In a statement prepared for the U.S. Senate’s Committee on Finance, the Government Accountability Office (GAO) reports that the state and local government sector faces growing fiscal challenges, driven largely by rapidly rising healthcare costs.
The GAO’s fiscal model for state and local governments suggests that the sector is currently in an operating deficit, with simulations showing a continually widening “fiscal gap” between receipts and expenditures in coming years. The GAO calculates that closing the fiscal gap would require action today equal to a 7.6 percent reduction in state and local government current expenditures.
Looking specifically at healthcare costs, the report estimates that expenditures for Medicaid by state governments will rise quickly, as will health insurance costs for state and local government employees and retirees. The GAO assumes that the excess cost factor for health insurance costs alone--the growth in these costs per capita above GDP per capita--will average 2.0 percentage points annually through 2035. The projected rise in these health-related costs is the root of the long-term fiscal difficulties that the GAO’s simulations suggest will occur.
Read the report.
