The Impact of Health Insurance Reform on State and Local Governments

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Health insurance reform as currently proposed in both the House Tri-Committee and in the Senate HELP Committee would ensure that virtually all Americans receive health insurance. As part of the proposed increases in health insurance coverage, the House Tri-Committee legislation calls for an expansion in Medicaid to all individuals under 133 percent of the federal poverty line (FPL). 1 Understandably, there has been some concern in state capitals surrounding this proposal given the possible increase in state Medicaid expenditures that could result.

However, state and local governments are already spending billions of dollars each year providing coverage to the uninsured – costs that could be significantly reduced as a result of the currently proposed reforms. Additionally, state and local governments employ more than 19 million individuals, and their total spending on health insurance premiums for this group in 2007 was approximately $95 billion. 2  This group currently pays a "hidden tax" in the form of higher health insurance premiums that helps to cover expenses incurred by the uninsured. This burden would be greatly reduced as a result of expansions in insurance coverage resulting from health insurance reform, which would generate significant savings for state and local governments. 

A June report by the Council of Economic Advisers (CEA) demonstrated the health and overall economic benefits of health insurance reform (CEA, 2009a). A subsequent study produced by the CEA in July showed the significant benefits to small businesses and their employees from health insurance reform. This report, the third in the CEA series, illustrates the potential benefits of health insurance reform for state and local government budgets through a detailed analysis of current spending levels. Focusing on a sample of sixteen diverse states, we provide detailed case studies of the multitude of ways that state and local governments spend billions of dollars on uncompensated care. These estimates, combined with estimates of possible state expenditures associated with reform, indicate that the move to greater insurance coverage would likely result in substantial savings for state and local governments. Rather than harming the budget situation of the states, health insurance reform would improve it.

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