New Data Show Slowdown in State and Local Government Health Spending

Maria Schiff, a director at The Pew Charitable Trusts, researches and analyzes state health care spending.

Matt McKillop, an officer at The Pew Charitable Trusts, researches and analyzes the fiscal health of states. 

For the first time in several years, state and local government health care spending grew relatively slowly in 2013—increasing by 3.2 percent, according to the latest data from the Centers for Medicare & Medicaid Services (CMS), a unit of the U.S. Department of Health and Human Services. In 2011 and 2012, this spending grew by 9.3 percent and 6.3 percent, respectively.

The deceleration in state and local spending occurred principally because of slower growth in the two largest cost categories: Medicaid (funded jointly by the states and the federal government), and state and local employee health insurance premiums. Other areas of state and local health care spending in the CMS report include Medicare contributions for public employees, public and general assistance, maternal and child health, vocational rehabilitation, public health activities, hospital subsidies, state phase-down payments, and investment in research, structures, and equipment.

While state Medicaid spending increased by 22 percent and 12 percent in 2011 and 2012, respectively, it grew by only 6 percent in 2013. Similarly, spending on state and local employee health insurance continued to rise slowly as it had done in 2011 (3 percent) and 2012 (4 percent), increasing by only 2 percent in 2013.

Total U.S. health care spending grew relatively slowly in 2013 for the fifth consecutive year, rising about 3.6 percent, according to the new CMS data. By way of comparison, health care spending grew by an average annual rate of 7.3 percent from 2000 to 2008.

State Medicaid spending

To this end, calendar year 2013 marked a return to a more typical Medicaid spending pattern after a surge and then retrenchment of federal aid in recent years. Under the American Recovery and Reinvestment Act of 2009 (and later legislation that extended certain provisions of the law), the federal government contributed an extra $103 billion to Medicaid, with states receiving the bulk of that in 2009 and 2010. The Great Recession swelled Medicaid rolls and drove increases in total program expenditures, but the states’ share of Medicaid spending actually declined because of federal stimulus money.

The extra federal money stopped flowing in July 2011, which was the primary reason state Medicaid expenditures rose steeply that year and in 2012, and why federal Medicaid expenditures fell. But in 2013, the temporary effects of this retrenchment in federal aid faded, and both federal and state spending rose by about 6 percent.

Total Medicaid spending was likely to have increased substantially in 2014, when millions of Americans were added to states’ rolls after many of them expanded their eligibility requirements for the program under the Affordable Care Act. But most of this hike will have been paid for by the federal government, which covered the entire cost of care for newly eligible enrollees.

State and local employee health insurance

The slight uptick in spending on health insurance premiums for state and local employees was driven, in part, by continued stagnation in state and local employment. As of December 2014—seven years after the start of the Great Recession—state and local government employment remained below prerecession levels. This, in turn, may have kept the growth in state and local employee health plan enrollment—and, therefore, the growth in total health plan spending—down. (For more information on state employee health plan spending, see here.)

Long-term outlook

Nevertheless, health care spending remains a potential source of fiscal pressure for states and localities as it absorbs a growing share of revenue and competes with other spending priorities. For additional perspective on the long-term outlook of state and local government health care spending, see here. And for information on specific state health care spending categories, including Medicaid, state employee health plans, and correctional health care, see here. [Pew publishes Stateline]