Health Care Blog

Reality Check: The Continuing Effects of the Recovery Act

As a teacher, I should have realized that many people have trouble with the distinction between growth rates and levels. As noted in a new article by the Christian Science Monitor, I made the uncontroversial statement in testimony yesterday that fiscal stimulus has its greatest effect on economic growth over the period where it is ramping up most quickly. This statement seems to have caused some confusion and misunderstanding.

When we go from no stimulus to substantial tax cuts, increases in government spending, and aid to state governments, this has a large effect on the growth rate of real GDP – just as when you press hard on your car’s accelerator and go from 0 to 60, you have a great change in your speed. This sense of acceleration is exactly what we have been experiencing since the start of the year. Fiscal stimulus has been steadily increasing, raising GDP growth by between 2 and 3 percentage points in the second quarter and between 3 and 4 percentage points in the third quarter. Because GDP was falling rapidly before the stimulus, the contribution of the Recovery Act to growth has changed what would have been a continued rapid decline in GDP to only a modest decline in the second quarter, and changed what probably would have been a further decline into what is now widely expected to be a moderate increase in the third quarter. We expect that stimulus will continue to have a positive effect on growth in the fourth quarter of 2009 and well into 2010, though, by design, not by as much as it did in the second and third quarters of 2009. As a result, we expect the largest effect of the stimulus on the levels of GDP and employment to occur well after the largest effects on growth rates.

At some point, the stimulus plateaus at a high level. That is important too. Such continued stimulus may not add much to growth, but it is keeping the levels of GDP and employment much higher than they otherwise would have been – just as keeping pressure on the accelerator keeps the car going at 60 mph.

If you take your foot off the gas, the car goes from 60 back down to a slow crawl – a serious case of deceleration. Taking stimulus off in an economy where private demand has not adequately recovered could lead to negative GDP growth and a fall in the level of both GDP and employment. This is something I think we can all agree would be detrimental to the U.S. economy and American families.

Christina Romer is Chair of the Council of Economic Advisers

Reality Check: WellPoint Analysis Continues the Misinformation Campaign

Constructive debate on health care is always welcome. It's an important part of the process of achieving meaningful reform. Unfortunately, what we've seen out of the insurance industry over the past few weeks can't be categorized as either "constructive" or even a "debate" but rather a misinformation campaign designed to confuse and distract attention from those who are seeking real health care solutions.

The most recent salvo was a set of state-by-state analyses released yesterday by WellPoint claiming that under health reform individual premiums would skyrocket. Like the now widely discredited report from America’s Health Insurance Plans (AHIP) and the deeply flawed Blue Cross Blue Shield analysis, the WellPoint study arrives at its conclusion by cherry picking certain policies and ignoring major aspects of reform that would affect both the number of people covered and the premiums they would pay. Among the policies that WellPoint’s study consciously ignores: special policies for young adults including premium credits and a special "young invincibles" plan; reinsurance to lower the cost of catastrophic care; and the benefits of creating a new health exchange, which the non-partisan CBO says will reduce premiums. As a result, WellPoint reaches almost exactly the opposite conclusion that the Congressional Budget Office (CBO) and other independent health experts have reached about the benefits of health insurance reforms.

Bottom line: if you take a flawed methodology and break it down state by state, you still end up with a flawed result.

The WellPoint analysis did make one novel argument worth noting. It argued that imposing fees on health insurance providers and drug and device makers represents a tax on individuals and families. This is an argument that is being echoed by conservative think tanks like AEI. But the claim does not withstand scrutiny for at least three reasons:

• First, the idea that the entire fee will be passed on to consumers is not credible – especially given the policy design. The policy assesses a flat amount per year, paid by companies based on their market share, beginning in 2010. The assumption that these companies will accumulate the amount of these fees and pass them along in a lump sum to enrollees later simply does not make sense.
• Second, these fees are intended to recapture part of the benefits these businesses will get from reform. No one disputes that newly insuring nearly 30 million more Americans will increase their access to needed services – translating into new business for insurers, drug companies and device makers and other providers. This new revenue would far exceed the amount of the new fees – so if you believe that they will pass along the new assessment, they will also pass along their new windfall to consumers.
• Third, the fees help improve and expand coverage and thus reduce the $1,000 hidden tax tens of millions of Americans pay for the uncompensated care of the uninsured. Even if you believed that somehow companies would find a way to pass the fees along, they would be more than outweighed by the benefits middle-class families would get from not only hundreds of billions of dollars in health care tax credits but from reducing the hidden tax they currently pay for the uninsured.