What Happened?
Census data reveals state and local government spending is on the rise. To contain increased costs – particularly with regard to healthcare – many municipalities are shifting their plans and strategies.
Spending Problems
According to the U.S. Census Bureau data from the 2012 Census of Governments, total expenditures for state and local governments increased by 18.2 percent between 2007 and 2012, rising from $2.7 trillion to $3.2 trillion. Total revenue, on the other hand, declined 1.1 percent from $3.1 trillion to $3.0 trillion over the same time period.
Total revenue declines were attributed to several factors, but two major contributors were employee retirement revenue and interest earnings. Employee retirement revenue includes all earnings on investments and contributions - which dropped 67.7 percent from $533.3 billion to $172 billion, while interest earnings fell 44.6 percent from $91.1 billion to $50.9 billion.
In addition:
- Tax revenue increased 8.2 percent from $1.3 trillion to $1.4 trillion, and accounted for 53.4 percent of total state and local government revenues in 2012
- Public welfare spending jumped 26.2 percent from $384.6 billion to $485.6 billion, and accounted for 15.4 percent of direct spending in 2012
- Insurance trust spending rose 62 percent from $213.9 billion to $346.5 billion
Furthermore, outstanding state and local government debt increased faster than revenues and expenditures between 2007 and 2012, jumping 22.2 percent from $2.4 trillion to $2.9 trillion. Meanwhile, cash and security holdings fell 1.7 percent from $5.4 trillion to $5.3 trillion in the same time period.
Strategy Shifts
While overall spending is on the rise, many municipalities are citing increased healthcare costs as the primary reason they are changing their health plans and approaches to public employee benefits. A survey conducted by the Center for State and Local Government Excellence outlined the top cost drivers of local government healthcare increases:
- Increased claim cost
- Prescription drugs
- Aging workforce
- Insurance company price jumps
- Federal healthcare policy
As a result, municipal leaders are implementing new strategies to cut costs without sacrificing quality of care for employees. Nearly half of all respondents reported a local government change to how health insurance is provided:
- 57 percent increased cost sharing of premiums paid by employees
- 19 percent shifted employees to a high-deductible plan with a health savings account
- 14 percent established a health reimbursement arrangement
Moreover, a growing number of local governments are making it easier for public employees to access health services and wellness programs onsite or in the community. These programs aim to reduce employee absenteeism, lower healthcare costs and improve overall wellness in the long term.
Onsite Clinics
Another survey from the National Association of Worksite Health Centers found employers that sponsored onsite health clinics reported reduced costs, improved employee health, and boosts to productivity and engagement in other wellness initiatives. The survey revealed:
- 64 percent saw a reduction in medical care costs
- 70 percent reported reduced time lost by employees seeking medical attention
- 63 percent reduced overall use of emergency rooms
- Over 30 percent of onsite clinics offer primary care services, with numbers continuing to rise
About 75 percent of all respondents offered some form of worksite health program for employees, while 43 percent have an onsite or near-site clinic available. Communities that benefited the most from onsite clinics initially experienced high emergency room use for non-emergency conditions, as well as significant time lost due to medical issues and employee absences.
Wellness is Key to Savings
Gov1 has kept a close eye on how municipalities are battling rising healthcare costs with innovative strategies.