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State Budget Cycles Hinder Health Care Safety Net Stability

Study Examines Impact of Economic Cycles on State Health Programs

News Release
Jan. 31, 2008

Alwyn Cassil (202) 264-3484 or

WASHINGTON, DC—The sensitivity of state budgets to economic cycles contributes to instability in public health insurance eligibility, benefits and provider payments, as well as support for safety net hospitals and community health centers, according to a study released today by the Center for Studying Health System Change (HSC).

The aftershocks of the 2001 recession on state budgets were felt well into 2004. With a few exceptions, state and local policy makers—to balance their budgets as required by law—had to cut public insurance coverage, provider payments and key service areas like mental health. Even though the federal government provided a temporary $10 billion increase in Medicaid matching funds in 2003 and 2004, declines in federal support for other human service programs and relatively stagnant grant funding to existing community health centers added to the distress.

More recently, the economic recovery allowed many states to restore cuts and, in some cases, expand health services for low-income people, according to the study. One of the most notable features of states’ improved financial position was widespread resurrection of interest in health care reform, typically focused on coverage expansion. In this regard, Massachusetts clearly led the way with its aim for near-universal coverage. Now, many states are already bracing for their latest reversal of fortune, as tax revenues decline at the same time the need for public coverage is likely to increase.

As part of an economic stimulus package to head off a recession, Congress is now considering another temporary increase in federal matching funds for state Medicaid programs, but support for the measure has broken down along partisan lines.

"Across communities, safety net systems face mounting challenges of caring for more uninsured patients, and the pressures will only increase as the economy slows," said Paul B. Ginsburg, Ph.D., president of HSC, a nonpartisan policy research organization funded in part by the Robert Wood Johnson Foundation (RWJF).

"As a particularly robust economic recovery with limited gains in major state health reform runs its course, advocates of the states as laboratories of health reform are likely to face increased skepticism," said HSC Senior Consulting Researcher Robert Hurley, Ph.D., of Virginia Commonwealth University, coauthor of the study with HSC Consulting Researcher Aaron Katz of the University of Washington and Laurie E. Felland, M.S., HSC health researcher.

The study’s findings are detailed in a new HSC Issue Brief—Relief, Restoration and Reform: Economic Upturn Yields Modest and Uneven Health Returnsavailable here. The study, funded by RWJF, is based on HSC’s 2007 site visits to 12 nationally representative metropolitan communities: Boston; Cleveland; Greenville, S.C.; Indianapolis; Lansing, Mich.; Little Rock, Ark.; Miami; northern New Jersey; Orange County, Calif.; Phoenix; Seattle; and Syracuse, N.Y. HSC has been tracking change in these markets since 1996.

Other key study findings include:

  • The decline in housing prices—after a dramatic increase in recent years—presents new threats to communities and the services they support with property tax levies, such as health care facilities and programs for low-income persons. Growth-oriented areas like Miami and Phoenix will see the effects of an economic slowdown magnified by the housing slump and declining home prices. Markets with disproportionate numbers of mortgage defaults, like Cleveland, will likely see property tax revenues fall, threatening support for safety net providers.
  • With the economy now slowing, some state policy makers and advocates continue to voice enthusiasm for reform efforts. But the fiscal and political realities in most states limit the potential scope of these efforts, which seem unlikely to make a major difference in the coverage picture. In the few states pushing broader reforms, the models being advanced place safety net providers in a difficult position-wanting to support aggressive initiatives toward universal coverage, while also worrying that even if the reforms largely succeed, they will be left to care for people and services that remain uncovered, such as mental health, without the funds to do so.
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The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research on the nation’s changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is funded principally by the Robert Wood Johnson Foundation and is affiliated with Mathematica Policy Research, Inc.


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The Center for Studying Health System Change Ceased operation on Dec. 31, 2013.