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. 2002 Spring;23(3):131–159.

Figure 3. Health Expenditures1 as a Percent of Federal, State, and Local Government Revenues: United States, Selected Calendar Years 1987-2000.

Figure 3

1 Health expenditures for government include employer contributions to private health insurance for employees, Medicare, Medicaid, and other Federal, State, and local programs.

SOURCES: Centers for Medicare & Medicaid Services, Office of the Actuary: Data from the National HealthStatistics Group and (U.S. Bureau of Economic Analysis, 2001).

  • State and local health care spending as a percent of State and local revenues rose from 14 percent in 1987 to 22 percent in 2000, driven mostly by Medicaid expenditures. This share continued to rise for States despite the use of creative financing and strong State economic growth.
  • State and local governments' health care burden is likely to worsen in the near term. In many States, balanced budgets are required. These States are facing budget shortfalls caused by fading economic growth and are considering tightening Medicaid eligibility and cutting benefits to meet this balanced-budget requirement. Every year, the share of Medicaid spending reimbursed by the Federal Government (called the “match rate”) is recalculated. A State's match rate is inversely related to the State's personal income per capita relative to the nationwide average personal income per capita. In other words, States with per capita personal income higher than the average will have lower match rates than States with per capita personal income that are lower than the average. This annual recalculation can reduce the Federal Government's share of Medicaid expenditures in some States while increasing it in others. In addition, Federal Medicaid matching rates in some States declined as of October 2001. At the same time, demands on Medicaid were heightened because of rising unemployment (Ku and Park, 2001; Ku and Rothbaum, 2001).
  • Recent cost increases in the Medicaid program have come from the rapidly rising prescription drug and long-term care (including nursing homes and home and community-based waivers) expenditures and increased utilization of services by children (an offshoot of the State Children's Health Insurance Program outreach programs) (Milbank Memorial Fund, 2001).
  • Federal health care spending as a percent of revenues peaked in 1993 at 24 percent and then declined to 17 percent in 2000. Medicaid is also a major component of Federal health spending, but it did not place as great a burden on Federal receipts as it did on receipts of State governments.