States and Localities Continue to See Large Health Care Cost Increases

A new analysis by the Pew Project for the States shows that while health care costs nationally are rising at a slower rate the costs for local and state governments are rising at double digit rates, and consuming an ever larger share of those budgets. From Pew:

While total U.S. health care spending grew slowly in 2011, rising about 4 percent, the story for state and local governments was dramatically different, according to the latest data from the Centers for Medicare & Medicaid Services. Health care spending by states and localities increased 10 percent, and consumed a larger share of revenues—about 3 out of every 10 dollars—than has been the case for these expenses since at least 1987.[1]

The POOR economy has driven a large increase in medicaid rolls, with much of that financed for three years by the federal stimulus program (ARRA). But that money has dried up. Pew talks of that dynamic, and the resulting impacts.

Under the American Recovery and Reinvestment Act (ARRA) and later legislation that extended certain ARRA provisions, the federal government contributed an extra $103 billion to Medicaid, with states receiving the bulk of that total in 2009 and 2010. So, while the recession swelled Medicaid rolls and drove increases in total program expenditures, states’ share of Medicaid spending actually declined from $146 billion in 2008 to $135 billion in 2010.[2]

The extra federal Medicaid money stopped flowing at the end of June 2011, which was the primary reason state Medicaid expenditures rose to $165 billion in 2011—a 22 percent increase from 2010.

So the locals are seeing a big increase in overall costs. And for those that do not believe or understand what is driving our nation towards insolvency look no further than health care. Without addressing the underlying and continuing spiral in health care costs there ultimately is no solution to our fiscal problems.

For state and local governments, health care spending as a share of revenue increased from 16 percent to 30 percent from 1987 to 2011 (the entire period for which data are available). After adjusting for inflation, their combined health care expenditures increased by 241 percent over that time period.[3]

The most significant elements of this expansion were contributions to public-employee health insurance premiums and Medicaid, which experienced inflation-adjusted increases of 430 percent and 315 percent, respectively.

Pew’s analysis of projections from the Centers for Medicare & Medicaid Services shows that state and local spending is expected to rise nearly 55 percent in inflation-adjusted dollars between 2011 and 2021, driven largely by anticipated growth in Medicaid.

Looking further ahead, the Government Accountability Office (GAO) warns that health care spending is the primary driver of the long-term fiscal challenges that it expects state and local governments will face. According to the GAO’s simulation, state and local health-related expenditures will nearly double as a percentage of gross domestic product between 2012 and 2060.[4]

A little bit of a silver lining is the statistic cited by Pew showing that spending per individual in medicaid grew at a slower rate than the private insurance market did. Some solace, but the underlying trends and numbers are still pretty scary, and do not portend well for our future fiscal health.

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