Figure 11
Real Federal Grants to State and Local Governments, 198098
$225
$150
$75
$0
Source: Budget of the U.S. Government--Historical Tables, FY 1999, Table 12.1, pp.2034.
The second factor has been the impact of a
A third factor that should be restraining
strong economy and welfare reform legisla-
state expenditures has been the dramatic slow-
tion on welfare caseloads. Welfare reform has
down in health care cost increases in recent
been an astonishing success story in the states
years. As the private sector has moved to
Welfare rolls
and at the national level. Following the lead of
greater reliance on patient cost sharing, man-
have fallen
the states, the federal government in 1996
aged care, and competition, the inflation rate
by 42 percent
adopted work requirements, time limits, and
for health care in the United States has fallen
new eligibility restrictions for welfare benefits.
from 9 to about 3 percent since 1990. This too
nationwide
The result has been that welfare rolls have fall-
has generated an unexpected fiscal benefit for
since 1994.
en by 42 percent nationwide since 1994.23 In
states, because aside from the federal govern-
that year there were 14.4 million Americans on
ment, the states are the largest purchasers of
welfare; by the end of 1998 the number had
health care services. If medical inflation were
dipped to 8.4 million.24 Since welfare is the sec-
as high today as it was in 1990, states would be
ond largest item in state budgets, reduced wel-
spending $5 billion to $10 billion more per
fare payments have saved billions of dollars.25
year on Medicaid and other health and hospi-
tal services.
Unfortunately, states have misallocated much
A final economic factor benefiting the
of those savings to new areas of spending, such
states has been the steady decline in unem-
as day care and job training, where gov-
ployment. Each year states spend about $20
ernmental programs are of dubious efficacy.
20