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INSIGHT: Less Than 8% of Virus Stimulus Could Go to Health System

April 14, 2020, 8:00 AM

Political leaders have compared efforts to contain coronavirus to a war.

According to this metaphor, doctors and nurses are on the front lines, risking their lives to save others. The resources of the nation must be mobilized, and others must make sacrifices, to maximize our “troops’” chances of success. Political leaders use the rhetoric patriotic duty. But the legislation they recently passed short-changes the health sector while favoring special interests.

If you’ve seen the stories about health-care workers begging for personal protective equipment (PPE), consider this: According to estimates from NPR, as little as 8% of the coronavirus stimulus package could reach the health system.

To put this in context, the health-care sector totals around 17% of GDP, meaning this critical sector could receive less than half as much in federal funding as it would if the money were distributed according to the relative size of each sector of the economy.

NPR estimates the total size of the stimulus package authorized by Congress on March 26 (The CARES Act) as $2 trillion, approximately $153 billion, or 7.65% of which is slated for hospitals and public health initiatives. Roll Call estimates the total stimulus at $2.5 trillion, with less than 7% reaching the health-care system.

Front line health-care workers fear for their safety and that of their families, whom they risk infecting. Metaphors aside, doctors and nurses are not soldiers, but rather civilians who do challenging, stressful, and skilled work that requires years of expensive training. They pay for most of this training themselves by borrowing money. Yet their compensation is often lower than senior executives at large corporations, investment managers, investment bankers, and law firm partners who operate in relative safety and under less dangerous conditions.

Hospitals Hemorrhaging Revenue

There are understandable reports of early retirements and high absenteeism among health-care workers. Hospitals are hemorrhaging revenue because they’ve had to cancel elective procedures, which are reimbursed at a higher rate than treating Covid-19 patients. Those elective procedures are necessary to cover costs. Many hospitals and clinics lack reserves.

Further limiting the health-care sector’s response are strings that come attached to federal funding. There are reporting obligations and other mandates. There are price caps on reimbursement rates for health-care providers, which seem to be intended to benefit private health insurers at the expense of hospitals and other health-care providers.

Specifically, Covid-19 testing is to be reimbursed at the rate negotiated prior to coronavirus being declared a public health emergency, or for a price that cannot be any higher than the price that is charged to patients without health insurance. Private health insurers are required to cover coronavirus treatments without any copays or deductibles.

Government officials, however, have more options to fund the health sector and should be using them. The Secretary of the Treasury has received discretion to allocate $500 billion largely as he sees fit.

State governments could also allocate some of the $150 billion they will receive to try to shore up their health systems. States are required to use the funds to cover “necessary expenditures incurred due to the public health emergency,” but that could include many things besides health care.

Aerospace, Aviation Receiving Four Times as Much as Health Care

While health care is being short-changed, the aerospace industry and aviation are the big winners in the stimulus package. Even if the Secretary of the Treasury used no discretionary funds for airlines and aerospace firms, the bailout package, scaled by industry GDP, would still be 4 times as generous to aviation and aerospace as to health care ((43/153)/(0.7/10) = 4).

Thirty-three billion dollars is specifically allocated to pay airline workers, and there is provision for $10 billion in grants from the FAA to airports. According to data from the BEA, aerospace manufacturing and private aviation combined contribute only 1.4% of GDP (0.7% each) versus around 10% for health-care providers (I have not included pharmaceutical or medical device manufacturers, research, or distributors, or health insurance companies.)

Maximum funding for airlines and aerospace would bring total aid to the aerospace and aviation industries to as much as $90 billion—around 4.5% of the total bailout package. The stimulus package could end up being more generous to certain favored industries than to health-care systems.

Why all the focus on aerospace and airlines? Bankruptcy scholars have argued that it is not necessary to bail out investors in airline and aerospace manufacturing firms because these firms can restructure and continue to operate while in bankruptcy, and indeed, have repeatedly done so in the past.

Moreover, temporarily reducing commercial flights could be desirable at a time when the government, upon advice of public health experts, is instructing people to stay home to slow the spread of the virus. Provisions in the CARES Act that increase unemployment benefits will automatically benefit workers in industries that are likely to be hard hit, including airlines, in proportion to how much they actually suffer.

Federal funding should be used to minimize fatalities and increase the availability of resources to critical industries, not to insulate politically well-connected investors and industries from financial losses.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Michael Simkovic is a professor of law and accounting at the University of Southern California Gould School of Law whose research focuses on the intersection between law and finance, with a particular emphasis on credit markets, bankruptcy, financial regulation, and taxation.