The New York Times. April 04, 2020

B6 N THE NEW YORK TIMES, SATURDAY, APRIL 4, 2020

VIRUS FALLOUT

As unemployment skyrockets
and businesses struggle to cover
rent and payroll, the odds are ris-
ing that short-term layoffs turn
into long-term joblessness as em-
ployers shut down. At its worst,
the United States could fall into an
economic depression.
The Federal Reserve is sup-
posed to stand between America
and that abyss.
Congress earmarked $454 bil-
lion for Federal Reserve pro-
grams that are meant to keep
credit flowing to businesses,
states and local governments —
and although it remains unclear
exactly how those funds will be
used, the central bank has pro-
vided a rough road map.
During troubled times, the Fed
can lend more or less directly to
companies and governments us-
ing its emergency authorities.
Treasury Secretary Steven
Mnuchin must sign off on the pro-
grams, and — because the Fed is
supposed to avoid taking on credit
risk — the Treasury Department
backstops the programs with a
layer of funding meant to absorb
losses.
That’s exactly what the new
$454 billion is meant to do: It will
back up Fed lending programs
that could extend more than $4
trillion worth of credit. While it is
uncertain exactly who will bene-
fit, the Fed and lawmakers have
given America strong hints — offi-
cials had already announced sev-
en detailed lending programs, five
of them backed with cash from an
existing Treasury Department
fund. Congress asked for two
more in the legislation President
Trump signed last week.
If they work, the programs
could touch almost every facet of
economic life, helping households,
small businesses, local govern-
ments and money market funds,
where a lot of people park their
savings, along with more obscure
parts of Wall Street’s financial
plumbing. Here’s what we know.

Will the Fed help my family?

Yes, but it’s mostly indirect.
The Fed is rolling out one lend-
ing program that gives eligible
companies cheap loans in ex-
change for asset-backed securi-

ties — basically, bundles of debt —

built on newly issued credit card

debt, student loans, auto loans

and the like. By creating a big in-

centive, the program should make

loans available and cheaper for

consumers. That effort, an-

nounced on March 23, is backed

by $10 billion, so the new appropri-

ation could allow for expansion in

size and, potentially, in what col-

lateral is accepted.

In addition to its emergency

programs, the Fed has slashed in-

terest rates to nearly zero and is

buying huge quantities of bonds,

two policies that should help keep

borrowing cheap for families that

want to buy a new car or refinance

their house. That’s only mildly

useful while much of America re-

mains under quarantine, but it

could help the economy bounce

back once the coronavirus is un-

der control.

Will it help small businesses?

Yes, but the Fed is not the key

player here.

Treasury and the Small Busi-

ness Administration are in charge

of overseeing Congress’s primary

solution for smaller companies, a

program of $349 billion in loans

that businesses with 500 or fewer

employees can use to cover pay-

roll and other expenses. Most, if

not all, of those loans will be for-

given if the borrower retains its

workers and does not cut their

wages.

The Fed will provide backup.

The program that helps to support

credit card and student loans also

accepts bundles of business-relat-

ed loans, so it could help smaller

companies access financing.

And the central bank has prom-

ised another resource — the Main

Street Business Lending Program

— that officials say will help busi-

nesses that are too big to qualify

for small business loans but too

small to have easy access to capi-

tal markets.

That was unveiled on March 23,

but the Fed has yet to detail how it

will work or how much money will

stand behind it. Eric Rosengren,

president of the Federal Reserve

Bank of Boston, told Bloomberg

on Wednesday that it was in the

design phase and that a rollout

could be a “another couple” of

weeks away.

The coronavirus response law

instructs Mr. Mnuchin to ask the

Fed chair, Jerome H. Powell, if he

would consider a program that

provided financing to banks to

make cheap loans to companies

with 500 to 10,000 employees. The

Main Street program could check

that box.

Do big corporations get a lot of

help?

Big companies with solid balance

sheets benefit in several ways.

The Fed’s emergency lending

has an overarching goal: It is sup-

posed to help markets function

smoothly. Corporate debt has

been rocked by the coronavirus

spread. Companies found them-

selves in need of cash as restau-

rants closed, movie theaters went

dark and tourism essentially

dried up. But because they had be-

come riskier and markets were in

meltdown, fewer investors were

willing to buy their bonds.

The Fed has unveiled several

programs to help. One supports a

type of short-term funding known

as commercial paper, and another

that buys company debt second-

hand. A third program buys newly

issued debt or makes direct loans

to corporations.

The programs go well beyond

what the central bank did for com-

panies in 2008, but all focus on in-

vestment-grade debt. They

mostly leave companies with

shakier prospects out in the cold.

Doing so avoids rewarding firms

that have piled on debt while buy-

ing back shares or making acqui-

sitions, but also deepens the rift

between stable companies and

their riskier counterparts.

Could the Fed help my local gov-

ernment?

The Fed has unveiled a couple of

programs that are helping munici-

pal bond markets by allowing

banks to use some types of local

debt as collateral for cheap loans.

But officials have stopped short

of buying local debt outright, and

many lawmakers are urging them

to think bigger. Designing a di-

rect-purchase program is no easy

task for the Fed, because state and

local debt markets are compli-

cated — and direct purchases

could leave the Fed bolstering

some places, like New York State,

while leaving others, like Detroit,

with little help.

How big will this be?

It could be well in excess of $4 tril-

lion, but it might not. Treasury

funding has been scaled up about

10 times so far, but some future

projects are likely to be riskier,

and any program catering to less

safe companies might require

more insurance from the Treasury

Department. If that’s true, the dol-

lars can be leveraged fewer times.

It could also be the case that

America’s banks and businesses

do not demand $4 trillion in loans,

in which case some of the pool

could go untapped.

What’s the timing?

Short answer: Mr. Powell himself

probably does not know. The time-

line hinges on how quickly the Fed

can figure out America’s needs,

determine how best to meet them

and set programs up. The initia-

tives are legally and practically

complex, so they can take a while:

The project that targets the com-

mercial paper market was an-

nounced on March 17 and is still

not operational. Others are al-

ready in action.

Is it enough?

That’s the $4 trillion question. Be-

cause it is unclear how long the co-

ronavirus is going to last, it is also

unclear how much lending will be

needed. Design could also matter

a lot here: If the programs are

poorly targeted or have too many

strings attached and companies

will not use them, even seemingly

hefty programs might do little to

help the economy.

It’s also unclear how the pie will

be divided. So far, $30 billion in

pre-existing Treasury funding

backs programs for big compa-

nies, $10 billion backs the program

for households and small busi-

nesses, and $10 billion backs a pro-

gram for money market mutual

funds, which touch big businesses

and ordinary families. (One pro-

gram, focused on the plumbing of

the banking system, does not re-

quire Treasury backing.)

Is there oversight?

“I will be watching your actions

carefully,” Senator Elizabeth War-

ren, Democrat of Massachusetts,

warned Mr. Powell and Mr.

Mnuchin in a letter on Tuesday.

Ms. Warren is not alone. Mem-

bers of both parties are keen on

making sure the Treasury and the

Fed use the money carefully. A

special inspector general is over-

seeing the Treasury’s actions, and

an oversight commission will

keep an eye on how Treasury and

Fed funds are used. Mr. Powell

and Mr. Mnuchin must keep law-

makers apprised on what pro-

grams are being put into place and

whom they are benefiting. Both

will be required to testify regu-

larly.

The question is how much that

oversight will matter. The pro-

grams are complicated, and the

design is happening behind closed

doors. While it’s hard for compa-

nies to receive special treatment

individually because the pro-

grams are broad, that could open

the door to lobbying for the inclu-

sion of broad asset classes — like

lower-grade debt.

The Fed’s Rough Road Map for Riding to the Rescue

By JEANNA SMIALEK

The Federal Reserve chair, Jerome H. Powell, can face congressional oversight of how credit will be kept flowing.

ERIN SCHAFF/THE NEW YORK TIMES

The Trump administration

plans to use money from the

recent stimulus bills to pay hos-

pitals for treatment of uninsured

coronavirus patients. It says the

plan is more efficient than re-

opening enrollment in the Afford-

able Care Act markets to achieve

the same goal.

The money would be drawn

from a $100 billion fund to help

hospitals respond to the crisis

that hospital groups expected

would be spent on their more

immediate financial needs.

President Trump announced

the policy on Friday at his daily

briefing. “That should alleviate

any concern uninsured Ameri-

cans may have about seeking the

coronavirus treatment,” he said.

Using the hospital funds to pay

for uninsured coronavirus pa-

tients could be a targeted way to

pay for virus care for the grow-

ing number of Americans who

lack health insurance. But critics

say it may not go to hospitals in

the states hit the hardest so far

and does little to address con-

cerns over the millions of people

now without coverage for medi-

cal care unrelated to the virus.

“The Trump administration

has painted itself into an ideolog-

ical corner on this, and millions

of Americans are going to pay

the price,” Eliot Fishman, senior

director of health policy at the

consumer group Families USA,

said in an email.

Unlike funds to hospitals to

pay for the uninsured who de-

velop Covid-19, “insurance cover-

age would give newly unem-

ployed people access to primary

care, urgent care and prescrip-

tion drugs to get symptoms

checked and treated,” Mr. Fish-

man said, including those with

health problems other than coro-

navirus.

Congress left the legislation

establishing the hospital fund

deliberately vague, to allow its

allocation to shift as the epidemic

played out. But hospitals have

asked for as much money as

possible to be paid to them im-

mediately — to address pressing

concerns about paying their

staff, buying equipment and

retrofitting their facilities to

accommodate the flood of pa-

tients with the coronavirus.

The administration’s plan, by

contrast, would pay hospitals

after the fact, and would tend to

shift more money toward states

with more uninsured patients.

New York, California and Wash-

ington, which had early surges in

infections, entered the crisis with

very low levels of uninsured

residents. Republican-led states,

like Florida and Texas, that have

declined to expand Medicaid are

likely to benefit more from fund-

ing targeted directly at uncom-

pensated care.

At the briefing, Alex Azar, the

secretary of Health and Human

Services, said that hospitals

would be paid the same prices

they received for Medicare pa-

tients, lower rates than private

insurance typically pays for such

care. He also said that hospitals

that accepted the funds would be

banned from sending any addi-

tional bills to patients. Mr. Trump

declined to answer a question

about whether the coverage

would apply to undocumented

immigrants.

The new policy builds on earli-

er policy from Congress and

voluntary actions from private

insurers to eliminate financial

barriers to testing and care relat-

ed to the coronavirus. Insured

and uninsured Americans can

already receive tests for the

illness without paying anything

out of pocket, thanks to recent

legislation. Major insurance

companies are also waiving

out-of-pocket costs for many of

their customers for 60 days on

any care related to coronavirus.

Nationwide, millions of Ameri-

cans have lost their job-based

coverage as the virus has caused

a sudden downturn in the econ-

omy.

The administration recently

decided against reopening fed-

eral insurance marketplaces in

38 states, another move that

could have helped uninsured

Americans obtain coverage for

coronavirus care as well as treat-

ment for unrelated conditions.

While people who recently lost

job-based coverage because of a

layoff are eligible to sign up

under current law, a broader

special enrollment period would

have eased that transition and

helped previously uninsured

Americans as well.

Mr. Azar said at the briefing

that Americans who had lost

insurance may have access to

marketplace coverage or Medic-

aid in some states, options made

possible by the health law that

the White House continues to

oppose in the courts.

Consumer groups and public

health experts said paying hospi-

tals for uncompensated care

would not help the millions of

Americans who are now without

coverage.

“It’s a failure, a fundamental

failure, to understand how people

get care,” said Dr. Georges C.

Benjamin, the executive director

of the American Public Health

Association in Washington. He

says the focus on paying hospi-

tals for coronavirus patients did

not help doctors treat people,

including those without the vi-

rus, outside of the hospital to

reduce the burden on emergency

rooms and hospital staff.

Even hospitals that stand to

benefit say using the funds for

uncompensated care does not

necessarily help the places that

are struggling the most and have

the least cash reserves to handle

the expense.

“Addressing uncompensated

care is important, but that alone

will not solve the problems

Covid-19 creates for our hospi-

tals,” said Erin O’Malley, senior

director of policy for America’s

Essential Hospitals, the trade

group representing the hospitals

that treat the large numbers of

people without insurance or who

qualify for Medicaid.

The virus has left many hospi-

tals in financial distress. Most

have put their most profitable

lines of business on hold by

canceling procedures that are

not seen as essential. And some

have been investing heavily to

ready themselves for coro-

navirus patients. They have been

paying above-market rates for

masks, respirators and other

medical equipment. Some hospi-

tals, even in large systems with

strong balance sheets, have

begun laying off workers.

“Uninsured patients need

coverage for Covid,” said Chip

Kahn, the chief executive of the

Federation of American Hospi-

tals, a trade group representing

for-profit hospitals. “But Job 1 for

the $100 billion fund is to keep

hospital doors open and provide

resources to cover the extra

supplies, equipment and staff

necessary to beat the coro-

navirus.”

Mr. Azar said details about

how the rest of the hospital fund

would be spent were still being

developed.

Hospitals to Be Paid to Treat Uninsured

By REED ABELSON

and MARGOT SANGER-KATZ

The plan pays for virus care after the fact; hospitals want money before.

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