Healthcare costs for state and local governments are growing faster than the national average, threatening to crowd out other services and sending public officials looking for solutions.
State and local governments are spending more -- about one-third of their budgets -- than at anytime since the federal government started keeping such records in 1987, according to a new report by the Pew Charitable Trusts.
While total U.S. healthcare costs grew by 4 percent in 2012, local and state healthcare costs grew at twice that rate, according to a Pew analysis of data from the Centers for Medicare & Medicaid Services.
In 1987, state and local governments were spending on average just over 15 percent of their own budgets on healthcare, not including federal contributions.
By 2000, as the dotcom boom started ushering in waves of economic changes that continued in the aughts, that rose to 21.5 percent. It rose to 31.5 percent in 2012, after the Great Recession took thousands of middle-income jobs out of the economy and left behind a high unemployment rate and millions of Americans considered permanently jobless.
The federal government's stimulus program helped offset the toll on state and local budgets. Between 2008 and 2010, state and local health spending grew at only 2 percent thanks to an influx of temporary Medicaid aid that has since receded, the Pew report notes.
Now, state and local health spending account for more than 4 percent of national GDP (4 percent of the 18 percent of GDP that all U.S. health spending represents these days). That could rise to more than 7 percent by the middle of the century if current trends persist, according to Pew projections based on Government Accountability Office data.
The prime drivers have been Medicaid and public employee insurance premiums, which adjusted for inflation increased 375 percent and 444 percent respectively between 1987 and 2012.
All told in 2012, according to Pew, the states spent $188 billion on Medicaid and $152 billion on public employee healthcare, along with $144 billion on general assistance, vocational rehabilitation, public health and hospital subsidies.
By 2020, Pew researchers are projecting, states will be spending more than $700 billion on all those programs, $200 billion on Medicaid alone.
For years, budget hawks have been warning that healthcare spending on government workers and Medicaid could crowd out other priorities like education and infrastructure, especially in large states like Illinois.
After years of failing to make contributions to the public employees retirement fund, Illinois lawmakers are facing more than $100 billion in unfunded pension liabilities. Some some 2.7 million Illinoisans were covered by Medicaid before the Affordable Care Act's eligibility expansion, costing more than $13 billion in total for federal and state taxpayers and creating perennial holes in the state budget as well as outstanding debt for hospitals.
Now Illinois lawmakers are looking for savings through an eligibility redetermination project, to try to weed out fraudsters, and managed care -- something a lot of other states are turning to.
About 75 percent of the nation's Medicaid beneficiaries will be covered in managed care by next year, up from just above 60 percent in 2012, according to a recent report by Avalere Health.
In three of the largest states alone, California, Florida and Texas, managed care is being expanded statewide after being used at the regional level, and of the 26 states expanding eligibility, only two aren't using managed care, Arkansas and Connecticut. Other states, like Colorado and Utah, are trying an accountable care system for Medicaid.
Whatever the policy design, states are looking for more predictability in Medicaid spending, and the federal government seems to be as well. CMS deputy administrator Cindy Mann has predicted that capitated reimbursement could account for more than half of all Medicaid spending by the end of this decade.