Report: State Health Care Spending Poses ‘Fiscal Meltdown’ Risk!


There’s an exclamation point in the headline, which you know means it’s URGENT, so BE PREPARED for what I’m about to drop on you: A new report examining the long-term finances of U.S. states shows all 50 states are “in danger of fiscal meltdown” in the near future—primarily due to the growth of health care spending.

Harvard economist Jeffrey Miron argues in a working paper published last week by the Mercatus Center at George Mason University that the rapid growth of state budgets over recent decades has placed all states on an unsustainable path.

Miron crunches the data from the Bureau of Economic Analysis, Census Bureau and other sources to show that unfunded pension obligations and, in particular, ever-growing financial commitments due to Medicaid and the 2009 Patient Protection and Affordable Care Act (i.e., Obamacare) are pushing even those states with relatively sound budgets toward insolvency.

Arkansas could hit its meltdown tipping point—the point when the state’s debt ratio exceeds 90 percent—as early as 2033, the report notes.

The report also suggests that efforts to rein in public employee unions and state and local pension expenditures, although they “may well be sensible policy changes,” will “do little to avoid the looming fiscal crisis” and “to slow expenditure growth rates.” To do that, you gotta tackle the explosion of health care costs, Miron says.

Miron writes that avoiding fiscal meltdown will “involve substantial political pain”:

Setting political constraints aside, the way for states to avoid fiscal crisis is to slow the growth of health-care expenditures. This task is difficult, however, since the federal government gives states relatively little freedom to limit Medicaid expenditures, unless a state opts out of the program entirely.

Miron floats the idea of converting Medicaid to a block grant to reduce expenditures, while admitting that this approach “mean that less care is available for state Medicaid beneficiaries” in the near term. It is just doom and gloom as far as the eye can see.

What a cheerful post this was! I’m hoping it brightened your day.

Full report on the “Fiscal Health of U.S. States.”

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