As COVID-19 pandemic benefits wind down, a reckoning for households and economy

Rhonda Smith is already struggling to get by on her fast-food salary. She’s behind on rent and cellphone payments, and can no longer afford fresh fruits or vegetables.

Now the 54-year-old in Bristol, Va., is among millions of Americans who may also lose Medicaid coverage in the coming months, following a rollback in pandemic-era policies on Friday that adds uncertainty and strain to her finances.

“My insulin’s $3,000 a month and, without Medicaid, that’s just not possible,” Smith said. “I’m barely getting by as it is, eating hot dogs and oatmeal most days. There’s nowhere left to cut.”

A new round of adjustments to federal benefits is changing spending calculations for millions of households across the country and could dent U.S. economic activity at a time when there are already heightened fears of a recession.

As many as 15 million people, or 17% of those enrolled in Medicaid or the Children’s Health Insurance Program, are expected to lose coverage in coming months, as states begin reevaluating who is eligible for the program.

Those cuts, combined with earlier rollbacks to food assistance through the Supplemental Nutrition Assistance Program (SNAP), are expected to shave off $80 billion in spending power from lower-income Americans this year alone, according to an analysis by Goldman Sachs. More broadly, the bank’s economists say slashing benefits tilts the economy further “toward higher-income households that have a lower propensity to spend,” which could drag down overall consumer spending.

The shift comes at a precarious time for the economy. Fourth-quarter gross domestic product figures were revised downward this week. Inflation is cooling but remains stubbornly high. And recent banking turmoil has led to heightened alarm of an impending recession.

Americans’ propensity to spend - even in the face of decades-high inflation and rapidly rising interest rates - has helped prop up the economy for much of the past year. But many economists say the U.S. economy is at a turning point: Pandemic-era stimulus money has run out, savings are dwindling, and people are taking on more debt to cover everyday expenses. A drawdown in consumer spending, which makes up nearly 70% of the U.S. economy, combined with other slowdowns, could be enough to tip the country into recession.

Smith says her $14-an-hour job at Chick-fil-A, disqualifies her from continuing Medicaid coverage. (Virginia requires that Medicaid recipients make less than $20,121 a year.) Now she’s stuck in an impossible position: There’s no way she can cover health insurance on her own, but she also can’t afford to pay out-of-pocket for the kidney procedures and diabetes treatments that she requires.

“Every time I’m sick and miss a shift, that’s lost income,” she said, adding that she’s had three kidney surgeries in the past six weeks. “But the bills don’t stop - rent, electric, car payment, groceries, gas. There’s nothing left at the end of the month.”

Further cuts to government programs are still possible this year, with congressional Republicans and President Biden in a standoff on how to handle the U.S. debt limit before it is breached. House Speaker Kevin McCarthy (R-Calif.) last week called on Biden to cut “out-of-control” government spending with a number of policy changes, including new work requirements for Americans on welfare.

Pandemic-era boosts to Medicaid and SNAP were part of the government’s sweeping and unprecedented efforts to keep families above water in 2020, when the coronavirus pandemic suddenly plunged the country into a recession. More than 20 million Americans lost their jobs in the first two months of the pandemic, with those in low-wage sectors such as hospitality and retail disproportionately hurt.

Emergency measures, including stimulus checks, child tax credit payments and a freeze on student loan payments, helped stem the fallout. Many families relied heavily on that extra money, especially as inflation soared to 40-year highs.

Three years later, the last of those stopgaps are being phased out. Although the programs were always intended to be temporary, experts say it could take months for spending patterns to normalize.

“The reality is: Families are experiencing this as an economic cliff,” said Elaine Waxman, a senior fellow at the Urban Institute’s Income and Benefits Policy Center. “It’s a big drop in resources all at once, at a time when inflation remains extremely high. There will be ripple effects. And it will take us a while to understand exactly how this plays out.”

Economists say programs like SNAP are a particularly fast and effective way to prop up the economy while helping struggling families. Almost all - 96% - of food stamps are spent that month, according to the Center on Budget and Policy Priorities, which translates to billions of dollars in guaranteed consumer spending. Every dollar in SNAP benefits adds $1.50 to the U.S. economy, according to figures from the Agriculture Department.

Although SNAP benefits can only be used on groceries, they help free up money for other essentials. When a family receives extra food stamps, they spend more on a range of goods, said Jiyoon Kim, an economics professor at Bryn Mawr College whose work focuses on how government programs and policies affect the most vulnerable.

“Now when benefits are cut, the opposite will happen,” Kim said. “This isn’t just cutting spending on food and health care - but also housing, entertainment, transportation, education. There’s a much bigger effect on the overall economy.”

When Keion Samuels’s monthly allotment of food stamps dropped from $280 to $60 in March, he cut his grocery list to just five items: spaghetti, ground beef, tomato sauce, seasonings and bottled water, which he needs because of kidney disease.

Samuels, 44, stretched the ingredients into two weeks’ worth of spaghetti and meatballs. For the rest of the month, he’s been relying on food banks in Westwego, La., and cooked meals from friends or his sister.

“That was it. It’s all I could afford, and it was gone,” he said. “It’s hard when you have diabetes. You can’t tell people, ‘Don’t put salt in your food. Don’t put sugar in your lasagna.’ My health is getting worse.”

Samuels worked as a shift manager at McDonald’s and department-store dock worker until 2014, when he started having vision problems from detached retinas. Since then, he’s been getting by on social security disability payments, as well as food stamps and Medicaid, which covers a rotation of half-dozen specialists, including eye doctors, kidney specialists and pain-management experts.

“I don’t know if my Medicaid is going to be affected,” he said. “I hope it’s not, but until I know for sure, it feels like another whip coming toward me.”

The phasing out of Medicaid benefits for millions comes at a time when Americans are already pulling back. Consumer spending on both goods and services fell in February, after adjusting for inflation, according to new data released Friday.

Economists expect that slowdown to continue, as higher borrowing costs, rising debt loads and fast-depleting savings accounts take their toll on household budgets.

Some of that retrenching is expected - desired, even - as policymakers try to rein in spending enough to bring down decades-high inflation. But some economists say rolling back benefits to the poorest Americans is not to most effective path to easing price pressures.

“The tricky thing right now is that the overall goal is to tamp down on spending in the economy,” Waxman of the Urban Institute said. “The problem is that not all spending is equal. These are not the households that are driving the kind of spending policymakers are trying to fix by adjusting interest rates.”

In Yankton, S.D., Mary Birmingham is being kicked off Medicaid this weekend. She makes $17 an hour at a part-time job assembling medical devices and says that salary, combined with $991 a month in social security disability benefits, means she no longer qualifies for the program after 13 years of coverage.

Birmingham, 57, was notified of the decision by mail 10 days ago. It came as a shock, she said; she had no idea her eligibility was up for debate.

Birmingham, who was diagnosed with post-traumatic stress disorder in 2010, is anticipating at least $225 a month in extra Medicare premiums and prescription costs, plus additional expenses for dental, vision and hearing appointments. It’ll be hard to make do, she says, especially with inflation.

“My prescriptions and my therapist and my primary doctor are my lifeline,” she said. “Ever since I got that letter, it’s been awful. I feel loss and helplessness and panic and anxiety and fear.”

The Washington Post’s Tony Romm contributed to this report.