Health Finance Issues

 Updated January 2012

Introduction

Health finance includes the mobilization of funds for health care, the allocation of funds to specific regions and population groups and for specific types of health care, and/or mechanisms for paying for health care. Rising health care costs continue to dominate the American health policy agenda. Accordingly, there are thousands of publications, hundreds of professional, industry and advocacy organizations, and dozens of well-funded "think tanks" writing about health finances. In the face of this activity, the National Conference of State Legislatures has concentrated its own resources on questions frequently asked by state legislators.

At-a-Glance:

Health spending reached $2.6 trillion in 2010, according to a federal analysis released January 2012.  The rate of growth nationwide in 2010 was 3.9 percent, or 0.1 percentage point higher than the 2009 growth rate of 3.8 percent. National health spending averaged $8,402 a person in 2010. Health care accounted for 17.9 percent of the gross domestic product in 2010, according to the report, published in a Health Affairs article. 

Medicaid Expenditures and Enrollment continue to be a dominent state concern and commitment.

According to NCSL's State Budget Update of December 2011, 1) Six states reported that Medicaid or other health care programs were over budget, compared with 18 states last year. Georgia indicated that its State Health Benefit Plan (for state and school employees) was over budget this fiscal year, but actions were already being taken to correct the imbalance. California officials assume that the state will be unable to achieve budget savings in Medi-Cal, the state’s Medicaid program. Colorado, Maine, Maryland and North Carolina reported that their Medicaid programs had costs above the budgeted level for FY 2012.

• Among the 2012 budgets "the most significant change "was the absence of American Recovery and Reinvestment Act (ARRA) funds. Some states reported large appropriations increases as they attempted to restore some of the spending previously supported by ARRA funds—Medicaid (34 states)."

According to a first-time detailed analysis by the HHS/CMS Office of the Actuary (2008 Actuarial Report on the Financial Outlook for Medicaid):

• Estimated average Medicaid enrollment was 49.1 million people in 2007. At some point during the year, 61.9 million people, or about one of every five persons in the U.S., were enrolled in Medicaid.
• Per-enrollee spending for health services was an estimated $6,120 in 2007. Per-enrollee spending for non-disabled children ($2,435) and adults ($3,586) was much lower than that for aged ($14,058) and disabled beneficiaries ($14,858), reflecting the differing health status of these groups.
• Expenditures for medical assistance payments represent about 94 percent of all Medicaid outlays and are projected to increase 7.3 percent to $339.0 billion in 2008. Over the next 10 years, expenditures on benefits are projected to increase at an average annual rate of 7.9 percent and to reach $673.7 billion by 2017.
• Total Medicaid outlays in FY 2007 were $333.2 billion; $190.6 billion or 57 percent represented federal spending, and $142.6 billion or 43 percent represented state spending.

NCSL Resources

NCSL Published Resources

• NCSL Cost Containment Project: Containing Health Costs and Improving Efficiency: An Analysis of State Options- 16 NCSL reports on state options for health cost containment.

• States and Small Business Health Insurance: An Overview- NCSL report, updated 2012.
• Massachusetts Sets Out to Bend the Cost Curve- NCSL State Health Notes, 9/2/08. 
• "State Financing: Resources and Guidance for Provisions in the Deficit Reduction Act Of 2005"- The DRA presents states with an opportunity to implement some of the Medicaid initiatives they otherwise would have been prohibited from trying. Updated 10/1/08.
• Certificate of Need: State Health Laws and Programs- NCSL report, updated 2011.
• Retail Health Clinics: State Legislation and Laws- This NCSL Health Program report describes the growing trend of lower-cost, limited service in-store clinics, now operational in at least 1,175 locations.  Updated 2011.
• Employer Tax Incentives to Offer Health Insurance- NCSL report, updated 2011.
• 2009-2010 State Tobacco Tax Increase Legislation-  Report updated 2011. 
• Health Care Provider and Industry Taxes and Fees- NCSL report with data from Fiscal Affairs Program, updated 2011.
• Health Insurance: Premiums and Increases Comparison Nationally and by State - 2004 - 2010- Compiled by NCSL, updated 2011.
• State Legislation Relating to Transparency and Disclosure of Health and Hospital Charges- NCSL report on price transparency/.
• State Employee Health Benefits- A one-stop web resource page, with statistics, links to states and premiums, and other experts, updated for 2011. 
• State Pharmaceutical Assistance Programs - Health Program, updated for 2011.

NCSL Meeting Presentations

• Containing Health Costs and Improving Efficiency: State Options- NCSL Fall Forum, Co-Sponsored by NCSL Budgets and Revenue Committee and Health Committee, 12/11/09.

States are struggling to maintain an array of health programs and payment obligations that cost more than 30 percent of many state budgets. A new NCSL project is evaluating two dozen promising practices that may "bend the cost curve" toward affordability for the long term to see if any might produce immediate savings. Hear from the project's top researchers and preview the first several study papers.

Speakers: View Slides  |  Listen to Audio [MP3]

Richard Cauchi, NCSL Program Director, Health
Barbara Yondorf, Yondorf & Associates, Denver, Colorado
Facilitator: Miriam Fordham, Legislative Research Commission, Kentucky 

Jeanne Lambrew, Associate Professor of Public Affairs, LBJ School, University of Texas; former Assistant Director for Health, OMB, White House- Presentation
Robert B. Helms, Resident Scholar & Director of Health Policy Studies, American Enterprise Institute; former Assistant Secretary, HHS, Washington, D.C.- Presentation
John Clymer, President, Partnership for Prevention, Washington, DC- Presentation

• Health Care Costs & Spending: Latest State Strategies - Presentation by Richard Cauchi for the Iowa Legislative Commission on Affordable Health Care Plans for Small Businesses and Families, 9/19/07. [36 pages, PDF]
• Innovation in Health Care: Some examples, 2006-2008- Presentation by Richard Cauchi, NCSL Health Program Director for the SLLF Leadership Summit 2008, 7/6/08.
• Covering High-Cost, High-Risk People:  Whose Responsibility?- NCSL Spring Forum, Sponsored by the NCSL Health Committee, 4/25/08.

• State interest in both health "reform" and health cost savings creates special challenges for covering patients considered "high risk" and high cost. The sickest 10 percent of our population often cost tens of thousands of dollars annually, accounting for over 60 percent of U.S. health spending. Yet a cancer survivor may have low annual costs but be uninsurable. How should these people be treated by insurance market underwriting practices?  What are the roles of state-sponsored high-risk pools, the health insurance industry, government, providers and the high-cost individuals themselves in providing and paying for care?  Two national experts share facts and recent thinking. SESSION PODCAST - Listen here.

  Karen L. Pollitz, Project Director, Health Policy Institute, Georgetown University, Washington, DC-  Presentation
  Karen Ignagni, President and Chief Executive Officer, America’s Health Insurance Plans (AHIP), Washington, DC-  Presentation
  Facilitator: Representative Susan King, Texas House of Representatives

   

Additional, Non-NCSL On-Line Resources

The following is a selected list of some of the more recent or state-oriented reports from government, policy and academic sources. 
**NCSL is not responsible for the content of publications and websites published by third parties and listed on this page.

Recent Reports of Interest

• National Health Spending In 2007: Slower Drug Spending Contributes To Lowest Rate Of Overall Growth Since 1998- Health Affairs, released 1/5/09.
• Health Spending Projections Through 2018: Recession Effects Add Uncertainty To The Outlook- Heath Affairs, 2/24/09.
• Fact Sheet Explores Health Care Costs- Kaiser issued a fat sheet presenting key statistics about the growth, level and impact of rising U.S. health care costs. 3/19/09.
• Stressed Americans postpone healthcare -study- Twenty percent of Americans say they have delayed or postponed medical care, mostly doctor visits, and many said cost was the main reason, according to a survey released on Monday.  Study by Thomson-Reuters, 4/20/09.
• New Survey: Health Care Cost Growth Can Be Slowed; Payment Reform, Negotiating Prescription Drug Prices Seen as Potential Solutions-  Health Care Opinion Leaders Support Many of President Obama's Strategies for Reducing Health Care Costs, See Current Spending Growth Rates as Untenable. Release by Commonwealth Fund, 4/27/09.
• Health Industry Groups Pledge To Reduce Spending; Some Health Advocates Express Skepticism About Plan- Kaiser Daily Reports 5/12/09.
• Physician Practices' Interactions With Plans Cost $31 Billion Annually- Health Affairs, 5/14/09.
• "Health Care Premiums Run Amok" - State by state health insurance rates projected 2009 through 2019. Center for American Progress. 7/24/09.
• Can Episode-of-Care Based Payments Be the Bridge That Finally Brings Accountability to America's Fragmented Health Care System?- A critical part of restructuring the health care delivery system is the need to develop an effective payment formula that rewards professionals for delivering high-quality, coordinated and efficient care. Harbridge/RW Johnson, 8/17/09.
• States Slash Budgets Including Cuts In Health Programs - News from Kaiser Health Network, 12/23/09.
• Health Spending Rises in 2008, but at Slower Rate- NY Times, 1/5/10.
• National Health Expenditures Historical 1970-2008- Released 1/5/2010. [PDF] 
• "Estimated Financial Effects of the Patient Protection and Affordable Care Act"- Published by the HHS/CMS Office of the Actuary, 4/22/10.
• 2010 Long-Term Care Cost of Care research report - Prudential Financial resource for consumers seeking information to help them make informed decisions about their long-term care needs. The study found an increase in the average cost of long-term care ranging from 5% to 13%, varying by type of service, in the past two years alone.  
• An Overview of the U.S. Health Care System: Chart Book- Published by Centers for Medicare and Medicaid Services and Office of the Assistant Secretary for Planning and Evaluation, HHS, 11/17/10.
• Geographic Variation in Spending and Utilization Among the Commercially Insured- Thomson Reuters, 7/27/11.

Dated Useful On-Line Resouces 

• Last Year of Life Study: Costs- CMS study using data from 1993-2000. [PDF]
• 2004 Segal Health Plan Cost Trend Survey- The Segal Company,12/2/03.
• Risky Business: When Mom and Pop Buy Health Insurance for Their Employees-  The Commonwealth Fund, 4/04.
• Employer-Sponsored Health Insurance in New York- The Commonwealth Fund, 5/04. [8 pages] 
• Health Costs Absorb One-Quarter of Economic Growth, 2000 – 2005 Health Reform Program- Boston Univ. School of Public Health, 2/05.
• Examining Pay-for-Performance Measures and Other Trends in Employer-Sponsored Health Care- Meredith Rosenthal, The Commonwealth Fund, 5/05.
• 2002–2003 State Health Expenditure Report - Using latest data available in 2005; Co-Published by the Milbank Memorial Fund, the National Association of State Budget Officers, and the Reforming States Group, 6/05. [88 pages]
• Health Spending in the United States and the Rest of the Industrialized World, by Gerard F. Anderson of Johns Hopkins University and colleagues, compares health spending in the United States with 30 industrialized nations, 7/05.
• "Electronic Health Records: Just around the Corner? Or over the Cliff?" - A study estimates that building an NHIN over five years would require $156 billion in capital investment, plus $48 billion in annual operating costs. These amounts total only a small part of the $1.65 trillion spent on health-care each year. Annals of Internal Medicine, 8/2/05.
• Results from Milliman' s fourteenth annual survey of Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs) indicate a slowing of premium increases. Among plans responding in both 2004 and 2005 for the benefit plan provided, 2005 HMO premiums increased 8% over 2004, the lowest increase in five years, 10/24/2005.
• Specialty Hospitals, Price Competition and the Medical Arms Race | PDF full text- Purchasers in Three Communities View Specialty Hospitals as Spurring Medical Arms Race. Released by Center for the Study of Health Systems Change, 1/25/06.
• Specialty Hospitals: A Problem or a Symptom?- Analysis of two congressionally mandated reports on specialty hospitals. Those reports find that specialty hospitals appear to provide high quality while offering popular amenities to their patients, but also tend to treat more profitable Medicare patients and fewer Medicaid and uninsured patients than community hospitals in the same markets. Health Affairs, Jan./Feb. 2006.
• 2006 Segal Health Plan Cost Trend Survey- Forecasts continued declines in trends in 2006 compared to 2005 for almost every coverage surveyed. Published 2/06.
• Employers Expect Rate of Increase in Health Benefit Costs to Slow in 2006- Report by Watson Wyatt, National Business Group on Health Survey results, 2/15/06.Comparing Projected Growth in Health Care Expenditures and the Economy- Kaiser Family Foundation, 5/06.
• Distribution of Out-of-Pocket Spending for Health Care Services- Kaiser Family Foundation, 5/06. 
• Fighting Medicare Fraud Using Whistleblower Statute Returns $15 for Every $1 Invested- Taxpayers Against Fraud, 7/06. [12 pages ]
• Creating Pay-for-Performance Without Breaking the Bank- Segal & Co., 7/06.
• Total Health Management: The Future of Health Care Cost Management?- Chris Mathews, Segal & Co., 7/06.
• Milliman Survey Foresees 2007 Lowest Health Insurance Rate Increase in 7 Years - The 2007 estimated January renewal increase of 9.7% for Health Maintenance Organizations (HMOs) is 0.9% lower than last year’s survey result of 10.6%, and down 7% from four years ago. Preliminary results for Preferred Provider Organizations (PPOs) show an anticipated 2007 renewal rate increase of 10.7%, or 1.0% lower than last year but 1.0% higher than HMOs. News release, 7/18/06. [2 pages] 
• Average Couple Today Needs $295,000 for Retiree Health Expenses - EBRI Report, 7/20/06.  
• Higher Premiums for Those with Unhealthy Lifestyles Supported by 53 Percent of U.S. Adults, According to Poll- Harris Interactive, 7/31/06.
• Medicaid at a Turning Point: Results From a 50-State Survey on State Budgets and Medicaid Policy Actions for Fiscal Years 2006 and 2007- Kaiser Commission on Medicaid and the Uninsured, 10/10/06.
• Illustrating the Potential Impacts of Adverse Selection on Health Insurance Costs in Consumer Choice Models- Kaiser Family Foundation, 11/06.
• Abstract of 2007 Segal Health Plan Cost Trend Survey- Segal & Co, 12/06.  
• Health Care Spending in the United States and OECD Countries- Kaiser Family Foundation, 1/07.
• Minnesota Hospitals: Uncompensated Care, Community Benefits, and the Value of Tax Exemptions - This report to the Minnesota legislature analyzes data on uncompensated care, community benefits, and the value of tax exemptions at Minnesota hospitals. It makes recommendations about the need for more uniform charity care and debt collection policies, and the need for uniform reporting of nonprofit hospitals' community benefits." MN Dept of Health, 1/07.
• In 2005, U.S. health care spending increased 6.9 percent to almost $2.0 trillion, or $6,697 per person. The health care portion of gross domestic product (GDP) was 16.0 percent, slightly higher than the 15.9 percent share in 2004. This third consecutive year of slower health spending growth was largely driven by prescription drug expenditures. Spending for hospital and physician and clinical services grew at similar rates as they did in 2004. Health Affairs, 1/9/07.
• "National Health-Care Spending in 2005: the Slowdown Continues"- Health-care spending in 2005 grew at the slowest rate since 1999, rising 6.9 percent to nearly $2 trillion. This rate is down from a 7.2 percent rise in 2004 and an 8.1 percent increase in 2003. The slowdown in expenditures is due largely to a sharp decrease in spending on prescription drugs, which itself was caused by a sharp decline in Medicaid drug spending, changes in drug therapy regimens, tiered copayment benefit plans and increased use of generics. Health-care spending in 2005 accounted for 16 percent of the gross domestic product, or $6,697 per person. The year 2005 also marked the third year in which health insurance premiums climbed more slowly. Despite the slowdown in spending, the percentage of personal income devoted to health care is rising. And while prescription drug spending slowed, spending for hospital, physician and clinical services in 2005 grew at rates similar to those of 2004. The report is issued annually by the Centers for Medicare & Medicaid Services; published in Health Affairs, 1/9/07. 
• Insurance Premium Cost-Sharing and Coverage Take-up- Kaiser Family Foundation, 2/07.
• Health Spending Projections Through 2016: Modest Changes Obscure Part D’s Impact.  Over the next decade, U.S. health care spending is expected to double from today’s level, reaching $4.1 trillion and consuming almost twenty cents of every dollar spent, federal forecasters report in an article published in Health Affairs Web Exclusive. Health spending in 2006 is projected at $2.1 trillion, which accounts for 16 percent of the gross domestic product. The average annual growth in health care spending is projected to remain relatively steady at 6.9 percent from 2006 through 2016, Health Affairs, 2/21/07. 
• "California Hospitals: Coverage and Cost"- Excerpt of an innovative online database on hospital quality. Posted by the CA Healthcare Foundation, 4/07.
• "Health Care Costs 101", an annual overview of the latest health spending trends, offers reasons for both hope and concern. Health spending increased by 6.9% in 2005, continuing a trend of moderating increases. Yet, the increase is still double the rate of inflation.   Among the key findings: 1) Hospitals and physician services take the largest share of the health care dollar (52%); 2) Prescription drug increases are at their lowest levels in 20 years; and 3) While out-of-pocket costs for consumers continue to rise, as a share of all personal health care spending (15%), the percentage has declined.  Published by CA Health Care Foundation, 4/07. [24 pages, PDF]
• "Behind the numbers: Healthcare cost trends for 2008"-  Based on discussions with private insurers, medical costs are expected to rise by 9.9% for preferred provider organizations (PPOs), 9.9% for health maintenance organizations (HMOs)/point of service plans (POSs)/exclusive provider organizations (EPOs), and 7.4% for consumer-directed health plans. Pricewaterhouse Coopers Health Research Institute, 6/07. [20 pages, PDF]
• The Burden of Out-of-Pocket Health Spending Among Older Versus Younger Adults- Analysis of Medicare data by the Kaiser Family Foundation, 9/07.
• Employer Health Benefits 2007 Annual Survey- This annual survey of employers provides a detailed look at trends in employer-sponsored health coverage, including changes in premiums, employee contributions, cost-sharing policies, and other relevant information.  Researchers at the Kaiser Family Foundation, The Center for Studying Health System Change and Health Research and Educational Trust designed and analyzed the survey. Published 9/11/2007. Versions: News Release | Summary of Findings | Chart Pack | Cost of Health Insurance 
• New England And Mideast Region Spend The Most On Health Care- Report by the CMS Office of the Actuary, Health Affairs Web Exclusive, 9/18/07.
• "Rate of Increases for U.S. Health Care Costs Declines for Fifth Consecutive Year."- For 2008, Hewitt forecasts that companies will receive cost increases of 9.0 percent for traditional indemnity plans, 8.5 percent for POS plans, 9.0 percent for HMOs, and 8.5 percent for PPOs. That means from 2007 to 2008, the average cost per person for major companies will increase from $7,957 to $8,673 for HMOs; $7,790 to $8,452 for PPOs; $8,573 to $9,302 for POS plans; and $9,277 to $10,112 for indemnity plans. 9/24/07.
• 2008 Segal Health Plan Cost Trend Survey Projected declines reflect 5th year of lower medical trends. "Surprisingly, trends for prescription drug coverage are projected to decelerate most - to levels similar to trends for medical coverage for the second consecutive year. Prescription drug projected trends have declined dramatically, by nearly nine percentage points, since their high of 19.5 percent in 2003."  Published 11/07. [PDF]
• According to a survey conducted by the Commonwealth Fund, 34% of U.S. adults ages 19 to 64 face problems with medical bills or have medical debt, although 62% of those individuals have health insurance, 12/7/07.
• Individual Health Insurance 2006-2007: A Comprehensive Survey of Premiums, Availability, and Benefits- The latest in a series of AHIP surveys shows that the market for individually purchased coverage is more affordable and accessible than may be widely known. America's Health Insurance Plans, 12/19/07.
• Improving the value and cost of US health benefits: Could shifts in the employer role provide the solution?- An overview from Mercer, the commercial benefits advisory company, 1/25/08.
• "Health Spending Projections Through 2017: The Baby-Boom Generation Is Coming To Medicare" - CMS staff analysis as published in Health Affairs Web article, 2/26/08.  
•  "Health Reform Through Tax Reform: A Primer"- By Jason Furman, Brookings Institution, published in Health Affairs May/June 2008. [11 pages]
• "The cost of hospital care is difficult to pin down" - Philadelphia Inquirer, 6/8/08.
• "How Many Are Underinsured? Trends Among U.S. Adults, 2003 and 2007" - The number of underinsured U.S. adults—that is, people who have health coverage that does not adequately protect them from high medical expenses—has risen dramatically, a Commonwealth Fund study finds. As of 2007, there were an estimated 25 million underinsured adults in the United States, up 60 percent from 2003.  Health Affairs Web report, 6/10/08. [11 pages, PDF]
• New Brief Examines State Programs that Allow the Purchase of Private Insurance with Medicaid and SCHIP Funds - Premium assistance programs use federal and state Medicaid and State Children’s Health Insurance Program (SCHIP) funds to purchase private coverage. Overall, few states have such programs, but interest in the approach remains high. Kaiser Family Foundation, 6/16/08.
• "While HMO Premiums Remain High, Rate of Increase to Decline in 2009"- Report released by Hewitt Associates, showing HMO premium rates will increase by approximately 11.8 percent in 2009—lower than last year's initial rate increases, but still on track to outpace inflation and underlying health care trends, 7/15/08.
• "Financing the U.S. Health System: Issues and Options for Change"- Published by The Bipartisan Policy Center (BPC) and funded by the Robert Wood Johnson Foundation (RWJF), 6/30/08. [36 pages]
• "Surgical Errors Cost Nearly $1.5 Billion Annually"- AHRQ, 7/28/08.
• "The Distribution Of Public Spending For Health Care In The United States, 2002" - This July 2008 study shows that the public sector accounted for 56.1 percent of health spending within the civilian noninstitutionalizedpopulation. The analysis highlights this sector's role in financingthe care of seniors and people in poor health. Health Affairs, 7/29/08.
• 2009 Segal Health Plan Cost Trend Survey- A 6-page summary report of projected costs for the coming year, 8/08.
• "Health care cost growth expected to slow"- A report released by Aon Consulting Worldwide estimates employers will spend about 10.6 percent more in 2009 for the same health benefit package they're offering this year. San Francisco Chronicle, 8/12/08.
• 79 Million Americans Struggle to Pay Medical Bills- New numbers show the problem is getting worse, not better, even for middle class. US News & World Report, 8/20/08.
• "Health care costs expected to rise 5.7% in '09"- USA Today, 9/4/08.
• "2008 Actuarial Report on The Financial Outlook for Medicaid"- The latest Medicaid analysis by the HHS/CMS Office of the Actuary, released 10/08.
• Budget Options (Federal), Volume 1: Health Care- Published by the Congressional Budget Office, 12/08.  PDF  Charts  Summary. [236 pages, PDF]
• Key Issues in Analyzing Major Health Insurance Proposals- Focuses on "large-scale proposals, provides extensive background information, and includes analysis of numerous issues that could arise should the Congress seek to enact major changes in the health insurance system.  Key Issues does not provide analyses of specific proposals."  Published by the Congressional Budget Office, 12/08. PDF  Charts  Summary. [196 pages, PDF] 
• Health Coverage Tax Credit Program (HCTC)- Description of state options under the 2002 federal law.  Added 12/08.
• Living on the Edge: Health Care Expenses Strain Family Budgets- A new report shows medical bill problems at all levels of out-of-pocket spending. Center for Studying Health System Change, 12/18/08.  [14 pages, PDF]

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