The congressional proposal to increase federal funding for Medicaid’s home and community-based (HCBS) long-term care program likely would benefit the US economy, although it could increase costs for those not receiving Medicaid.
The HCBS expansion is included in the current House version of President Biden’s Build Back Better (BBB) social spending, climate, and tax plan. Sen Joe Manchin (D-WV) and nearly all Hill Republicans claim the roughly $2 trillion proposal would damage the US economy. But independent analysis suggests the home care provisions would produce an overall benefit.
Several elements of BBB—including paid family leave, the Medicaid HCBS expansion, and related provisions—are aimed at helping those receiving long-term services and supports and their families.
Short and long run benefits
In September, the economic research firm Moody’s Analytics projected the Medicaid home care provision alone would benefit the economy in the short run by increasing pay for direct care workers. In the longer term, it would make it possible for more women who now stay home to care for family members to re-enter the paid workforce.
It concluded, “The elderly and disabled population will receive higher-quality care from better trained and more highly paid direct care workers. Meanwhile, more of those people who now informally care for the elderly and disabled will be able to take other jobs. The economy will receive an immediate boost from this increased government spending along with a lift in long-term growth from higher labor force participation, particularly by lower-income females who are currently most likely to provide home care.”
Other studies have found that a substantial number of working age women either quit jobs or scale back hours to care for parents, spouses, or other family members with care needs.
Moody’s analyzed a $250 billion boost in federal HCBS spending, lower than Biden’s proposed $400 billion increase but higher than the $150 billion hike currently included in the House’s Build Back Better bill.
300,000 new jobs
It estimated a $250 billion expansion of Medicaid home care would create up to 300,000 new jobs by 2031 and increase real (inflation-adjusted) Gross Domestic Product (GDP) by about 0.2 percent. Moody’s has not updated its estimate to reflect the $150 billion increase.
When economists look at federal programs—either spending or tax cuts, they think in terms of multipliers. In other words, how much would a dollar of new spending or tax cuts boost GDP. Moody’s concluded that every additional dollar of federal spending on Medicaid HCBS would boost the economy by $1.17.
That return would be comparable to programs such as universal pre-K education and child care. It would be only slightly less beneficial than an expansion of the Child Tax Credit and more beneficial than the multiple rounds of the economic impact checks the government distributed as pandemic relief in 2020 and early 2021. It would be far better for the economy corporate or individual income tax rate cuts.
While the Moody’s study looked at the overall inflationary effects of more HCBS spending, it did not address one complicating issue: If Medicaid increases pay for home care workers, their wages are also likely to rise for families that are not eligible for Medicaid and must pay out of their own pockets.
Because Medicaid is the primary payer of long-term care, it effectively sets the wage rate in many communities. In other words, private pay home care agencies would have to raise their wages to compete with Medicaid agencies for workers.
That could be especially true today when there are severe shortages of direct care workers. Moody’s analyst Bernard Yaros Jr. told me, “With or without the expansion, private home care costs will rise meaningfully in the near term.”
The burden on non-Medicaid families
Those wage increases benefit underpaid aides but add to the burden of millions of families that pay for care out of pocket.
In August, 2020, the Genworth Cost of Care survey found the average hourly cost of a home care aid was $24 and the average monthly cost was almost $4,600. Aides hired through agencies generally receive about half that amount as wages. Those expenses likely have risen substantially due to the pandemic.
Overall, increasing the federal contribution to Medicaid HCBS would be good for those families who rely on Medicaid to help support frail older adults living at home, good for the workers who help provide that care, and good for the economy. But it may have the unintended consequence of adding to an already challenging burden for middle-income households not on Medicaid.
German Economy Seen Shrinking Next Year Due to Energy Crisis – BNN Bloomberg
(Bloomberg) — Germany’s economy will likely contract by 0.4% next year due to the impact of the energy crisis, according to the nation’s leading research institutes, who slashed their forecast from April of a 3.1% expansion.
German output will be €160 billion ($154 billion) lower this year and next than projected five months ago partly due to the drastic increase in energy costs, the four institutes predicted Thursday in a twice-yearly report which the government uses as guidance for its own outlook.
“The Russian attack on Ukraine and the resulting crisis on the energy markets are leading to a noticeable slump in the German economy,” said Torsten Schmidt, head of economic research at the RWI Institute and spokesman for the Joint Economic Forecast Project Group.
Germany is one of the countries hardest hit by the energy emergency triggered by the Ukraine war thanks to a reliance on Russian fuel imports built up over decades. Chancellor Olaf Scholz’s ruling coalition is racing to cut back that dependence but Germany still faces a tough winter with the prospect of gas rationing and blackouts.
The government has assembled three packages of aid measures worth nearly €100 billion to offset the impact on households and companies but has also cautioned that it doesn’t have the resources to ease the pain completely.
“Record inflation rates, especially exploding energy prices, are hitting many companies hard,” Martin Wansleben, managing director of the DIHK industry lobby, said Thursday in an emailed statement.
“The consequences are production stops, losses in value creation, the relocation of production abroad and even plant closures,” he added. “The number of companies that either do not receive any energy supply contracts at all or only receive them at extreme prices is currently increasing.”
Although the energy crunch is expected to ease over the medium term, gas prices are likely to remain well above pre-crisis levels, meaning “a permanent loss of prosperity for Germany,” the institutes warned.
They cut their growth estimate for this year to 1.4% from 2.7% and said they expect inflation to accelerate in coming months, climbing to an average rate of 8.8% next year — compared with 8.4% this year — before gradually falling back toward 2% in 2024.
Europe’s biggest economy will likely return to growth in 2024, with expansion of 1.9%, the institutes predicted.
The four institutes which compile the twice-yearly forecasts are Munich-Based Ifo, the IfW in Kiel, the IWH in Halle and the Essen-based RWI. The Wifo and the IHS institutes in Vienna also contribute. The government is expected to publish updated economic projections next month.
(Updates with industry lobby comment from sixth paragraph)
©2022 Bloomberg L.P.
U.S. economy shrinks at 0.6% annual rate in Q2 – Advisor's Edge
Consumer spending grew at a 2% annual rate, but that gain was offset by a drop in business inventories and housing investment.
The U.S. economy has been sending out mixed signals this year. Gross domestic product, or GDP, went backward in the first half of 2022. But the job market has stayed strong. Employers are adding an average 438,000 jobs a month this year, on pace to be the second-best year for hiring (behind 2021) in government records going back to 1940. Unemployment is at 3.7%, low by historic standards. There are currently about two jobs for every unemployed American.
But the Fed has raised interest rates five times this year — most recently Sept. 21 — to rein in consumer prices, which were up 8.3% in August from a year earlier despite plummeting gasoline prices. Higher borrowing costs raise the risk of a recession and higher unemployment. “We have got to get inflation behind us,” Fed Chair Jerome Powell said last week. “I wish there was a painless way to do that. There isn’t.”
The risk of recession — along with persistently and painfully high prices — poses an obstacle to President Joe Biden’s Democrats as they try to retain control of Congress in November’s midterm elections. However, drops in gasoline prices have improved consumers’ spirits in the past two months.
Thursday’s report was the Commerce Department’s third and final take on second-quarter growth. The first look at the economy’s July-September performance comes out Oct. 27. Economists, on average, expect that GDP returned to growth in the third quarter, expanding at a modest 1.5% annual pace, according to a survey by the data firm FactSet.
Commerce also on Thursday released revised numbers for past years’ GDP. The update showed that the economy performed slightly better in 2020 and 2021 than previously reported. GDP rose 5.9% last year, up from the previously reported 5.7%; and, pounded by the coronavirus pandemic, it shrank 2.8% in 2020, not as bad as the 3.4% previously on record.
Canada’s economy grew by 0.1% in July, bucking expectations it would shrink
Canada’s gross domestic product expanded by 0.1 per cent in July, besting expectations of an imminent decline, as growth in mining, agriculture and the oil and gas sector offset shrinkage in manufacturing.
Statistics Canada reported Thursday that economic output from the oilsands sector increased sharply, by 5.1 per cent during the month. That was a change in direction after two straight months of decline, which brought second-quarter growth to 4.2 per cent thus far.
The agriculture, forestry, fishing and hunting sector led growth with 3.2 per cent. Unlike the United States and Europe, both of which are facing drought conditions, Canada has had a good year for crop production said Scotiabank economist Derek Holt.
On the downside, the manufacturing sector shrank by 0.5 per cent, its third decline in four months. Canada’s export market with the United States has softened and global supply chain issues linger, said Holt. The latter are gradually easing, which could create a better picture for the sector in the second half of the quarter.
Wholesale trade shrank by 0.7 per cent, and the retail sector declined by 1.9 per cent. That’s the smallest output for retail since December.
“What happened this summer was a big rotation away from goods spending towards services spending,” Holt said. Activities like haircuts, travel or outings to the theatre, made popular with the lifting of pandemic restrictions, leave out retail.
While the economy eked out slight growth in July, the data agency’s early look at August’s numbers shows no growth.
“The economy fared better than anticipated this summer, but the showing still wasn’t much to write home about,” said economist Royce Mendes with Desjardins. “While the data did beat expectations today, the numbers didn’t move the needle enough to see a material market reaction.”
The performance of Canada’s economy throughout the fiscal year — 3.6 per cent growth in Q1 and 4.2 per cent thus far in Q2 — remains one of the best in the world, Holt said.
Mendes said he expects growth will stay under one per cent this year: half of the Bank of Canada’s two per cent prediction and a third of the growth seen in the first two quarters.
“We’re definitely slowing, and more of that is coming in a lagged response to higher interest rates and all the challenges of the world economy,” Holt said. “But relative to the rest of the world, for the year as a whole, Canada has been in a sweet spot.”
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