Isabel
Soto, Tara O'Neill Hayes March 17, 2020
Executive
Summary
Given
the continued worsening of the COVID-19 outbreak in the United
States and around the world, Congress is negotiating a deal
on an additional emergency response package that is expected to cost
$183.8 billion, according to estimates by the American Action
Forum. If an important restriction on firm sizes were to be eliminated,
the total cost could exceed $350 billion. This package includes four key
provisions:
1.
Emergency paid sick leave and child care
leave, which could cost
between $40.9 billion and $118.4 billion, and possibly
up to $282.5 billion if restrictions on firm size were eliminated;
2.
Expanded Unemployment Insurance benefits, for which the
government has allotted $1 billion;
3.
Increased Medicaid funding and free testing for everyone: The
federal government will cover a larger share of
Medicaid expenses, which could increase costs by $56.3 billion,
and another $1.3 billion is provided for health care services and
testing costs;
4.
Additional nutritional assistance: $1.25 billion in additional
funding is provided for the Women, Infants, and Children program, The Emergency
Food Assistance Program, and programs to provide meals for the elderly;
loosened restrictions for the Supplemental Nutrition Assistance Program will
allow for additional benefits to be provided at an estimated cost of $6.8
billion; states with schools experiencing closures of more than five days will
also be able to provide benefits to cover the costs of school lunches that
otherwise would have been provided.
Introduction
Congress
passed the first emergency funding bill, H.R. 6074, on March 6, 2020,
providing $8.3 billion in supplemental funding for the Food and Drug
Administration, the Centers for Disease Control and Prevention, the National
Institutes of Health, and the Public Health and Social Services Emergency
Fund. This bill also provided additional funds for the Small Business
Administration, Department of State, and the U.S. Agency for International
Development. These funds are intended to assist in developing,
manufacturing, and procuring vaccines and other medical
supplies, assist state and local authorities in their response
efforts, provide loans for businesses, support evacuations
and emergency preparedness activities at embassies and other facilities located
overseas, and provide humanitarian assistance to affected countries.
The
second package, H.R. 6201, includes four key
components: private-sector mandates for providing certain employees with paid
sick leave, expanding unemployment-insurance benefits, increasing federal
Medicaid funding, and providing additional nutritional assistance. This
legislation explicitly includes $3.5 billion in funding, and billions
more will be provided as benefits are used. This legislation—which
the U.S. House of Representatives initially passed early Saturday morning and
then amended late Monday—includes two weeks of emergency paid sick leave with
10 weeks of paid leave only if needed for childcare. The amendments
significantly reduced the costs of the original proposal. Further legislation
may be considered at a later date, to provide targeted support
to key industries and introduce broad fiscal stimulus in the economy.
Also, the
administration announced several actions last week,
including the declaration of a national emergency,
unleashing $50 billion in additional funds under the Stafford Act. The
president gave new authority to the Secretary of Health and Human Services to
waive numerous laws and regulations to allow hospitals maximum flexibility in
responding to the virus, including enabling greater use of telehealth,
loosening state licensing rules for health care providers, and relaxing
Medicare’s three-day admission requirement prior to coverage of nursing home
stays.
Emergency Paid
Sick Leave and Emergency Family Medical Leave Expansion
As
currently written, H.R. 6201 includes two different federal legislative
strategies for leave during this pandemic: up to three months of
leave to care for a child, and the Emergency Sick Leave Act,
which would provide two weeks of paid sick leave.. (AAF recently estimated the potential cost of an
emergency sick–leave benefit.) According to the Bureau of Labor
Statistics (BLS), an estimated 24 percent of workers in the United States
do not have access to paid sick leave.[i]
Eligibility
The paid
sick and family medical leave provisions in H.R. 6201 are limited to employees
in businesses with fewer than 500 employees – an important restriction. Rather
than target the benefit to low-wage workers, this bill makes the cut-off based
on size of business, leaving many low-wage workers without coverage.[ii]
The
emergency paid sick leave would cover 80 hours for a full-time worker
(pro-rated for part-time) at full wage replacement only
if an employee is quarantined, seeking a diagnosis,
or taking preventative care. If using the benefit for childcare or
family-care reasons, the worker would be paid at two-thirds their usual
rate. As it is currently written, H.R. 6201 would allow eligible workers to
utilize up to 10 weeks at two-thirds wage replacement to care for a child whose
school or care provider has been closed.
Child
Care
By the
evening of March 16, 2020, 37 states have closed or are
scheduled to close their public schools, affecting 37.4 million children so
far (or 66 percent of the 56.6 million school children in the
United States).[iii] All
states have at least one district closed as a result of COVID-19.[iv] Assuming
the spread of the virus does not drastically slow down, there
are likely to be more closures.
According
to BLS data on employment characteristics of families, there are 82.5
million families with children under 18.[v] Of
those 82.5 million, 22.7 million families are either single-parent
households or households where both parents are
employed. Therefore, in the event of a school closure, it is
likely that these families would make use of the childcare benefit. When
limiting those families to individuals that work in firms with fewer than 500
workers, the number of families that may receive the
benefit is 10.7 million. Assuming that 60 to 100 percent
of schools close, additional costs could be between $11.5 billion and
$64.2 billion, depending on the length of school closure.
Costs
Using
payroll and wage census data, the original version of H.R, 6201 could have
cost employers $49.4 billion to $300 billion. The bulk of the costs in
the original bill came from emergency family and medical leave expansion. These
estimates did not take into account possible exemptions for firms
with fewer than 50 employees and assumed full wage replacement for emergency
paid sick leave.
The cost
of the current version of H.R. 6201 could cost employers between $40.9 and
$118.4 billion.
When
calculating the upper-bound estimate, we assumed a 50 percent infection rate
among the labor force. Assuming that the distribution of the illness fell
equally across firms of different sizes, the total number of affected workers
would be 30.2 million. For the lower-bound estimate, we assumed 3 million
people were affected across the United States based on estimates done by a
number of epidemiologists predicting the spread of COVID-19 with moderate
preventative measures in place.[vi] In
firms with fewer than 500 employees, the number of affected workers would total
1.4 million.
Table 1:
Estimated costs of Emergency Paid Sick Leave and Emergency Family and
Medical Leave Expansion for Employees in firms with fewer than 500 workers
|
Childcare
Costs
(10
weeks)
|
Emergency
Paid Sick Leave
(2
weeks, full wage replacement)
|
Total
Cost Under Current Version of H.R. 6201
|
|
|
Lower
|
$38.4
billion
|
$2.5
billion
|
$40.9
billion
|
|
Upper
|
$64.2
billion
|
$54.2
billion
|
$118.4
billion
|
In order
to support businesses as they face increased costs due to these new paid-leave
requirements, the federal government plans to provide a series of refundable
tax credits for the firms. The tax credits would be administered by the
Internal Revenue Service and creditable against employer-side payroll tax
liability. Additionally, credits would provide relief for the self-employed
population in addition to eligible firms. For emergency paid sick leave,
employers would receive 100 percent tax credit for wages paid, up to a cap of
$200 per day for wages paid at two-thirds rate or a $511 a day cap if being
paid at full wage replacement.
Challenges
The
primary limit placed on this benefit is that it does not provide coverage for
any employees in firms with greater than 500 workers. According
to BLS data, nearly 15 percent of workers in firms with greater than
500 workers do not have access to paid sick leave.[vii] This exclusion would
leave over 10 million workers without access to paid sick leave,
who would most likely be low-wage earners.[viii] Additional
challenges with this structure include the potential for duplicative
efforts, as well as cashflow difficulties for small businesses. H.R.
6201 does not explicitly exclude workers who are already provided a paid
sick-leave benefit by their employer. Workers could then be receiving wage
replacement from this emergency program in addition to what their employer already
provides. This duplication of private sector efforts is an
inefficient use of resources. Moreover, the paid sick-leave benefits
provide two-thirds wage replacement, which may be sufficient for
those workers at the higher end of the wage distribution. For low-wage workers,
however, a two-thirds wage benefit likely would not provide adequate financial
security and would force workers to choose
between providing childcare or receiving their full wage.
Last, small
businesses will be bearing the brunt of these costs. While they will
be reimbursed for their expenses, the structure of the tax
credits presents a serious cashflow problem in the short
term, which some businesses may not be able to overcome. The
burden being placed on smaller firms may require a push for liquidity
financing options in a future bill.
With the
cap on firm size being a major point of contention, it’s helpful to have
an understanding of what costs would look like if that cap were
removed.
Table 2:
Estimated cost of Emergency Paid Sick Leave and Emergency Family and Medical
Leave Expansion for all Employees
|
Childcare
costs
(10
weeks)
|
Emergency
paid sick leave
(2
weeks, full wage replacement)
|
Total
cost under current version of H.R. 6201
|
|
$148
billion
|
$134.5
billion
|
$282.5
billion
|
The
maximum the paid leave component of H.R. 6201 (without limitations on firm
size) would cost is $282.5 billion. This number reflects all schools
closing at some point and all workers having access to and taking both leave
benefits at their most generous level.
Expanded
Unemployment Insurance Benefits
With the
passage of H.R. 6201, states would receive $1 billion in
additional federal funding with $500 million going to
administrative costs and $500 million set aside for emergency grants that
states could receive if their unemployment rate sees
a 10 percent increase. In order to be
considered eligible for the additional grants, a state
must require employers to inform laid-off workers of
their unemployment insurance (UI) eligibility, ensure that
workers have at least two ways to apply for benefits, and inform
applicants about the status of their application. As a condition of
receiving additional funds, states could be required to ease the work
requirements surrounding UI eligibility, decrease waiting
periods, and increase employer-side UI taxes. Furthermore, the
legislation would provide full federal funding for extended
benefits, half of which is typically funded by states. Extended
benefits allow workers to claim up to an additional 26 weeks in unemployment
benefits after their first days have been exhausted.
While it
is clearly important to address the likely increase in unemployed
workers, expanded unemployment insurance may not be the best
solution. Academic literature has shown
that unemployment benefits increase the duration of
unemployment, effectively making a potential spike in unemployment a
long-term problem.
Increased
Medicaid Funding
Medicaid is a
joint federal-state program providing health
care coverage for more than 71 million low-income individuals.[ix] The
federal government currently provides an estimated 62 percent of the
funding; the states provide the rest. There are five different
categories of beneficiaries in Medicaid. States receive federal
funding at one rate for beneficiaries in four of
the five categories and another rate for those in the
fifth category—the so-called “expansion population,” referring to
childless adult who became eligible for the program following passage
of the Affordable Care Act.
Increased
Medicaid FMAP
This
proposal would increase the federal share of Medicaid
expenses (known as the Federal Medical Assistance Percentages,
or FMAP) by 6.2 percentage points for
all beneficiaries—except the Affordable Care Act’s expansion
population—for the duration of the COVID-19 emergency, retroactive to the
beginning of the year. Total federal program spending is expected
to reach $425 billion this year, with federal spending
on the expansion population estimated at roughly $70 billion.[x], [xi] Thus,
federal spending on the non-expansion population is estimated at $355 billion,
covering nearly 60 percent of costs for these beneficiaries. If the federal
government covered 66.2 percent of costs for the entire year, based on this
estimate, the federal cost would increase to $391.7 billion. Assuming costs are
evenly spread throughout the year, the federal government’s cost would
therefore increase $9.2 billion per quarter that the emergency declaration is
in effect.
Of
course, this estimate assumes no increase in spending from what was
projected prior to the outbreak; it is likely there will be significant
increases in care needs and thus increased
costs. If program expenditures increase by five percent over the
course of the year, federal costs would increase an additional $19.6 billion,
reaching $411.3 billion for the non-expansion population if the
emergency declaration is in effect for the remainder of
the year ($56.3 billion beyond prior projections).
The
United States’ territories will receive $22 million in additional funds this
year and next to help defray costs there.
In order
to qualify for the increased federal payments, states must
provide coverage for testing and treatment at no cost to the patient and
may not reduce eligibility levels or the generosity of benefits.
One concern
with this uniform approach to providing additional federal Medicaid
funding is that states with higher costs and inefficient use of funds will
receive more assistance than states with lower costs, regardless of the actual
need and impact of the virus.
Other
Health Care Measures
All
individuals, regardless of what type of health insurance they have (or don’t),
will have their cost-sharing liability waived for both the cost of the test as
well as the visit during which the test was received. The legislation
includes $1 billion to cover these costs.
The
Indian Health Service will receive an additional $64 million, the Veterans
Health Administration $60 million, and the Department of Defense an additional
$82 million for the cost of providing health services related to COVID-19.
Additional
Nutritional Assistance
The
federal government provides significant resources for nutrition assistance
through various programs. The Supplemental Nutrition Assistance
Program (SNAP) provides recipients with monetary benefits to purchase
food. Additional nutritional assistance is available to pregnant
women and women with young children through the Women, Infants, and
Children (WIC) program. The School Breakfast and Lunch
Programs allow children to receive free or reduced-cost
meals while at school. The Emergency Food Assistance Program
(TEFAP) provides food to states, which distribute the food either directly
to the public or to food banks, soup kitchens, or other organizations.[xii] The Home-Delivered Nutrition
Program provides meals directly to homebound seniors in their homes.
The Congregate Nutrition Program provides meals to the elderly
at community centers and adult day-care centers.
Federal
spending on SNAP was $64.9 billion in 2019.[xiii] More
than 36.3 million people (in 18.4 million
households) are receiving SNAP benefits.[xiv] Nearly 30 million children
receive a free or reduced-price lunch at school each day.[xv] Roughly
7 million individuals benefit from WIC. [xvi]An
estimated 5.5 million households used food
pantries supported by TEFAP assistance, with costs
of $758 million in 2019.[xvii] An
estimated 144 million meals were provided to roughly
860,000 individuals in 2017, at an estimated cost of $10 per
meal; $251 million was provided for fiscal year (FY) 2019.[xviii], [xix] The
Congregate Nutrition Program provided nearly 76.1 million meals
to 1.5 million people in 2017; $490 million was provided in
FY2019.[xx]
Additional
Funding
Through
H.R. 6201, Congress is making available: an additional $500 million
in nutrition assistance for WIC funding; $400 million in
additional funding for TEFAP; $100 million for nutritional assistance in the
territories; and $250 million for the Senior Nutrition Program to
provide meals for seniors who are home-bound (and their
caregivers) and who are disabled or have multiple chronic conditions.
School Meals
For families
with children eligible to receive free or reduced-rate
lunches attending any school that is closed for at least five
consecutive days during a public-health emergency in FY2020 when the
school would otherwise be in session, each household will
be eligible to receive a benefit equal to the value of the meals
that otherwise would be provided each day for each eligible
child. Because these children would be receiving these meals anyway if
schools were open, there is no additional cost expected, other than
perhaps additional costs associated with administering the benefit. It may also
be the case that costs decline marginally for schools that close
for fewer than five days: Families would not qualify for
a benefit under this section in that scenario, and the
children would not receive a meal at school for the few days the
school was closed.
SNAP
Flexibility
Starting
next month and ending one month after the month in which the COVID-19 emergency
declaration is lifted, the work requirements for SNAP eligibility will be
waived. Currently, individuals between the ages of 18 and 50 who have
received benefits for at least three months in the
past three years must work 20 hours or more per week or
participate in a qualified work program. (These requirements do not apply
to those physically or mentally unable to work, individuals responsible for
caring a child, or pregnant women.) After the COVID-19 emergency ends,
states will be prohibited from considering any benefits received during the
emergency for purposes of the work requirement.
States
may also provide emergency allotments to households to address temporary food
needs. A maximum monthly allotment caps SNAP benefits, and
families are expected to contribute 30 percent of their own resources toward
food.[xxi] As
a result, emergency allotments may increase benefits by up to 30
percent. Rules regarding issuance of benefits and reporting requirements
may be relaxed during the emergency.
It is
difficult to know how much additional assistance may be provided during
the outbreak as a result of these flexibilities. It is estimated
that the average SNAP beneficiary receives $122 in
benefits per month ($240 per household).[xxii] Only
12 percent of SNAP recipients (4.4 million) are non-elderly,
non-disabled adults without children.[xxiii] If all
of these individuals received an extra two months of benefits, the additional
cost would total $1.1 billion, based on the average monthly benefit. If
50 percent of households received a 30 percent increase in
their benefit for two months, the additional cost would total
$5.7 billion. These two scenarios together would increase costs by an
estimated $6.8 billion.
Conclusion
Based on
the estimated cost of the provisions included in H.R. 6201, along with the $8.3
billion cost of the first emergency response package (H.R. 6074), the
total cost of the congressional response to date is expected to
total $183.8 billion. This total does not account for the
billions in additional costs that will result from administrative
actions or the costs of an additional emergency
response legislative package that is expected.
[i] https://www.bls.gov/ncs/ebs/benefits/2019/employee-benefits-in-the-united-states-march-2019.pdf#page=119
[vii] https://www.bls.gov/ncs/ebs/benefits/2019/employee-benefits-in-the-united-states-march-2019.pdf#page=119
[ix] https://www.medicaid.gov/medicaid/program-information/medicaid-and-chip-enrollment-data/report-highlights/index.html
[xi] https://www.cms.gov/Research-Statistics-Data-and-Systems/Research/ActuarialStudies/Downloads/MedicaidReport2017.pdf
[xv] https://www.ers.usda.gov/topics/food-nutrition-assistance/child-nutrition-programs/national-school-lunch-program/
[xxiii] https://www.cbpp.org/research/food-assistance/chart-book-snap-helps-struggling-families-put-food-on-the-table
https://www.americanactionforum.org/research/estimating-the-cost-of-the-families-first-coronavirus-response-act/#ixzz6HARZEEq6
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