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.