Financing, Continuity, and Other Federal Strengths

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While many states are attempting to move ahead with reform, they are not all equal in their capacity to address these large and complex problems. Significant variation exists across states in terms of resources, capacity, demographics, number of uninsured, insurance market structures, public programs, state funds available to invest in reform, employment base, political priorities, and a host of other relevant factors that must be considered if health reform is to succeed. For example, state uninsured rates vary from just under 8 percent to almost 25 percent and, generally, where those rates are the highest, the states have the least resources in terms of a tax base or population income levels to support funding for needed coverage expansions. So while some states have moved forward and will continue to try to expand or maintain coverage rates, there are a large number of states that need significant federal support. 

It is extremely difficult, if not impossible, to construct an effective and efficient national health system one state at a time.[i] Importantly, as currently evidenced by the varying levels of public program eligibility, investments in public health, and quality measures, a state-by-state approach without sufficient national standards and support leads to inequity in the overall system.[ii] Many states will not achieve universal coverage without a national framework and federal funding. This is a key argument for some federal reforms.
Differences in the way that state and federal governments are able to address budgetary issues also suggest advantages to federal leadership on reform:
  • Counter-cyclical Budgeting: The federal government is able to maintain spending levels during times of recession because they are not constitutionally mandated to balance their budget every year. Almost all states have annual or biennial budgets that must balance, which makes coverage expansions more challenging for states as they may not be able to afford to maintain benefit and eligibility levels during economic downturns.  
  • Multi-year Budgets: Because the federal government does multi-year budgets, they have the capacity to score savings in the Medicare and Medicaid program that will be realized in future years. This makes it easier for federal policymakers to find resources for program expansions from cost-saving approaches because the savings from these programs are often realized several years in the future.
  • Revenue Raising Capacity: In addition, the federal government has the capacity to raise revenues in a broader fashion. In a hypothetical example, if $100 billion was needed to cover all of the uninsured nationally, each state would have to increase their taxes by more than 13 percent. The federal government, on its tax base, would only need to increase taxes by about 4 percent to raise the same funds.[iii]  This example demonstrates the important difference in the scope of revenue-raising capacity at the two levels of government.

Continue reading on: A Federal-State Partnership

[i] “Expanding Health Care Access,” statement of Jeanne M. Lambrew, University of Texas at Austin and the Center for American Progress before the Appropriations Committee, Subcommittee on Labor, Health and Human Services, Education and Related Agencies, U.S. House of Representatives, March 5, 2008.
[ii] Cantor, J.C. et al. “Aiming Higher: Results from a State Scorecard on Health System Performance,” The Commonwealth Fund Commission on a High Performance Health System, June 2007.
[iii] State tax revenue estimated at $750 billion. State Government Tax Collections: 2007, U.S. Census Bureau.; Federal tax revenue estimated at $2,568 billion. The Budget and Economic Outlook: Fiscal Years 2009 to 2018, Congressional Budget Office, January 2008, Table F-3 for 1968-2007,