How Effectively Does the American Recovery and Reinvestment Act Help Laid-Off Workers and States Cope with Health Care Costs?

The American Recovery and Reinvestment Act of 2009 (ARRA) sought to strengthen the country’s ailing economy by enacting a broad range of policies, two of which are the subject of this paper. One helps laid-off workers obtain health coverage, and the other provides fiscal relief to state Medicaid programs.

The first policy pays 65 percent of premiums for coverage offered by former employers under the Comprehensive Omnibus Budget Reconciliation Act of 1985 (COBRA). These subsidies are likely to be too small to make coverage affordable to many people who have lost their jobs. An existing program that pays 65 percent of premiums for workers laid off because of trade liberalization—the Health Coverage Tax Credit program—enrolls only 12 to 15 percent of eligible workers. ARRA almost certainly will raise participation above those levels, but enrollment is likely to remain quite limited.

Furthermore, ARRA does not cover uninsured, laid-off workers who are ineligible for COBRA. Some worked for companies that have gone out of business or were too small to be governed by COBRA or similar state laws; others did not receive health coverage from their former employers. Many without access to COBRA would have been helped by House-passed Medicaid expansions that covered two groups of uninsured, unemployed workers: recipients of unemployment insurance, no matter how high their income, and low-income laid-off workers and their families, who have the least access to coverage and care. These Medicaid expansions, however, were not included in the final legislation.

By providing state Medicaid programs with $87 billion in fiscal relief, ARRA is likely to be effective in preventing many large Medicaid cutbacks. Targeting 35 percent of assistance to states with particularly high unemployment rates, ARRA will provide more “bang for the buck” in preventing state cutbacks and stimulating the economy than did fiscal relief legislation in 2003–2004, which gave all states the same level of help. Nevertheless, since most of the fiscal relief is distributed without regard to each state’s economic situation, the states with the most serious fiscal problems may not obtain sufficient assistance to avoid reducing health care services.