Podcast: Update on the Recovery Act

December 22, 2009

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Download the mp3 of this podcast (5:04)

In this podcast we’ll provide a quick update on the Recovery Act. I’m Michelle Bazie and I’m here with the Center’s Chief Economist, Chad Stone.

1. Chad, where are we on two key provisions in the Recovery Act: unemployment insurance and COBRA -- the health insurance provision for unemployed workers?

A: When the Recovery Act was passed earlier this year, the extra weeks of unemployment insurance benefits and the other additional assistance to unemployed workers and the COBRA, were set to expire at the end of this year – that’s just a few days away. So what the Congress has done, is to provide a short extension through the end of February of next year.

2. Can you give us just a quick reminder on what the programs do and how they help unemployed workers and the economy?

Sure, normally workers are entitled to up to 26 weeks of unemployment benefits. What the Recovery Act did was provide additional weeks of unemployment insurance benefits and also added $25 a week to the size of the benefit check.

What COBRA does is allow workers who lose their jobs and lose their health insurance to continue to receive health insurance coverage at group rates with a 65% subsidy of the cost. That’s much better than the normal COBRA coverage which is you’re entitled to receive it at group rates, but you have to pay the full premium.

3. So we know what did happen on the Hill, what didn’t?

A: Well, these were the two provisions that really had to be done immediately because they were scheduled to expire in just a week or so. But that’s far from an extensive jobs package, or addressing some other important provisions in the Recovery Act that are also scheduled to expire. One of the most important ones is the relief to state governments. The relief in the Recovery Act goes through the end of 2010 and that seems like that’s far away, but it’s not because the state budgets actually start in July and so states are planning right now for those budgets and the way things stand right now, half way through their fiscal year, all of a sudden the federal assistance in the Recovery Act runs out. And so that’s why it’s important that as soon as possible, that Congress take action to give states certainty about what they’ll be able to receive and that they provide additional assistance to the states through the rest of the fiscal year, into 2011.

4. So it looks like states need a heads-up about what they can plan for and what they can budget for their fiscal year. What’s at stake if they don’t get this additional fiscal aid?

A: What’s at stake is significant headwinds to the economic recovery. Because of the projected budget deficits that states face, the actions that they are required to take to close those deficits because they have balanced budget requirements in their laws, the tax increases and the program cuts they would make, those are contractionary, they go in exactly the opposite direction of what the recovery legislation is supposed to do. And the Center on Budget estimates that those contractionary actions that states would take would cost 900,000 jobs.

5. What will Congress need to do once they get back in January?

A: When Congress gets back in January they’ll have to look more comprehensively at economic recovery legislation and a jobs program. They’ll certainly want to extend the unemployment insurance protections through the rest of the year. Even though an economic recovery is probably underway, we are still experiencing a very, very weak job market and a very high unemployment rate. Almost 40 percent of unemployed workers have been unemployed for 27 weeks or longer, in other words, longer than the amount of regular unemployment insurance benefits and so they’re going to need those extra weeks of coverage because it’s still a really harsh labor market out there and it’ll be awhile before job recovery really takes place and the unemployment rate starts to come down.

6. What else should Congress do to help strengthen the economy?

Congress will be wanting to look at other measures that can help to keep the recovery going. The Recovery Act legislation passed at the beginning of this year is reaching its full force, but it’s going to start to phase-out and that will be a drag on the economy as the boost from the Recovery Act disappears.

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