Experts urge more health care aid to states

WASHINGTON (Reuters) - A huge boost in federal aid to states for health care programs could help kick-start the moribund U.S. economy where consumer and business demand has fallen dramatically, a former senior Clinton administration aide told a congressional panel on Thursday.

Gene Sperling, an economic adviser to former President Bill Clinton, told a House Energy and Commerce health subcommittee that U.S. consumer and business demand was not likely to pick up any time soon, and a massive stimulus package that helps states avoid deep spending cuts would help buoy the economy.

"In my professional life I have never been so worried about an economic year as next year," said Sperling, who is currently a senior fellow at the Center for American Progress, a liberal leaning think tank.

"When you look out in the private sector and the American consumer and even the global economy, I can't see where demand is coming from next year," he said.

With U.S. claims for jobless benefits at their highest level in seven years and the unemployment rate at a 14-year high of 6.5 percent, lawmakers are looking to enact a substantial economic stimulus package.

The Energy and Commerce subcommittee is looking at ways the health care industry can contribute to economic growth.

Max Baucus, a Montana Democrat who chairs Senate Finance Committee, released a road map for health reform on Wednesday. President-elect Barack Obama has a plan and Massachusetts Sen. Edward Kennedy has also been working on legislation.

Sperling said increasing federal funding for Medicaid and children's health programs operated by cash-strapped states could help them avoid spending cuts and layoffs that would further deepen the recession.

But Alan Viard of the American Enterprise Institute, a conservative think tank, argued that increasing federal spending for health care programs was not the best way to stimulate economic growth.

"Increasing Medicaid does not increase demand," he said. Viard also argued against boosting funding for the National Institutes of Health as a way to stimulate demand.

NIH acting Director Raynard Kington said more funds would allow the government institute to finance more research and the money could move into the economy within a matter of weeks.

Ron Pollack, executive director of Families USA, a health care reform advocacy group, said NIH grants to universities, hospitals and medical research groups bring broad economic benefits to their surrounding communities.

The Democratic-led Congress is due back next week for a brief post-election session during which they could enact a limited package aimed at helping the long-term unemployed and possibly U.S. automobile manufacturers.

Obama has promised a broader economic stimulus if needed when he takes office in January and when his fellow Democrats will also enjoy a bigger majority in the new Congress.

(Editing by Maggie Fox and David Storey)