Q & A

Q&A: State Health Care Costs


Sue Urahn, Executive Vice President, The Pew Charitable Trusts;
Valerie Chang, Director for Policy Research, John D. and Catherine T. MacArthur Foundation

PEW_Urahn_240x290_km_OWN        Valerie Chang large

MacArthur logo

The State Health Care Spending Project is an initiative of the Pew Center on the States and the John D. and Catherine T. MacArthur Foundation. The project’s goal is to help policy makers better understand how much states spend on health care, what factors are driving this amount, and how states can manage costs in a changing health care landscape.

Here, Sue Urahn and Valerie Chang explain why states are seeking these answers and how this new project will find and share them. Learn more in our overview (PDF) of states’ challenges and the project’s planned research.

Q: How are health care costs contributing to states’ fiscal troubles?

Sue Urahn: Overall, states have seen revenues rebound slowly for the past two years, but revenue hasn’t grown fast enough to keep pace with demands for important services, including health care. High unemployment, the housing crisis, and other financial hardships—they’re all causing more people to seek help from programs like Medicaid. On top of that trend, the cost of health care has continued to climb, adding significant pressure on state budgets. Bottom line: You can’t care about state fiscal health and not care about health care costs.

Valerie Chang: It’s critical that policy makers recognize they’ve got more than a short-term, recession-related problem to solve. Projections from the Government Accountability Office show that, absent policy changes, health care costs will consume an increasing share of state and local government budgets for the next five decades. Too often, we’ve seen costs simply get shifted to individuals, service providers, and other levels of government. That’s like squeezing a balloon and moving the pressure around but not reducing it. This doesn’t fix the problem, and it delays reforms that can contain spending and improve health outcomes.

Q: We hear a lot in the news about growing Medicaid costs. How big are they? What impact has this had on states?

Valerie: We do hear a lot about Medicaid, and it plays an important role in our health care system, providing insurance to low-income families, the elderly and people with disabilities. There’s actually a bit of good news that often goes unnoticed: Medicaid’s spending per person grew slower than private insurance premiums over the last decade. Nevertheless, because of rising enrollments and health care costs, it is now the second largest item in states’ budgets, accounting for almost one-fifth of state general fund spending. When you tally up the state and federal governments’ contributions, Medicaid spending topped $400 billion in fiscal year 2011, and the states’ share of the cost rose about 13 percent that year—back up near pre-recession levels—as temporary federal funding from the Recovery Act ended. Looking ahead, spending on Medicaid is expected to keep growing, even in states that opt out of the Affordable Care Act’s expansion of the program.

Q: When it comes to state spending on health care, it’s not just Medicaid, right? What else do they pay for?

Sue: The debate over the Affordable Care Act (ACA) and its implementation has certainly heightened the focus on Medicaid. Under the ACA, millions more Americans could be enrolled in Medicaid in states that choose to broaden their eligibility requirements. But states have many other budget items that make up a significant portion of their overall health care spending, from public health programs like mental health facilities and support for local clinics to health care for public employees, retirees, and people in correctional facilities. These budget items are likely to grow, too, because health care in general keeps getting more expensive. Managing these costs in ways that maintain or improve health outcomes—and don’t simply pass problems on to others—will be critical to states’ fiscal health, now and in the future.

Q: What do states need to tackle these challenges?

Valerie: State policy makers have access to a great deal of dollars-and-cents information about Medicaid. But that could be bolstered by research and analysis identifying cost drivers within the program and successful innovations that control costs. Officials also need more and better information about the other types of state health care spending that Sue mentioned. So, one of our project’s first tasks will be a 50-state study that establishes a baseline, totaling up states’ health care expenses and helping policy makers compare costs and funding sources across programs.

Sue: Once policy makers have a full accounting of their spending, they can better track their health care dollars and spot trends. And that’s the data they need to identify precisely what’s not working and what is driving costs,  especially as they implement the ACA. Our initiative plans to lend a hand in this next step, too, with a series of reports and case studies on effective policies to manage the changing landscape of health care costs.

Q: How will your project help create a climate for state leaders to act on solutions?

Valerie: Designing an objective, rigorous, and nonpartisan research agenda is only part of the challenge. We’ll pair our research with events that bring together lawmakers from across the country and offer opportunities for them to share lessons learned and ideas for change. We hope to partner with other national groups on these events, as we have done in other areas of our work, to make sure that all of the key stakeholders are at the table.

Sue: Progress on an issue as complex as health care often means finding common ground among many players. So, we’re reaching out to federal policy makers, business leaders, health care organizations, the media and the public regularly, throughout this initiative. Making our research relevant and accessible to all these groups is critical, and we are fortunate to have in-depth, original reporting on this issue from Stateline, Pew’s daily news service, to help make those connections. 

December 4, 2012
Matt Mulkey | 202.862.9864
State Health Care Spending
Budget, Health Care Costs, Medicaid