Getting a State-Funded Health Care in Order Is Key to Getting the Entire Fiscal House in Order


The Government Accountability Office (GAO) recently issued a report on fiscal pressures states will face over the next few decades. The report is helpful for those interested in responsible budgeting/spending and reasonable taxes.
The report notes “As is true for the federal sector, it is the growth in health-related costs that is a primary driver of the fiscal challenges facing the state and local government sector. In particular, two types of state and local expenditures will likely rise quickly because of escalating medical costs. The first is Medicaid expenditures, and the second is the cost of health insurance for state and local employees and retirees. Conversely, we [GAO] found that other types of expenditures of state and local governments—such as wages and salaries of state and local workers, pension contributions, and investments in capital goods—are expected to grow slightly less than gross domestic product (GDP). At the same time, most revenue growth is expected to be approximately flat as a percentage of GDP. As such, the projected rise in health-related costs is the root of the fiscal difficulties these simulations suggest will occur.”
State tax revenue in Maine is projected to grow less than inflation over the next few years, assuming no tax increases (we already are second highest in state and local tax burden). That means in Maine, government-financed health care spending pressures will be even greater, given the slower than average revenue growth and greater than average Medicaid demand, with our large Medicaid program and our aging population. Nationally, non-health expenditures for state and local governments are projected to drop as a share of GDP (or an individual state’s Gross State Product – GSP). However, health expenditures funded by state and local governments are projected to double by 2030 and triple by 2050.
Maine already ranks second highest in terms of health care spending as a percent of GSP, at 19.4% of the economy just slightly behind West Virigina and 46% higher than the US average of 13.3%, according to the Kaiser Family Foundation. Maine also ranks second highest in state government-financed health expenditures (Medicaid, state employees and other state-funded health programs) as a percent of the economy, at 5.3% of the economy only behind Mississippi and 61% higher than the US average of 3.3%. That also makes Maine the state with the highest percent of the economy funded by non-state financed health care spending (mostly private insurance, out of pocket spending and Medicare).
Again, according to the GAO, future state and local spending and tax pressures will be focused solely on health care. Therefore, getting Maine Medicaid and state employee health benefits under control is paramount if we are to deal with Maine’s tax burden.
Now we know. Time to get started, as it only will become more difficult with each passing year.