Forward

State governments spent $329.7 billion on health in fiscal year (FY) 2002 and $357.8 billion on health in FY 2003, representing about one-fifth of the nation’s overall health spending. State spending from federal funds accounted for half of the amount, while state funds accounted for the other half of total state spending. The 8.5 percent rate of growth in state health spending between FY 2002 and 2003 was more than three times the 2.7 percent rate of growth in non-health spending for the same time period. This fourth edition of the State Health Expenditure Report continues the collaboration between the National Association of State Budget Officers (NASBO) and the Reforming States Group (RSG) to identify and summarize the amount of state health expenditures in broad categories.

The largest components of state health expenditures were Medicaid, state employees’ benefits, population health services, and community-based services. Together these components accounted for about 90 percent of total state health spending.

State health spending comprised approximately 31.5 percent of all state spending in FY 2003, up from 30 percent in FY 2001. The Centers for Medicare & Medicaid Services project that national health expenditures will rise from $1.7 trillion in 2001 to $3.6 trillion in 2014, an average annual increase of 7.2 percent. At this rate, national health spending by 2013 would comprise approximately 18.4 percent of the gross domestic product, up from the current 15.3 percent, to outpace economic growth during this timeframe. States, mirroring the national trends, are seeing health consume an even larger percentage of their budgets over time.

This report provides a perspective of the significance of state health spending within the context of the nation’s provision of personal health care services. As both employers and providers of services, states have felt the demands from rising health care costs. States also have additional expenditures for population health, including an expanded role to protect the public’s safety.

The surge in health care costs, most notably in Medicaid and employees’ health insurance, has been a significant factor in state fiscal stress, particularly in the fiscal years 2002 and 2003 covered in this report. While Medicaid dominates in both dollars and in impact on state fiscal conditions, state spending in non-Medicaid programs accounted for $95.6 billion in FY 2002 and $102.7 billion in FY 2003—a rate of increase of 7.5 percent. Overall, health spending increased by $28 billion from FY 2002 to FY 2003, or 8.5 percent, exceeding the overall increase in state spending during this same period, which was 4.5 percent.

To provide decision makers with comprehensive health expenditure data for their respective states, leaders of NASBO and the 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 FY 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 presented total state health care spending for the following two fiscal years.

While the 1998–1999 edition closely followed the format of the previous report, it differed from it by providing data on flexible spending programs and employees’ contributions to health insurance F OREWORD NASBO viii premiums, and by separately reporting expenditures for the State Children’s Health Insurance Program (SCHIP).

The 2000–2001 edition significantly expanded upon the previous two editions with the addition of population health expenditures. Some elements of the population health expenditures had been previously collected in the earlier editions under direct public health expenditures. Population health expenditures include state spending in the areas of environmental health, surveillance, and promotion of healthy behavior, as well as the public health aspects of disaster preparation and disaster response.

The present edition maintains the same definitions as the previous edition and represents an update for fiscal years 2002 and 2003. This edition continues the expansion of spending on population health that began in the previous edition.

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 NASBO and the RSG, 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 from all 50 states and several Canadian provinces. The Fund is an endowed operating foundation that works to improve health by helping decision makers in the public and private sectors acquire and use the best available evidence to inform policy for health care and population health.

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: Lee Greenfield, Chair, Health and Human Services Finance Division, Minnesota House of Representatives; Sandy Praeger, Insurance Commissioner, Kansas; Wayne Roberts, Budget Director, Texas; and John Colmers, Senior Program Officer, Milbank Memorial Fund.

Rosemary Booth Gallogly
President, National Association of State Budget Officers
State Budget Officer
Rhode Island Department of Administration

Sheila Peterson
Co-Chair, Reforming States Group Steering Committee
Director, Fiscal Management Division
North Dakota Office of Management and Budget

Leticia Van de Putte
Co-Chair, Reforming States Group Steering Committee
Chair, Veteran Affairs and Military Installations Committee
Texas Senate

Daniel M. Fox
President, Milbank Memorial Fund