Congress Offers Health Aid to Puerto Rico in Spending Bill

Lawmakers agreed to extend health aid to Puerto Rico as part of a $1.1 trillion spending bill that they’re racing to approve this week, which would mark the first step by Congress to help the Caribbean island cope with an escalating debt crisis.

The legislation would increase payments to hospitals on the island and provide bonus Medicare payments to doctors and medical facilities that adopt electronic health record-keeping, according to the text of the bill posted early Wednesday on the House website. The spending measure is part of a fiscal plan that would avert a U.S. government shutdown and revive a series of expired tax breaks.

Puerto Rico has been pleading with lawmakers in Washington for assistance as it runs out of cash and struggles to pay its $70 billion of debt. The commonwealth this month narrowly averted a default on government-guaranteed debt for the first time and may be unable to cover $957 million due to investors on Jan. 1.

The bill’s text didn’t include a provision to grant Puerto Rico agencies access to Chapter 9 bankruptcy that had been sought by the commonwealth’s non-voting House member, Pedro Pierluisi. Even so, the increased health-care payments in the measure may bring some relief.

Puerto Rico, where 46 percent of the citizens live in poverty, gets a lower percentage of federal funds for Medicaid than 26 other states, even though none come close to its level of privation. Making up for inadequate federal funding has contributed to Puerto Rico’s debt crisis, commonwealth officials say.

Almost 70 percent of the island’s 3.5 million people get health care through Medicaid, Medicare and Medicare Advantage. Medicaid spending in Puerto Rico totaled about $2.8 billion last year, and the U.S. government contributed $1.6 billion, or 57 percent of the cost. By contrast, the federal government pays 74 percent of the Medicaid costs for Mississippi, which has the lowest per-capita income among the states.

Senator Orrin Hatch, the Utah Republican who heads the finance committee, said Tuesday he was pushing for aid that would help Puerto Rico meet its obligations over the next few months and buy time to craft a broader response to the commonwealth’s strains. His proposal wasn’t included in the spending measure posted early Wednesday.

Hatch and two other Senate committee heads last week introduced legislation to direct as much as $3 billion to Puerto Rico through a newly-created authority that would help oversee the island’s budget. U.S. lawmakers have been loath to extend aid without giving the federal government greater power to repair its finances.

Governor Alejandro Garcia Padilla says the island can’t afford to repay debt built up from years of borrowing to paper over budget shortfalls brought on by its faltering economy. He’s been pushing for Congress to allow some government agencies to file for municipal bankruptcy to cut their debts, just as cities including Detroit have. While Democrats and President Barack Obama’s administration have backed such legislation, it has failed to advance amid opposition from Republicans and bondholders.

Puerto Rico’s bond prices tumbled this year as Garcia Padilla said the government would need to restructure its debts, and some investors expressed skepticism that a U.S. lifeline will be sufficient to stave off a major default. Puerto Rico general-obligation bonds due in 2035 traded Tuesday for an average of 72.5 cents on the dollar, down from 74.6 cents on Dec. 9, when the Republican bill was released.

“Throwing them money to make bond payments doesn’t change anything – it’s still too much debt,” said Matt Dalton, chief executive officer of Rye Brook, New York-based Belle Haven Investments, which oversees $3.4 billion of municipal bonds, including Puerto Rico securities.

With his government rapidly draining its cash, Garcia Padilla told senators this month that he’s running out of ways to avert a major default. His administration has started diverting revenue earmarked for some securities to ensure that the island doesn’t skip payments on its general-obligation bonds, which are given top legal priority.

Hatch told reporters earlier Tuesday that the measure he was pushing would buy time for Republicans and Democrats to agree on an approach.

“In this short time frame, it’s very difficult to bring Republicans and Democrats together,” Hatch said. “I intend to help them and that is all there is to it. There are two parties and there are different opinions in both parties, so I just have to do the best I can.”