High Health Costs Burden States, Cause Budget Shortfalls

Rising health care costs are squeezing on budgets in at least a dozen states, the AP/Salt Lake Tribune reports. After a decade of "slight growth," there has recently been a "spike" in Medicaid costs, which several states attribute to "overly optimistic projections." For example, Indiana's Medicaid costs had "barely budge[d]" in the past decade, but over the past year have jumped "at least 10%." The state's Medicaid director, Kathy Gifford, blames the program's soaring expenses on high prescription drug costs, increased enrollment of uninsured children and broader eligibility requirements. Economist Steve Cochrane said the higher expenses can be attributed to the fact that states have already maximized cost-saving strategies: "all the cost containment that could be squeezed out of the system has already taken place."

Untimely Tax Cuts
Meanwhile, several states have recently enacted tax cuts that have left them strapped for cash now that health care costs are increasing. According to the National Conference of State Legislatures, during the past six years, states have reduced their revenue by cutting $35 billion in taxes. Marcia Howard, who tracks state economies for Federal Funds Information for States, summed up the predicament: "They've got to live with the tax cuts they've enacted in the last few years. They've got to pay for the program expansions they've put in place. And now, all of a sudden, health care has taken off again." Some states, such as California, "continued to rake in big surpluses" in the financial quarter that ended in September, but several other states in the Midwest and Southeast "see signs of a very different new year," indicating "tough decisions and tight budgets" as they begin drafting budget proposals for 2001 (Tanner, AP/Salt Lake Tribune, 12/7).