Rising Health Care Costs Likely to Cause State and Local Fiscal Challenges

An expected explosion of health-related expenditures combined with no new policy changes will likely result in fiscal challenges for state and local governments within the next decade, says a new report from the Government Accountability Office (GAO). The result could put downward pressure on public funding available to support TBED initiatives.

 

The expected continued rise in health care costs poses a fiscal challenge not just to government budgets, but to American business and society as a whole, according to the report. Using data from the National Income and Product Accounts, GAO ran long-term simulations extending until 2050 that indicate the combined effects of demographic changes and growing health care costs drive increasing federal deficits and debt levels. GAO’s fiscal model of the state and local sector projects the level of recipients and expenditures in future years based on historical spending and revenue patterns.

 

Findings of the simulation indicate that two types of state and local expenditures will rise quickly because of escalating medical costs: Medicaid expenditures and health insurance for state and local employees and retirees. Conversely, other expenditures such as wages and salaries of workers, pensions and investments in capital goods are expected to grow slightly less than gross domestic product.

 

Although the GAO report does not offer recommendations, the authors conclude that because the fundamental fiscal problems of the federal government and state and local governments are similar and linked, solutions to address the challenges should be considered in tandem.

 

As a result of constricting state budgets due to health care costs, 34 governors introduced plans to reduce the number of uninsured residents in their states, according to the Fiscal Survey of States released in June. Proposed fiscal year 2008 funding for these programs totals nearly $18.4 billion.

 

State and Local Governments: Persistent Fiscal Challenges Will Likely Emerge within the Next Decade is available from the GAO at: http://www.gao.gov/new.items/d071080sp.pdf

 

Links to this report and more than 4,500 additional TBED-related research reports, strategic plans and other papers also can be found at the Tech-based Economic Development (TBED) Resource Center, jointly developed by the Technology Administration and SSTI, at http://www.tbedresourcecenter.org/.