Governors saddled with health costs

The National Governors Association (NGA) met in Philadelphia this week, where my City of Brotherly and Sisterly Love is witnessing some sobering discussions about health care.

On the one hand, Bill Clinton called in his opening keynote speech for the states to be laboratories of democracy.

But how much health-democracy can each governor afford when balancing their budget in the face of declining revenues? According to the NGA’s 2008 Fiscal Survey of the States, not a whole lot.

Medicaid covers comprehensive and long-term care for over 62 million
low-income Americans. Costs are shared between the Federal and State
governments. For many years, health care has been the #1 or #2 line
item for every governor of the United States, rivaling education for
the first two spots in state budgets. In 2008, the NGA reports that
Medicaid is now the largest component of state spending, comprising 22%
of total state spending.

Even with the weakening of many states’ fiscal conditions in 2008,
one-half of the governors proposes increasing coverage to the uninsured
in 2009. In addition to expanding access to health care for the
uninsured, governors are also concerned about other health challenges:

  • Health care cost increases and greater utilization of services
  • The aging population and the impact on long-term care financing
  • Regulatory actions at the federal level that would limit federal participation
  • Workforce shortages (esp. nurses)
  • Hospital finances (and mounting bad debt)
  • State Children’s Health Insurance Program (SCHIP) funding
  • Mental health funding and access.

The NGA fiscal survey forecasts that, "Even with more moderating
growth rates in health care spending from the height of the recession,
projections over the next decade remain at an average annual rate of
about 8 percent from fiscal 2008 through fiscal 2018, according to the
most recent estimates by the Congressional Budget Office. With Medicaid
comprising 22 percent of total state spending, these long-term growth
rates will continue to strain state budgets."

Jane’s Hot Points: The Rockefeller Institute of Government, the
public policy arm of SUNY, recently published its July 2008 issue of
the State Revenue Report #72 with the title, "State Taxes Slow Yet
Again, and Further Weakening Appears Likely"
— Mid-Year Budget Cuts May
Lie Ahead. Topline: the state of the states’ financing is weak. The key
data points underpinning this bleak forecast are:

  • State tax collections were weak in the first quarter of 2008, rising
    only 1.7 percent over a year earlier. After adjusting for legislated
    tax changes and inflation in state and local government purchases,
    state tax revenue declined by 5.3 percent.
  • This is the third quarter in a row that total adjusted revenue growth showed a decline.
  • Sales tax revenues produced no growth for the first time in six years.
  • The underlying trend for states is negative; budget cuts and other gap-closing measures likely loom ahead.
  • Inflation
    in state and local government costs remained above 6 percent for the
    first quarter of 2008, continuing a recent trend of significantly
    higher increases than those in the broader economy.

How you cover the uninsured and provide low-income citizens with
access to comprehensive health care — let alone long-term care —
under this economic scenario requires creative thinking beyond the
"labs" metaphor. Governors are going to need training in yet another
discipline: magical thinking.

7 replies »

  1. Health costs can be reduced by 65% if the federal government removes the layers upon layers of unneeded paperwork. There are insurance companies with their overhead and the average doctor employs four to five people to support the office. The doctors wait 90 to 120 days for payment from the insurance companies, Medicare and Medicaid. This overhead is placed directly on the patient through insurance premiums and cash outlay. Do away with this expense and place the cost of medical services directly between doctor and patient.
    A simple and easy method is a problem right away. Our legislatures do not like simple rules and laws. Legislatures need complex regulations to accommodate their self-interest and the SIG’s in this country.
    The Simple method is every individual receives a medical money card from the federal government, to be used only for medical expenses. The patient pays cash when the services are done, thereby eliminating overhead.
    I contacted many doctors about this proposal and all said they could reduce their cost from a $90.00 charge to a $30.00-$35.00 fee. The cost to the patient would be an increase in the Social Security charges.
    There will be an annual cap of medical expenses. Any charges above the max, the patient pays out of their pocket. Patients could take out additional insurance for complete coverage from an insurance company. People who are smokers, obese, and drug addicts will be paying more because of their habits. Healthy people will no longer be subsidizing those who abuse of their bodies.
    These are high lights with many details to follow.

  2. Still people are talking about health insurance, coverage, etc without understanding the fundamental problem. Insurance is the problem and not the solution. For-profit corporations control the entire industry when their only motivation is PROFIT and why they should care about your health.
    Ok, then how you can control cost. There are only 2 options.
    Option 1: Let us have insurance only for catastrophic illness and for every other service we pay the doctors directly as ‘fee-for-service’. After all this is how every other insurance (auto insurance for example) works.
    Option B: Have universal coverage managed and controlled by the Govt and administered by the private carriers.
    Instead of looking at the fundamental problem, we continue to talk..talk…talk and only talk.
    State Govts will go bankrupt very soon just as individuals do due to healthcare.

  3. I’m not putting much faith in the 2008 fiscal Report produced by the NGA. I suspect many of these states don’t want to make the tough political/economic/tax policy changes necessary in their own state so blame and look to DC for the money/policy fixes. Who can New Jersey blame for it’s present fiscal incompetence? Here in NC voters always want someone else to pay for the services they get/want. We have also reduced high income taxes to attract wealth that will “trickle down” – so far not much trickling, just growing short falls, with millins spent on corporate incentives. Rural property tax policy also reduces tax revenue to counties in favor of wealthy land owners. It’s who you know and who you politically support with $$ that drives policy.

  4. “Medicaid eligibility criteria have become more and more lenient in recent years, resulting in large increases in the Medicaid population.”
    I’d like a more indepth explanation of this statement Tommy.

  5. The ever-increasing amounts spent on entitlement spending (including Medicare and Medicaid) is not sustainable. Eventually we will have to raise taxes, cut benefits, or both.
    Medicaid eligibility criteria have become more and more lenient in recent years, resulting in large increases in the Medicaid population. This is very expensive. The money has to come from somewhere. There is no free lunch.

  6. Sad reality is this – that additional dollar being sucked up by booming health care cost is one less dollar for public schools and universities. In particular, pretty amazing how the level of state support as a percentage of % state budget (not even keeping up with general inflation in plenty of states) has fallen for higher education over the past 30 years. Plus, most large public universities aren’t sitting on endowments like the Ivys or the elite liberal arts colleges like Williams to help buffer tuition increases either.