The bursting state fiscal bubble and state medicaid budgets

Health Affairs

Volumn 22, Issue 1, 2003, Pages 46-61

  Boyd, Donald J ^a  

^a Nelson A Rockefeller Institute of Government   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

ARTICLE; BUDGET; ECONOMICS; EDUCATION; FINANCIAL MANAGEMENT; HEALTH CARE COST; HEALTH CARE PLANNING; HEALTH CARE POLICY; HUMAN; INCOME; LEGAL ASPECT; MEDICAID; STATISTICS; TAX; UNITED STATES;

BUDGETS; EDUCATION; FINANCING, GOVERNMENT; HEALTH EXPENDITURES; HEALTH POLICY; HUMANS; INCOME; MEDICAID; STATE HEALTH PLANS; TAXES; UNITED STATES;

EID: 0037270229     PISSN: 02782715     EISSN: None     Source Type: Journal    
DOI: 10.1377/hlthaff.22.1.46     Document Type: Review

References (54)

1. National Association of State Budget Officers, State Expenditure Report 2001 (Washington: NASBO, Summer 2002).
2. State Expenditure Report 2001 ( 2002). Ibid.
3. National Governors' Association and National Association of State Budget Officers, The Fiscal Survey of States: May 2002 (Washington: NGA/NASBO, Summer 2002).
4. Most of the analysis in this section is based on detailed government finance data obtained from the U.S. Bureau of the Census for the year 2000. In calculating real expenditures per capita I use the state and local government chain-weighted price index prepared by the U.S. Bureau of Economic Analysis.
5. State government spending also increased rapidly as a percentage of personal income, from 11.09 percent in 1990 to 12.42 percent in 2000, an increase of 12 percent.
6. Alaska's 1990 real per capita spending, at $10,191, was more than twice that of Hawaii, the second-highest state. Alaska's spending declined 5.4 percent from 1990 to 2000.
7. See R. Penner, A Brief History of State and Local Fiscal Policy, Pub. no. A-27 (Washington: Urban Institute, December 1998).
8. Rockefeller Institute of Government analysis of data from Advisory Commission on Intergovernmental Relations, Significant Features of Fiscal Federalism 1994, vol. 2 (Washington: ACIR, 1995), Tables 1 and 41; databases on state and local government spending developed by the Rockefeller Institute from data obtained in a variety of electronic formats from the U.S. Bureau of the Census, under special requests;
9. annual population data obtained from U.S. Bureau of the Census, "Population Estimates," 29 April 2002, eire.census.gov/popest/ estimates.php (15 August 2002);
10. and state and local government chain-weighted price index data obtained from Bureau of Economic Analysis, "National Income and Products Account Tables," Table 7.11, 27 September 2002, www.bea.gov/bea/dn/nipaweb/ SelectTable.asp?Selected=N (5 October 2002).
11. Medicaid has countercyclical elements - in recessions, when state revenue falls, Medicaid spending pressures grow. John Holahan and Bowen Garrett estimated that an increase in the unemployment rate from 4.5 percent to 5.5 percent would cause the number of Medicaid beneficiaries to increase by 1.5 million or 3.6 percent, causing Medicaid expenditures nationally to rise by approximately $2.7 billion or 1.3 percent. See J. Holahan and B. Garrett, "Rising Unemployment and Medicaid," Health Policy Online, No. 1 (Washington: Urban Institute, 16 October 2001), www.urban.org/UploadedPDF/ 410306_HPOnline_1.pdf (9 November 2002).
12. "Medical vendor payments" include payments to hospitals, doctors, and other private medical vendors but not payments by state governments to local government entities such as local hospitals. Thus, medical vendor payments largely include DSH payments (as they are made mostly to nongovernmental providers) and largely exclude UPL-related payments (made mostly to local government providers).
13. In real per capita terms, federally financed Medicaid grew 89 percent between 1990 and 1995, and state-financed spending grew by 92 percent. Similarly, between 1995 and 2000 federally financed real per capita Medicaid spending grew by 7.4 percent, while state-financed spending grew 7.8 percent. NASBO, State Expenditure Reports (1992, 1997, and 2000).
14. Based on data from the former HCFA Form 64, now CMS Form 64. These data show that real per capita "total computable" spending on medical assistance payments (including DSH) increased by 80 percent between FY 1990 and FY 1995, which is remarkably consistent with the 78 percent increase in real per capita medical vendor payments (which also include DSH) between state FY 1990 and FY 1995.
15. Computed from B. Bruen and J. Holahan, "Slow Growth in Medicaid Spending Continues in 1997" (Washington: Kaiser Commission on Medicaid and the Uninsured, November 1999), Table 2;
16. and from population data from Census Bureau, "Population Estimates."
17. Computed from annual average medical inflation rates in Bruen and Holahan, "Slow Growth in Medicaid Spending"; and data from the BEA's state and local government chain-weighted price index.
18. Bruen and Holahan, "Slow Growth in Medicaid Spending."
19. Bruen and Holahan Slow Growth in Medicaid Spending Ibid., Table 1.
20. V. Smith et al., Medicaid Spending Growth: Results from a 2002 Survey (Washington: Kaiser Commission, September 2002).
21. Computed from B. Bruen and J. Holahan, "Acceleration of Medicaid Spending Reflects Mounting Pressures" (Washington: Kaiser Commission, May 2002), Figures 1 and 5; and data from the BEA's state and local government chain-weighted price index.
22. Bruen and Holahan, "Acceleration of Medicaid Spending."
23. Bruen and Holahan, Acceleration of Medicaid Spending Ibid.
24. Bruen and Holahan, Acceleration of Medicaid Spending Ibid.
25. Implementation of SCHIP is reported in the SCHIP eligibility section of the data file "kffdata0c4.tab," from Kaiser Family Foundation, "State Health Facts Online," June 2002, www.statehealthfacts.kff.org/ cgi-bin/healthfacts.cgi?action=rawdata (25 September 2002), data attributed to the Center on Budget and Policy Priorities. Although enrollment data include enrollment associated with SCHIP Medicaid expansions, because of the way that the CMS reports data, expenditure data do not include Medicaid SCHIP expenditures. Even if they did, however, the impact would not be significant: Total SCHIP expenditures of states that implemented SCHIP as a Medicaid expansion were only $242 million in state FY 2002. By contrast, the total increase in Medicaid spending between FY 1998 and 2000 was $27.8 billion.
26. Bruen and Holahan, "Acceleration of Medicaid Spending."
27. See D.J. Boyd, "Long Rise in Education Spending Slows as Economy Weakens," State Fiscal News 2, no. 2 (Albany, N.Y.: Rockefeller Institute of Government, 2002);
28. and U.S. Department of Education, National Center for Education Statistics, Digest of Education Statistics, 2001, NCES 2002-130 (Washington: NCES, 2002).
29. NCES, Digest of Education Statistics, 2001, Table 201.
30. Computed by summing the annual revenue reductions reported in NGA/NASBO, The Fiscal Survey of States: May 2002 (Washington: NGA/NASBO, Summer 2002), Table 7.
31. Nicholas Johnson and Daniel Tenny have pointed out that states' policy changes have tended to make state taxes more regressive, in part because states have been relatively unafraid to raise excise tax rates and because they have focused their tax cutting on the income tax. Despite these policies, the net result of the strong economic forces at work may have been a more progressive state tax system, as states have become increasingly reliant on the income tax. See N. Johnson and D. Tenny, The Rising Regressivity of State Taxes (Washington: Center on Budget and Policy Priorities, 15 January 2002).
32. See Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2003-2012 (Washington: CBO January 2002), chap. 2.
33. The Budget and Economic Outlook: Fiscal Years 2003-2012 Ibid., 50-51.
34. A "typical" sales tax base treats as nontaxable food purchased for off-premises consumption, housing consumption, medical care, personal business services, education and research, religious and welfare services, certain purchased transportation, and selected other items.
35. Exhibit 3 is based on capital gains data in the document "capgain1-2001.pdf," from the Statistics of Income page of the U.S. Treasury Department's Web site, www.irs.gov/taxstats (June 2002),
36. and from savings-rate data obtained from BEA, "National Income and Product Accounts," Table 2.1. I plot both data series on the same graph not to posit a relationship between capital gains and the consumption rate, but simply to show that states fortuitously benefited from two major trends outside the bounds of postwar historical experience, occurring at the same time. There could well be a relationship between capital gains and the consumption rate, such as a "wealth effect" leading people to spend more when asset values and capital gains are high. But it would take more than simple graphical analysis to uncover such an effect.
37. There are some plausible reasons for why capital gains rose and the savings rate fell in the 1990s. Obviously the stock market contributed to capital gains, but so did lower tax rates on gains - a benefit that will endure even if old market levels will not. Similarly, the lower savings rate could have reflected greater long-run confidence in the economy, more stability in earnings, higher asset values, and other factors that might lead people to save less for an uncertain future - and some of these factors also could endure.
38. N.W. Jenny, Fiscal 2001 Tax Revenue Growth: Weakness Appears, State Fiscal Brief no. 64 (Albany, N.Y.: Rockefeller Institute of Government, April 2002).
39. See N.W. Jenny, State Revenue Report, no. 49 (Albany, N.Y.: Rockefeller Institute of Government, September 2002);
40. and D.J. Boyd and N.W. Jenny, "States Will Raise Their Economic Forecasts but May Lower Their Revenue Forecasts," State Fiscal News 2, no. 3 (Albany, N.Y.: Rockefeller Institute of Government, 2002).
41. California Legislative Analyst's Office, 2002-03 Budget Bill: Perspectives and Issues (Sacramento: LAO, February 2002).
42. CBO, Where Did the Revenues Go? Revenue and Tax Policy Brief (Washington: CBO, 13 August 2002), 4.
43. See NASBO, State Expenditure Report 2001 (Washington: NASBO, Summer 2002) for reported Medicaid spending.
44. For budget shortfalls, see Smith et al., Medicaid Spending Growth.
45. V. Smith and E. Ellis, Medicaid Budgets under Stress: Survey Findings for State Fiscal Year 2000, 2001, and 2002 (Washington: Kaiser Commission, October 2001).
46. See also K. Levit et al., "Inflation Spurs Health Spending in 2000," Health Affairs (Jan/Feb 2002): 172-181.
47. See National Conference of State Legislatures, "State Budget and Tax Actions 2002," NCSL News (Denver: NCSL, 28 August 2002).
48. State Budget and Tax Actions 2002, NCSL News Ibid., 1, 6-10.
49. $77 billion plus two years of growth at 18 percent and four more years of 20 percent growth yields $222 billion, after compounding.
50. See D. Bruce and W.F. Fox, State and Local Sales Tax Revenue Losses from E-Commerce: Updated Estimates (Knoxville: University of Tennessee, Center for Business and Economic Research, September 2001).
51. CBO, The Budget and Economic Outlook: An Update (Washington: CBO, August 2002).
52. Smith et al., Medicaid Spending Growth.
53. Based on long-term economic forecast provided in Economy.com, Precis, U.S. Macro 7, no. 3 (West Chester, Pa.: Economy.com.June 2002).
54. D. Braddock, "Occupational Employment Projections to 2008," Monthly Labor Review (November 1999): 51-77.