Exploding State Health Care Costs Threaten K-12 Education

This is a great time to share ones increasing concern that our national and state leaders are failing to develop a sound strategy to prevent rising state health care costs from destroying the nation's public school system. This week the media has appropriately turned its attention upon the crisis in medical costs that is creating financial chaos in state budgets across the country. State Governors from both parties have been urging the Congress and President to do something before the growing costs in the medical assistance program forces significant shifts in state budgetary priorities. According to theWashington Post, medical assistance programs overall costs are predicted to increase by nearly 7 percent in fiscal 2010, and the states' share of Medicaid spending is projected to increase nationally by $25 billion in 2011. At the same time, in Minnesota, a group of health care providers, calling itself Minnesota's Health Care Imperative has issued a report urging the governor and legislature to address the emerging health care financial crisis.

We've been warned in Minnesota that this crisis was upon us. The bipartisan 2009 budget trends commission reported:

Growing at an average annual rate of 8.5 percent, state payments for direct health care services are the fastest growing segment of the state’s budget and consume a greater share of available resources each year. State health care programs face many of the same cost pressures that exist in the private health care market, including medical inflation and increased utilization of services spurred in large part by the development of new medical technologies, services, and pharmaceuticals to treat illnesses. In addition, because eligibility criteria for state health care programs are specified in statute, the state accommodates higher enrollment whenever the number of persons eligible for care increase (for example, when the economy weakens).

Minnesota has much to be proud of in its health care system. According to the Kaiser Family foundation that partly results from the fact that we have 13 percent living in poverty, as compared to national average of 20 percent. Whatever the cause, our rate of uninsured is 9% as compared to the 17% national average and only 6% of our children are uninsured, as opposed to 10% national average.

But we face some huge challenges as recently reported by Minnesota's Health Care Imperative, issued by Minnesota health care providers. Minnesota's average cost per medical assistance is the fourth-highest in the United States (behind NJ, NY and RI) and is 49 percent higher than the national average. "Disabled and elderly patients consume the vast majority of resources, while children require the least support both nationally and within Minnesota. The disproportion is made the more striking when we realize that children account for roughly half of Medicaid enrollment. Per-enrollee spending on the elderly and disabled can be 6 to 9 times higher than on children."

Minnesota's spending on the disabled is 77% higher than national average. Our spending rate on the elderly is 28% higher than the national average. Other adults 18% and children 27% higher than the national average. Minnesota's Health and Human Services budget is projected to grow by 28 percent from 2010 to 2012. ... Minnesotans utilize health care at a rate significantly above benchmarks. In many areas of the state, Medicaid is significantly more “generous” than in other states, particularly for certain populations such as the disabled who have more options in Minnesota than elsewhere. While Minnesota’s Medicaid-covered population rate is somewhat lower than average, our spend per covered enrollee, according to available data, is significantly higher

In addition, federal stimulus dollars have artificially and temporarily supported a higher rate of spending than we can sustain without significant new revenues. In 2010, the federal government covered 57% of medical assistance spending, but that support will drop to to 50% in 2012.

This crisis did not come upon us suddenly. In 1995, the office of Minnesota planning, in a report called "Within our Means," warned of an impending demographic crisis and budgetary crisis that would occur in 2010 when the baby boom generation reached 65. The report explained that State revenues were artificially and temporarily high as result of the high rate of growth during the then Clinton Presidency, and that the State was spending at a pace that was not sustainable over long term trends. The report warned:

“If there is a time to solve the state’s fiscal problems, it is now. The economy has been strong. The percentage of Minnesotans of working age is still growing and will reach an all-time high in 2010, before beginning a long-term decline. Over the next 15 years, the combined proportion of children and elderly — the age groups most dependent on support from others — will be less than at any time since 1950. From now to the year 2010, the state will have a maximum percentage of people in their peak earning years. After 2010, solutions will be more difficult, as the percentage of Minnesotans of working age begins to decline.”

Fourteen years later, the 2009 Budget Trends Commission page 3, reported "Unfortunately, as a consequence of the relative strength of Minnesota’s economy throughout the late 1990s, this call for action was fundamentally ignored." The legislature and governor treated Minnesota's surplus as if it were permanent. They implemented significant structural downward adjustments in taxes while permitting structural upward adjustments in spending.

The basic problem is that we now face a rising dependency ratio, the ratio of persons who are dependent on others as compared to the persons who are economically productive, and thus are capable of supporting the dependent -- children, disabled adults and retired seniors. As this dependency ratio increases, it will become more and more important for the persons in the work force to be productive. They will have to be better educated, equipped with technology that make them more productive, and capable of using their education to utilize technology. While the dependency ratio is starting to rise, the number of children is actually growing. Over the next twenty years, the number of children in schools will grow. That growth will simply be outpaced by growth in the number of dependent seniors. If we allow health care to drive down our investments in education, we will ensure emergence of a catastrophic crisis a generation hence.

The only long term strategy that makes sense, then, is to assure that investments in education remain strong, and of course, to assure that these investments are efficiently and wisely used.