovery package will be accomplished in a timely manner, thereby providing both relief to families and a boost to the economy."