State budgets have been squeezed over the past decade due in large part to the rising cost of health care, which states pay for through Medicaid. Unlike the federal government, states are not supposed to run a deficit, meaning that other programs inevitably get cut to make up for the rising cost of health care. The irony is that the programs on which states reduce spending–such as social services, education, and public health–impact the community conditions that determine health.
Community conditions are essential for health
Lack of access to a steady income, education, good food and clean water, stable housing, a safe family environment, and community ties have a significant impact on health. For example, studies find that lower educational attainment is associated with lower life expectancy, worse reported health, and higher rates of infant mortality.
But there may be less to spend on these vital community conditions because of rising health care costs. In a report last year, we found that the share of California’s spending on medical care rose from 16% of general fund expenditures to 26% from 2007-2018. This is not just a California problem either; a 2018 report from the Government Accountability Office (GAO) predicted that over the next several decades, state spending in all other sectors will significantly decline to make up for increases in health spending.
Covid-19 is hurting state budgets
The coronavirus pandemic has further exacerbated the state budget crisis. With unemployment rates climbing to Great Depression-era levels, tens of millions of Americans have applied for assistance from their state. And because health coverage is often tied to employment, the loss of jobs also means loss of insurance. An estimated 27 million people became newly uninsured due to job loss as of May 2nd due to Covid-19. Enrollment in Medicaid increased by 2.8% just from February to April of this year.
With state tax revenues down, many states are facing a budget crisis, and the federal government has not offered enough assistance to mitigate the problem, according to state governors. This has already led to cuts in state public health budgets at a time when we need this funding more than ever.
Potential solutions
In response to the budget crisis, Ezekiel J Emanuel, health policy researcher and vice provost of global initiatives at the University of Pennsylvania, and Rahm Emanuel, former chief of staff to President Barack Obama and mayor of Chicago, proposed a solution in a New York Times op-ed. They suggest unburdening states with funding for Medicaid, instead having the federal government take on the full cost of expanded Medicaid. They also believe that the federal government should assume responsibility for unemployment insurance, which has put a huge burden on states during Covid-19.
“Nothing would give greater assistance to state and local budgets than to be relieved of their share of funding for Medicaid and unemployment insurance,” the authors write. However, in return states “should be required to use that savings to boost their investment in infrastructure and education,” the authors suggest. This would not only improve states’ fiscal situations, but also improve health of communities in the long run.
Shifting the responsibility of health care spending to the federal government would relieve states of this responsibility and allow them to focus on investing in the community conditions that determine health. But the cost of health care is still something we need to tackle, regardless of how is paying for it. That means taking larger steps to reduce drug prices and inflated fees for hospital services, moving toward reimbursements based on value rather than volume, and exploring more initiatives to reduce low-value care.