Health care could account for 38 percent of state spending by 2025
More money spent on health care will mean less spent on priorities such as education, transportation and public safety.
As health care costs continue to rise, it’s not just employers and consumers that are feeling the burn. State and local governments are also having to make some difficult financial choices.
According to a report from Fitch Ratings, the cost of health care will eat up an astonishing 38 percent of state and local budgets by 2025. The estimate is based on a 10-year projection that assumes no offsetting policy changes and takes into account projected rates of inflation.
In comparison, health care and social services accounted for 30.7 percent of expenditures in 2015.
Related: The “BEN” Talks: fixing the broken health care system
Modern Healthcare, reporting on the findings, notes that the shift will cause other priorities such as education, transportation and public safety to be given short shrift in future budgets as states and municipalities try to keep up with the costs for health care and social services—particularly as baseline government revenues are expected to grow more slowly in the future.
Not only was health care the largest driver of state and local expense growth between 2005 and 2015, according to the report, but its cost—along with social services—added up to $929 billion in spending by governments in 2015. Ten years prior, that spending level was $586 billion—and Fitch expects that by 2025, in the absence of meaningful policy action, that price tag will reach $1.6 trillion.
The increase will also hit lower-rated states harder than it will the higher-rated, with Fitch cited saying that fixed expenses like healthcare and social services will eat up a bigger chunk of budgets in states with lower credit ratings than in more financially sound ones. Modern Healthcare mentions seven states cited by Fitch currently rated at AA- or below—California, Connecticut, Illinois, Kentucky, Louisiana, New Jersey and Pennsylvania—that will be hit harder by “marginal decreases in population, incomes and investment returns going forward compared with higher-rated states,” according to Fitch.
States with already-high property, corporate and income taxes are going to have a tougher time boosting taxes to meet those expenses, Fitch projects, than states with more reasonable rates.