Harvard Economist Finds CARES Act Only Provides Enough Funding for One Month of Coronavirus Response

As our members advocate to their state and federal officials for much needed financial support during the coronavirus outbreak, this article by Harvard Professor David Cutler, Ph.D., demonstrates why this is particularly necessary for health services. While the article is focused on the broader health care sector, it is particularly relevant to Medicaid-funded disability supports which are under-represented in national conversations about responding to COVID-19.

As written by Dr. Cutler:

“Health care offices are already feeling the pinch. Although there are no national data, some primary care practices are reporting reductions in use of health care services of up to 70%. Without major cash reserves, the salaries of clinical staff are being frozen or reduced, and some staff are being furloughed. For the week ending on March 21, the second largest source of unemployment insurance claims in Michigan was from health care businesses, trailing only restaurants and bars.

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Recessions come in 2 types: V-shaped and U-shaped. A V-shaped recession is short, with recovery following rapidly from the downturn. A U-shaped recession has a longer period before recovery. The recession of 2007-2009 was a U-shaped recession. V-shaped recessions are much less memorable.

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The longer the U lasts, the greater the economic harm. Businesses can survive a short time without customers, longer with the relief bill passed by Congress. But sustained shutdowns become increasingly more painful. As time passes, the relief checks will be exhausted. And without access to credit, some retail businesses—perhaps including medical offices—will shutter permanently. The situation feeds upon itself: fewer jobs means fewer people getting paid and lower wages when people work, which means fewer dollars to spend, and so on. That is why government action is essential in a recession.

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However, there are other dangers a long recession poses to health care workers and institutions. Permanent job loss brings with it a reduction in employer-provided insurance coverage. More people will be uninsured or on Medicaid, where payment rates are lower. And as state and local budgets are stretched thin, governments will likely respond with cuts in Medicaid fees and lower payments from the insurance plans of public sector workers. These changes may stay in force for years.

The longer the recession, the more likely additional policy actions will be needed. The $2 trillion relief bill is roughly 10% of annual gross domestic product. Thus, it makes up for perhaps 1 month of the contraction the economy is currently experiencing. If the retrenchment goes much longer, more relief will be needed.

Will the political process be able to follow up with additional action? The unanimous Senate vote for the relief bill shows an appetite for action, but the political parties have not demonstrated the ability to agree on much of anything during the past few years. On both the health and economic fronts, therefore, the situation is fraught with peril.”