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Spending by state governments is about one-fifth of total spending for health care in the United States. States spent $224 billion in fiscal year 1998 and $238 billion in 1999. In each of these years, state funds were 53 percent of the total; the remainder was federal matching funds and grants.

National health care expenditures are now 13 percent of the gross domestic product. Total spending for health care reached $1.1 trillion in 1998 and is projected to total $2.2 trillion by 2008, growing at an average annual rate of 7.2 percent.

Public spending for health care, by all levels of government, exceeds private-sector spending, according to a recent analysis by the Employee Benefits Research Institute (EBRI). According to this analysis, public spending in 1998 was 58 percent of the total; considerably more than the 45.5 percent calculated by the federal Health Care Financing Administration.*

This report places the state portion of public spending, and hence the influence of the states in health care markets, in perspective by cataloging the various forms of state health care purchasing—from Medicaid to state employees’ health benefits to state facility–based expenditures. It provides an overview of the states’ role in health care both as purchasers of services and as employers. Both as employers and as providers of services, states feel the changes in the world of health care, from the surge of prescription drug prices to turbulence in the managed care markets. In the past, these different activities often have been viewed as entirely separate enterprises; the influence that states, viewed collectively, can have on overall market behavior is now readily apparent, however.

State legislatures have seen considerable debate over the dramatic changes occurring in health care, but, for the most part, decision makers have not had access to the full spectrum of health care expenditure data for their respective states. To fill this void, leaders of the National Association of State Budget Officers (NASBO) and the Reforming States Group (RSG) decided to pursue a collaborative project to determine the total amount of state-funded health expenditures in each state. The first report, the 1997 State Health Care Expenditure Report, which showed total health care spending by states for fiscal 1997, represented the first effort ever to detail state health care spending in such a thorough manner. Building on that foundation, the 1998–1999 State Health Care Expenditure Report presents total state health care spending for the following two fiscal years.

While this edition closely follows the format of the previous report, it expands on the information provided in that report by giving data on employees’ contributions to health insurance premiums and to flexible spending programs and by separately reporting expenditures for the State Children’s Health Insurance Program (SCHIP). Readers should be aware that considerable differences exist from state to state regarding the types of services provided and the level of government providing the service. Spending by other units of government within states, such as counties and cities, is not included in the data.

This report is a collaboration between the RSG and NASBO, facilitated by the Milbank Memorial Fund. NASBO is a nonpartisan professional organization of governors’ state finance officers that provides research and educational information on major public policy issues. The RSG, organized in 1992, is a voluntary association of leaders in health policy in the legislative and executive branches of more than 40 states. The Fund is an endowed national foundation, established in 1905, that works with decision makers in the public and private sectors to carry out nonpartisan analysis, study, research, and communication on significant issues in health policy.

Many individuals contributed to the preparation of this report. The following persons, who are listed in the positions they held at the time of their participation, provided advice and guidance: John Colmers, Executive Director, Maryland Health Care Commission; Lee Greenfield, Chair, Health and Human Services Finance Division, Minnesota House of Representatives; Gerry Oligmueller, State Budget Administrator, Nebraska; Sheila Peterson, Director, Fiscal Management Division, North Dakota; Sandy Praeger, Chair, Public Health and Welfare Committee, Kansas Senate; and Mark Ward, Deputy Commissioner, Division of Budget and Planning, Missouri.

Individuals in state budget offices across the country provided this report’s data. NASBO staff members Greg Von Behren, Stacey Mazer, and Jill Schamberger assembled the data and prepared the report’s text.

Mark Gibson
Co-chair, Reforming States Group
Policy Advisor for Health Care, Human Services and Labor
Office of the Governor of Oregon

Robert L. Powell
President, National Association of State Budget Officers
Deputy State Budget Officer
North Carolina Office of State Budget and Management

Peggy Rosenzweig
Co-chair, Reforming States Group
Ranking Member, Audit Committee
Wisconsin Senate

Daniel M. Fox
President, Milbank Memorial Fund