A commentary on the field of public health finance in 2004 begins with these sobering observations:
Public health finance is practiced in thousands of public- and private-sector settings every day, yet has little practical or theoretical literature, hardly any research or teaching, and no systematic means for public health leaders, elected officials, and finance professionals to communicate about innovations and best practices.…
Public health finance … is an embryonic field that lacks basic concepts, data, measures, and practice guidelines, as well as terminological, conceptual, and methodological consensus. (Moulton et al., 2004, p. 377)
The field has advanced in the intervening 7 years, but it remains at a relatively early stage of development. In the meantime, the financial challenges faced by virtually all government functions, including public health, have grown substantially. The fiscal posture of federal, state, and local governments has deteriorated as a result of the worldwide economic downturn. Pressure to reduce spending at all levels of government, and for any purpose, is severe. Powerful long-term trends in public finance attributable to demographics and fundamental changes in the economy have had no meaningful response. Even if the economy experiences a more robust recovery in the near term than is now anticipated, these structural problems will persist
unless corrective action is taken. The prospects for the future look no better and may well be worse.
Thus, while public health finance has suffered from neglect for years (Honoré et al., 2004), the need for greater attention to financial considerations in public health has become especially urgent. Previous studies have called for increased funding for public health, but accomplishing this goal, or merely ensuring greater stability for funding at existing levels, requires negotiating a formidable array of political, legal, and other challenges. This paper analyzes these challenges and describes both a general strategy and more specific proposals designed to meet them. This paper is commissioned by the Institute of Medicine (IOM) Committee on Public Health Strategies to Improve Health and is intended to assist the committee in developing recommendations for funding state and local public health systems after health care reform.
The essay from 2004 quoted earlier describes a framework for public health finance that divides it into four possible categories, based on the source and use of funds, and whether they are controlled by government or the private sector. In the first, most traditional category, government controls both the sources (e.g., taxes) and uses (e.g., spending by state and local public health departments) of funds. In the second, government controls the sources, but the private sector controls the uses. This category consists primarily of tax expenditures. The third category involves private control of sources and government control of uses, as in the case of charitable services required of nonprofit hospitals to qualify for nonprofit tax status. In the final category, private entities control both the sources and uses of funds. Health promotion benefits provided by businesses to their employees but not due to tax savings are an example of this category (Patient Protection and Affordable Care Act (ACA), Public Law PL 111-148, as amended by Health Care and Education Reconciliation Act of 2010, PL 111-52. 111th Cong., 2nd Sess., 2010).
Funding of state and local public health departments, the committee’s concern, lies primarily within the first of these four categories of public health finance. For this reason, and because of its intrinsic importance, this paper focuses primarily though not exclusively on this category. State and local health department spending is financed in part by the federal government (including under the ACA [PL 111-52]), and local health department spending is in turn financed in part by state governments. This paper thus discusses public health finance at all three levels of U.S. government. It examines how funding of public health is and should be allocated within the federal system, and how it can be stabilized and, if possible, increased at a time when there are strong pressures in the opposite direction.
Governments at all three levels and in all regions of the country face similar problems: revenue bases that are eroding (Brunori, 2007a,b) and
long-term commitments, such as state and local pension obligations and Medicare, that are growing (CBO, 2011b; Davey, 2011; Elliott, 2010; Novy-Marx and Rauh, 2011; Paletta, 2011; TFAH, 2009; The Economist, 2011b,c; The New York Times, 2011a). There is a limited number of ways in which public health can increase the amount and improve the stability of its financing by government: identifying or expanding revenue sources that can be dedicated to public health, increasing public health’s share of general government revenues, increasing or stabilizing the total amount of government revenues, or some combination of these options.
In addition to agencies of the federal government, the 50 states and the District of Columbia, there are approximately 2,800 local health departments, some serving fewer than 1,000 residents, others as many as 8 million (Mays et al., 2009). For this and other reasons, much less is known than would be desirable about the financial and economic characteristics of public health systems (Hook and Boles, 2011). From the standpoint of funding rather than provision of services, however, there are important similarities in the fundamental problems confronted at all levels of government and in the options available to them. These similarities make it possible to reach some general conclusions regarding the financing of state and local health departments despite their wide variety in size, services provided, and other circumstances.
As an early draft of this paper was being written, Congress and the White House were engaged in budget negotiations concerning how to achieve large budgetary savings as part of an agreement to raise the federal debt ceiling and avoid default by the United States on its debt (Sack, 2011). The state of Minnesota was undergoing a government shutdown as a result of a standoff between its governor and legislature over how to close a $5 billion state budget deficit (Mays et al., 2009). The city of Detroit had decided to close half of its schools, and Camden, New Jersey, laid off half of its police force this year because of budget problems (Appelbaum, 2011). Legislation was enacted in early August 2011 that enabled the federal government to avoid technical default, but few economists believe it is sufficient to provide long-term financial stability for the federal government (The New York Times, 2011b), and critics argue that in the near term it will worsen the budgetary position of state and local governments (Sensenig, 2007).
Budgetary issues at all levels of government are thus literally headline news to a degree that is rare if not unprecedented in this country. The problems are in many respects decades in the making, and they result from changes in the economy, demographic factors, long-standing political trends, and interactions among them. The challenges that state and local public health agencies face in financing their services are part of and entangled with these broad economic and political developments. Accordingly, they must be taken into account in efforts to address them.
This paper is divided into six sections. The first section examines the current status of public health finance in the United States and the limitations of existing data. The second section discusses literature that has emerged in recent years concerning how public health is most effectively financed by government and at which level. The third section describes the budgetary problems afflicting the three levels of U.S. government, that is, the setting within which public health finance must operate, and the fourth section analyzes the forces that account for these problems. The fifth section presents some possible solutions for public health finance. The solutions are not intended to be exhaustive or complete, but they do illustrate a larger strategy that builds upon the previous analysis and which is itself intended as part of the solution.
There are many important unanswered questions about the effectiveness and efficiency of public health service delivery (The New York Times, 2011b), including uncertainties in determining the appropriate amount that state and local governments should spend on public health. In view of the difficulty that public health is likely to experience even to maintain spending at current levels, these uncertainties are set aside in the first five parts of the paper, but they are addressed in the sixth section. The principal themes of the paper are summarized in a conclusion.
The problems affecting public finance in general, and public health finance in particular, constitute a form of chronic illness at the policy level. They are long in the making, and they will not be quickly solved. Difficulty in funding public health is a symptom, not a diagnosis. Only with an accurate diagnosis can the disease be effectively treated.
THE CURRENT STATUS OF U.S. PUBLIC HEALTH FINANCE
Shortcomings in the current state of knowledge concerning U.S. public health finance are not merely the result of inattention, but they also reflect the complexity of the U.S. federal system and of the field of public health itself. In addition to the federal government, the 50 states, and the District of Columbia, there is a staggering number of local jurisdictions. The Census of Governments prepared by the U.S. Census Bureau every 5 years is compiled from a universe of more than 87,000 local independent governments, including more than 39,000 state, county, municipal, and township governments and more than 48,000 special-purpose governments (IOM, 1988). The legal powers and jurisdictional boundaries of governmental public health systems are extremely diverse, particularly at the local level, making it difficult to generalize findings across apparently similar jurisdictions (Sensenig, 2007; The New York Times, 2011b). This creates a considerable challenge even to estimating the amount of government public health expenditures.
Much of the information needed to do so can be found only in the
administrative files of these individual entities, which are poorly accessible and are neither prepared nor organized to facilitate comparison with other jurisdictions or tracking of national data. Even if the data were more readily available, however, there is no universally accepted definition of “public health” (IOM, 1988). Under one definition, it includes much more than services provided by public health agencies and encompasses such activities as (1) prevention-oriented spending of nonpublic health departments of government (e.g., environmental protection, highway safety agencies), (2) similar spending of health care providers, (3) tax expenditures, and (4) private-sector spending directed at health promotion. While this more expansive definition offers advantages in designing and evaluating public health initiatives (IOM, 2003; Mays et al., 2003), it complicates determining what constitutes public health spending and comparing jurisdictions (CMS, 2011; Moulton et al., 2004). Thus, of seven studies reporting on public health expenditures by selected state and local health departments between 1994 and 2002, no two used the same operational definition to develop or report their findings (Moulton et al., 2004).
Not only is information concerning the amount of public health spending heterogeneous, there is also uncertainty about the effectiveness of public health practices, and therefore about what level of spending is appropriate (CMS, 2011). In addition, according to the National Health Expenditure Accounts (NHEA), probably the most widely cited measure of health-related spending, government spending on public health as a percentage of total health expenditures appears to be relatively stable. In the late 1990s it returned to a peak reached in the early 1970s. It declined only slightly during the last decade, from 3.2 percent of total health spending in 2000 to 3.1 percent, or $77.2 billion, in 2009 (Frist, 2002; TFAH, 2008b).
All of these considerations suggest that the question of how to increase and provide stability to public health finance may be premature, if not wholly unwarranted. There are several reasons why it is not.
First, there is a consensus among public health experts that U.S. public health spending is too low, as well as statistical analyses supporting this view (TFAH, 2008b). A study by the Trust for America’s Health (TFAH) found that adequate funding of public health at the federal, state, and local levels would require an additional $20 billion annually (2009). Other estimates of the needed increase in the amount of public health spending have also been offered (Levi et al., 2007). The TFAH estimate will be used in this paper as a benchmark for discussion. This facilitates comparison with current public health spending and assessment of the economic and political challenges involved in maintaining or increasing it. It is examined more critically in the final section of the paper, however, along with related issues concerning evaluation of the appropriate level of spending on public health.
Second, per capita public health spending is both highly variable across
jurisdictions and is often quite low, in some cases extremely low, especially when compared with spending on personal health care. This is true regardless of whether the source of funds is federal, state, or local, separately or in combination. According to one study, federal public health spending per capita through the U.S. Centers for Disease Control and Prevention (CDC) in fiscal year 2009 averaged $19.23, but it ranged from a low of $13.33 in Virginia to a high of $58.65 in Alaska. Median state public health spending in fiscal years 2008-2009 was $28.92 per person, ranging from $3.55 in Nevada to $169.92 per person in Hawaii (TFAH, 2009). A study published in 2009 reported local public health agency spending by quintile, with average per capita spending for the middle quintile of $29.89. Average spending in the lowest quintile, however, was $7.68, compared with $101.86 for the highest quintile, a ratio of over 13 (Mays and Smith, 2009). A survey of 685 local health officials by Baum and colleagues in 2008 and 2009 showed average per capita local health department expenditures of $88.02, but with an almost astonishingly broad range, from $.97 to $1,671 (Baum et al., 2011).
These broad ranges are probably skewed as a result of the fact that public health agencies with the highest spending also appear to provide a wider scope of clinical preventive services and medical treatment compared with lower-spending jurisdictions (Honoré et al., 2004). Even with this qualification, however, the enormous variation in spending levels, and especially the lowest amounts reported, almost certainly mean that public health spending is insufficient in many jurisdictions. These jurisdictions need to know how to increase the funding of their public health departments even if others may not.
Third, as discussed in the third section of this paper, the trends for both the revenue bases and spending of government at all levels have been and remain strongly unfavorable. Policy inertia is thus much more likely to lead to a reduction than an increase in public health spending. Very few jurisdictions are immune from these trends, and they are in addition to risks posed by shorter-term fluctuations in the economy, some severe, such as those recently experienced by state and local governments (Sack, 2011).
Finally, research has been conducted in recent years examining financial characteristics of public health systems and their impact on performance. While this research is limited and preliminary, and has been conducted by a relatively small group of investigators, it is internally consistent and a useful contribution to the understanding of public health finance. It is discussed in the next section of this paper.
FINANCE AND PUBLIC HEALTH SYSTEM PERFORMANCE
TFAH has reported considerable data on the extent of federal funding for state health departments by CDC and the Health Resources and Ser-
vices Administration, as well as various health outcomes by state. However, the report did not systematically correlate these variables (TFAH, 2009). State public health agencies may be independent of other agencies (“stand-alone”), part of larger agencies such as a state department of health services (“umbrella”), or independent but also charged with performing functions other than public health, such as Medicaid administration and health insurance regulation (“mixed”). TFAH noted a previous finding that these differences in organizational structure did not seem to play a significant role in the amount of state public health funding (TFAH, 2009).
Other research focusing on local public health departments, however, has assessed the relationship between the sources of funding for public health services and performance. These studies have relied primarily on the measures of 10 essential public health services of the National Public Health Performance Standards Program launched in 2002 (CDC, 2010; Moulton et al., 2004). Not surprisingly, they find that public health performance improves with increased funding, but they also indicate that both the nature and the source of funding, federal, state, or local, matters.
The survey of local public health department officials by Baum and colleagues provides a baseline for the sources of funds for local health departments. These results are summarized in Table D-1. (The numbers have been rounded and some details omitted.) Eighty-six percent of the health
TABLE D-1 Major Sources of Funds for Local Health Departments
|Revenues by Source, %||Total||Local Governance (n = 517)||State Governance (n = 91)|
departments surveyed were governed at the local level, and 14 percent at the state level. As Table D-1 shows, there were obvious differences between the two types of departments in their reliance on local versus state revenues, and state-governed departments received more federal funds as a result of greater Medicaid funding. This is probably the result of differences in services in the two cases, but this is not reported by the authors.
Results, not included in the table, were also reported for local health departments serving small (<50,000), medium (50,000-499,999) and large (500,000 or more) populations. Overall percentages of revenues from the federal government, the states, and local sources did not vary dramatically with population size, although as population increased the percentage of state revenues grew (from 20 percent for the smallest to 24 percent for the largest departments), and the internal breakdown of federal revenues changed. The largest jurisdictions received more direct federal funding (6 percent) compared with the smallest jurisdictions (1 percent) but less revenue from Medicaid (7 percent vs. 12 percent).
Several studies now support the conclusion that the most effective form of public health spending is local health department spending. Mays and colleagues found the strongest predictor of public health system performance was the size of the population, with larger size correlated with better performance on 7 of the 10 essential public health services. The most consistent predictor of performance, however, was local health department spending, which was positively correlated with all 10 services. Increased federal spending was associated with improved performance for only 5 of the 10 services, and generally had a smaller effect in each case than local spending. This study estimated that a $100 per-capita increase in local public health department spending would raise performance scores by up to 7.6 percent (Mays et al., 2006).
More recently, Mays and Smith (2011) reported the results of a longitudinal study finding that mortality rates from preventable causes of death, including infant mortality and deaths due to cardiovascular disease, diabetes, and cancer, fell between 1.1 and 6.9 percent for each 10 percent increase in local public health spending. All-cause mortality and deaths from influenza also were negatively correlated with increased local public health spending, while deaths from control conditions such as Alzheimer’s disease did not (Mays and Smith, 2011). Similarly, Erwin and colleagues found that increases in local health department expenditures were significantly associated with decreases with infectious disease morbidity at the state level (Erwin et al., 2011).
departments surveyed were governed at the local level, and 14 percent at the state level. As Table D-1 shows, there were obvious differences between the two types of departments in their reliance on local versus state revenues, and state-governed departments received more federal funds as a result of greater Medicaid funding. This is probably the result of differences in services in the two cases, but this is not reported by the authors.
and state spending with only 2 of 10 (Mays et al., 2004b). The authors estimated that a $10 increase in per capita local public health spending was associated with increases in performance of 1.5 to 3.1 percentage points, and the same increase in federal spending would result in increases in performance ranging from 0.1 to 0.3 percentage points. These modest effects might be compared with total per capita public health spending, recently estimated as $120 (TFAH, 2009), but one should be cautious about attributing too much precision to either side of the comparison.
Furthermore, the finding that local health spending is more effective than spending at the federal or state level is consistent with an earlier study by Mays and Smith showing a strong positive correlation between public health system performance and local tax revenues. According to this study, local public health systems whose performance was above the mean for the population derived 65 percent of their revenues from taxes, 11 percent from state and federal funding, and 23 percent from other sources. By contrast, taxes made up only 28 percent of funding for those agencies whose performance was below the mean; these agencies received 31 percent of revenues from the state and federal government and 41 percent from other sources (Honoré et al., 2004). This comports also with research indicating that decentralized public health agencies and agencies governed by a local board of health were significantly less likely to experience reductions in per capita spending compared with their counterparts (Levi et al., 2007).
Finally, Bernet found a significant positive correlation between increases in local public health revenues in Missouri and increases in per capita state and federal revenues devoted to public health. For each $1 increase in per capita state and federal revenues local public health agencies increased their own funding by $.50. Rather than using federal and state revenues as a substitute for local public health spending, it appears that these local jurisdictions increased it (Bernet, 2007).
In short, local public health funding appears to be superior to federal funding, which appears to be superior to state funding, but the evidence in favor of the superiority of local funding is the strongest. In addition, there is evidence that greater reliance on taxes to finance public health is correlated with better outcomes, and that greater local control is associated with greater funding stability. While the direction of the causal relationship is unclear, the conclusion that local revenues are best for local public health services is also consistent with scholarship in tax policy about local government services in general (Brunori, 2007a). Consequently, it seems reasonable to believe that marginal public health spending should be directed to local public health departments, and that they should attempt to support their own spending locally, as much as possible. The study by Bernet indicates further that local public health spending is complementary to federal spending rather than competitive with it.
The goals of public health finance thus should be to match public health spending with the appropriate level of government, to increase it when justified programmatically, and to stabilize it against the powerful forces acting to reduce it. In the abstract, this means targeting funding to local public health departments, which appear to be able to use it most successfully. The research is much too limited and public health spending at the federal and state levels is much too diverse, however, to conclude that increases in the latter could not be well spent and are not needed in their own right. In addition, if important public health needs are not and cannot be met at the local level, then the state and federal governments should either attempt to supplement local funding or fill the gaps themselves. To some extent this can be accomplished by reallocating existing funds, but as noted previously the budgetary pressures at all levels of government mean that the absence of policy changes favors reduction of spending on public health, not stability (Cooper, 2011). Federal and state governments must therefore act to protect their own spending on public health regardless of what happens at the local level.
THE BUDGETARY AND LEGAL SETTING FOR PUBLIC HEALTH FINANCE
In fiscal year 2008, the last year before the recession significantly affected the federal budget, total federal revenues were $2.5 trillion, or 17.7 percent of GDP (Tax Policy Center, 2008). In 2008 state and local government revenues, net of transfers from the federal government, were about $2.2 trillion (Barnett, 2011; U.S. Government Revenue, 2011). Although these are revenue rather than spending figures and are not precisely comparable, they are sufficient to illustrate the magnitude of public health spending relative to all of government. Using the NHEA estimate of $72.9 billion in public health spending in 2008 (CMS, 2012), it was the equivalent of about 1.6 percent of U.S. government revenues at all levels in that year.
The good news from a political standpoint is that even if public health spending is increased in keeping with recent public health expert recommendations, it would remain a relatively small share of total government outlays. In addition, much of the intellectual case that public health has to make for itself is very strong. The bad news is that every dollar of government spending and revenues is now fiercely contested. Generating an additional $20 billion of spending on public health each year in accordance with the TFAH recommendation, for example, will require not merely creativity, but also a persistent strategy designed to address a complex set of budgetary, legal, economic, and political considerations that both accounts for the existing problems and makes their solutions extraordinarily difficult. This section of the paper discusses the budgetary and legal issues involved, while the fourth section focuses on political and economic concerns.
Historically and under the Constitution, federal, state, and local governments have different patterns of and authority to tax as well as different spending responsibilities. Despite these differences all three levels of government confront somewhat similar, and quite serious, problems in providing for their long-term financial stability. The flow of government funds from one level to another (generally downward) means that these problems are interdependent. Many of the problems on the spending side of the ledger are relatively widely known, but other, less well-publicized problems concerning governments’ ability to raise revenue are no less important. In both academic literature and the media, the lower the level of government, the less attention these problems tend to receive. The discussion below will therefore proceed in the opposite order.
Both local and state governments face long-term problems in funding employee pensions and retiree health benefits (GAO, 2010; The Economist, 2011a; The New York Times, 2011a). Otherwise, except for spending related to health care, local government spending needs—for such basic services as schools, fire and police department protection, and infrastructure development—vary more or less with population size and are relatively consistent over time.
The ability to meet these needs, however, is widely variable from one jurisdiction to another and is obviously subject to fluctuations in the economy (Dillion, 2011). Infrastructure spending has lagged, creating a budgetary overhang. Local governments depend heavily on transfers from states and the federal government, which face their own severe budgetary challenges. There is a consensus among local public finance experts that local government operations should be funded to the extent possible with local sources of revenues, and the study by Mays and Smith (2011) indicates that this may be true for public health in particular. All of these considerations point to the conclusion that in the years ahead local governments will need to generate as dependable a source of revenues on their own as is possible. For legal and economic reasons, however, local governments have considerably less flexibility in achieving this goal than the federal or state governments, even if they can muster the political will to do so.
At present, intergovernmental transfers and property taxes are by far the dominant source of local government revenues. In 2006, local governments received about 38 percent of total revenues from intergovernmental transfers: about 34 percent from state governments and 4 percent from the federal government. State transfers to local governments have remained relatively stable as a percentage of total local government revenues, while federal transfers decreased from a high of about 10 percent in the 1970s to current levels in the early 1990s and then stabilized (Brunori, 2007a;
Wildasin, 2009). Almost 60 percent of the amount transferred from states is used to finance education.
Local governments are creatures of state government and, unlike the federal and state governments, do not have separate, independent legal status either for their existence or authority to tax. The property tax is the only tax levied in all 50 states and the District of Columbia. It generates about 72 percent of local tax revenues, or 26 percent of total local government revenues (Brunori, 2007a). Along with the federal income tax, however, the property tax consistently polls as one of the most unpopular taxes, in part because both taxes are highly visible (Brunori, 2007a; The Economist 2011a). The property tax was the first target of the “tax revolt,” resulting in the adoption of Proposition 13 in California. This model was quickly followed in other states, and as of 2007, 29 states had adopted property tax revenue limits (Brunori, 2007a).
About 14 percent of local revenues were derived in 2005 from user fees, and 8 percent from utility charges. In all, only about one-third of local government revenues is generated by locally imposed taxes. Notably, this amount is similar to the figure reported in the study by Mays and Smith (2011) for local jurisdictions whose public health system performance was below the mean.
Sales, income, and many other taxes are generally prohibited for local governments without statutory approval or constitutional amendment. Thirty-three of the 45 states imposing a sales tax allow their local governments to impose similar taxes. In 2006, about 9 percent of local governments did so, yielding about 11 percent of local government tax revenue. Excise taxes on lodging, meals, fuel, and other goods and services accounted for about 5 percent of local tax revenue. Only 15 states allow local government to tax some form of personal income, including wages. Personal income taxes generated about 4 percent of local revenues in 2005, but they generated a much larger share (24 percent in 2002) for cities with a population over 300,000. Eight states authorize local governments to impose taxes on corporate income, and local corporate income taxes raised only $4.4 billion in 2005, less than 1 percent of tax revenues (Brunori, 2007a).
These are all averages, but for mostly obvious reasons, local government tax and other revenue systems are extremely diverse. For example, Tallahassee, Florida, raises 40 percent of its total revenue from selling electric power. As suggested above, however, in general larger cities derive more revenue from personal income taxes, and smaller municipalities a greater share from the property tax.
Competition among jurisdictions, however, greatly limits the ability of local governments to tax personal or corporate income, even if authorized by states (Brunori, 2007a). In view of the relative ease with which both corporations and individuals can change their local residence, compared with
state or national residence, this is a severe constraint for local governments in trying to raise additional revenue from these sources. To a somewhat lesser extent, and depending on how uniform taxes are across an area (e.g., statewide vs. county-level taxes) this is also true of sales taxes. By comparison, real property provides a stable tax base because it is immobile and cannot be hidden. In addition, constraints on the property tax base are largely the consequence of government action rather than changes in the economy.
The property tax is therefore one of the few options that local governments have in raising additional tax revenues of their own, as opposed to sharing in state-level taxes or relying on intergovernmental transfers. Moreover, since funding of public health and public health performance shows a positive correlation with population, it may be the smaller localities that are most in need of additional revenue, and public health officials may be able to play a more active role in these smaller political arenas. Leaders in public health, perhaps particularly in small jurisdictions, should therefore join forces with others in supporting the property tax.
Recent research by Honoré and colleagues (2011) indicates that this is not a mere counsel of perfection. They surveyed 720 counties in the Mississippi Delta region and found that 338 of these counties had a property tax dedicated to public health (Honoré et al., 2011). The details regarding these dedicated taxes were not reported, but they also note that five states—Ohio, Louisiana, Kansas, North Dakota, and Michigan—now levy a local dedicated property tax to fund senior services. Finally, Honoré and colleagues (2011) found that jurisdictions with dedicated property taxes had better health outcomes, but only those with per capita income greater than $28,000. The authors suggest that this may be due to the lower after-tax income of poorer residents in low-income jurisdictions and the known association of low income with poor health status (Honoré et al., 2011).
This conclusion is speculative, but it is entirely plausible and possibly axiomatic that more affluent jurisdictions are better situated to improve public health funding on their own, while less affluent ones need greater assistance from other levels of government. Historically, the bulk of this assistance has been provided by state governments, whose own financial challenges are discussed next.
Numerous analyses have concluded that although states’ current budgetary problems obviously reflect the impact of the recession starting in 2008 and to that extent are cyclical, they are also structural, representing a chronic inability of revenues to grow in tandem with economic growth and the cost of government that has been developing for years (Lav et al., 2005). Three studies conducted in 2005 or earlier examined the structural
budget balance of the 50 states. All three found that more than two-thirds of the states face structural deficits. By one set of criteria the states most at risk for structural deficits are Alaska, Arkansas, Colorado, Florida, Nevada, New Mexico, Pennsylvania, South Carolina, Tennessee, Texas, and Wyoming (Lav et al., 2005). If, however, only revenues generated by the states themselves are taken into account—to reflect the threat to the federal government’s ability to transfer funds to states in the future—spending in almost all states grew faster than revenue from 1977 to 2007 (Lav et al., 2005).
Both sides of the budgetary equation for states are responsible for the problem. There is wide recognition, at least in policy circles, that health care costs and the aging of the population impose burdens on state budgets that are increasingly difficult to sustain. Conflicts about funding of state employee pensions and retiree health benefits are major news stories. The Government Accountability Office reports that state and local health care spending rose from 12 percent of total spending in 1978 to 20 percent in 2008, with no change in this trajectory in sight. Spending on education fell from 40 percent to 36 percent of the total, and all other categories fell or remained constant, with one notable exception: “public order and safety,” for which spending increased from 10 to 13 percent of total state expenditures (GAO, 2010). The United States has the highest incarceration rates in the world by far, and heavy budgetary costs are only one of many unfortunate consequences (Rich et al., 2011; Schmitt et al., 2010).
Although it may be less widely recognized than concerns about state governments’ long-term spending commitments, revenues of state governments are subject to serious structural problems in their own right, largely due to the erosion of the sales and, to a lesser extent, the corporate tax base. As in the case of local governments, state tax systems are, of course, not uniform, and they depend both on the politics and the economic circumstances of the state. For example, only 45 states impose sales taxes, as noted previously, and 41 as well as the District of Columbia impose personal income taxes (Brunori, 2007b). Several states that are, or at least once were, rich in natural resources rely heavily on oil, gas, timber, and other severance taxes. Four of these states—Alaska, Texas, Washington, and Wyoming—have no income tax, and two—Alaska and Montana—have no state sales tax (Brunori, 2007b). Nevada, which derives substantial revenues from gambling, also has no income tax.
Less than 50 percent of state revenue is derived from taxes. In 2003, federal aid, mostly to fund federally mandated programs, Medicaid, Temporary Assistance for Needy Families, and other income-transfer payments, constituted about 27 percent of state revenue. Another 8 percent came from user fees, licenses, and service charges. Smaller amounts came from lottery and gambling proceeds (Brunori, 2007b). Nearly 50 percent, in turn, of state tax revenues are derived from general sales taxes, and another 17 per-
cent is derived from selective sales taxes, such as taxes on motor fuels and alcoholic beverages. Two-thirds of state taxes are therefore generated by sales and excise taxes. Individual income taxes make up about 34 percent, and corporate income taxes only 5 percent, of state tax revenue. Property taxes constitute only about 2 percent of state tax revenue (Census Bureau, 2011). The percentages vary from year to year, of course, and the figures just provided are expressed as a percentage of state tax rather than total revenues. They would be approximately halved if expressed as a percentage of the latter. Personal income taxes thus generate only about 17 percent of total state revenues.
For the sake of comparison, the federal government finances its operations almost entirely through taxes and, to the extent of any budget deficit, borrowing. Personal income, payroll, and corporate income taxes currently make up 42 percent, 40 percent, and 9 percent, respectively, of total federal revenues (CBO, 2011c). Excise taxes are minimal and, unlike almost all other comparable countries, the United States has no general consumption tax, such as a value-added tax (VAT) (Sessions and Lee, 2008a).
The states’ heavy reliance on sales taxes has been and will continue to be threatened by a significant erosion in the sales tax base (Brunori, 2007b; GAO, 2010; Lav et al., 2005). This base—the amount of goods and services subject to tax—fell from about 51.4 percent of personal income in 1990 to 41.5 percent in 2001, and many public finance scholars are of the view that this erosion will accelerate (Brunori, 2007b). This is due primarily to three factors. First, most states exempt services from the sales tax, and services make up an increasingly large share of the economy. Second, most states provide exemptions for many categories of goods, such as food and prescription medications. Third, states are experiencing increasing difficulty in taxing goods not explicitly exempt from tax, as sales of goods have moved onto the Internet and beyond the reach of state taxing authorities. Estimates of revenue lost as a result grew from $170 million in 1998, to $15.5 billion in 2003, and $33.7 billion in 2008 (based on a 2004 projection) (Brunori, 2007b). There is every reason to believe that this trend will continue (GAO, 2010).
In addition, the states have experienced a reduction in corporate income tax revenues, which have declined from a high of 9.7 percent of state tax receipts in 1977 to the current figure of about 5 percent. This is attributable in part to aggressive tax planning that results in shifting reported income from higher-tax to lower- or no-tax jurisdictions. States also lose significant corporate tax revenue by providing tax incentives, such as investment or job creation credits and accelerated depreciation. As with local jurisdictions, although to a somewhat lesser extent, it is also a reflection of changes in the economy, including the increasingly interstate and international nature of business, and the mobility of capital (Brunori, 2007b; Lav et al., 2005).
For the most part, projected federal budget deficits are the result of projected spending increases rather than revenue shortfalls, at least compared with historical averages. In 2007, before the onset of the economic recession and the enactment of the ACA, the Congressional Budget Office (CBO) projected that by 2030 federal spending would increase to 29 percent of GDP, with a projected budget deficit for that year of 10 percent of GDP (CBO, 2007; Sessions and Lee, 2008b).
CBO’s most recent projections are even more bleak, but the pattern is the same. That is, federal spending was and is projected to increase dramatically due in large part to the aging of the population and general increases in health care costs. CBO projects that this will result in an increase in Medicare and federal Medicaid spending by 2035 of nearly 5 percent of GDP under one fiscal scenario (which it designates the “alternative” scenario), and an increase in Social Security outlays of 1.3 percent of GDP. Under this scenario, the federal government would run a budget deficit of 15.5 percent of GDP in 2035, and U.S. government debt held by the public would equal 187 percent of GDP, rising by the amount of the deficit each year (CBO, 2011b).
The projections under the “alternative” scenario assume that several current policies that restrain health care spending increases, such as the sustainable growth rate rules for physician payment, would not be in effect, consistent with congressional practice in the past. If they are assumed to continue, under what CBO designates the “extended baseline” scenario, Medicare and Medicaid spending is projected to increase by 3.4 percent of GDP by 2035 (CBO, 2011b). The projected increases in spending, especially under the alternative but politically realistic scenario, would place an enormous burden on the federal budget, and it is doubtful that the financial markets and U.S. economy would sustain such a trajectory for federal government borrowing (CBO, 2011b).
Revenues would not keep pace with increased spending under either CBO scenario but would come much closer to doing so under the extended baseline. Over the last 40 years, total federal revenues have ranged from less than 15 percent of GDP in 2009 and 2010 to nearly 21 percent in 2000, with an average of 18 percent (CBO, 2010). Under the extended baseline scenario, revenues would rise to 23 percent of GDP by 2035, and under the alternative scenario they would be 18.5 percent of GDP. The extended baseline scenario assumes that tax cuts enacted under the Bush administration will expire, and that the alternative minimum tax (the AMT, which provides an alternative tax base that is broader than the regular income tax, but at somewhat lower rates) would not be indexed for inflation. The latter assumption would mean, however, that 50 percent of taxpayers would be pay-
ing the AMT, probably not a reasonable political expectation. Reversing this assumption would reduce revenues by about 2 percentage points of GDP.
Revenues from personal income taxes have fluctuated between approximately 8 and 10 percent of GDP (Cooper, 2011). They would be greater than 13 percent and 10 percent, respectively, under the extended baseline and alternative scenarios. While this indicates that the personal income tax base is economically stable, it has gradually been narrowed through policy change. For example, due largely to indexing of tax rates, tax credits, and increases in the personal exemption and standard deduction, almost 50 percent of potential income tax filing units paid no income tax in 2009 (Gould, 2011).
Federal corporate taxes have declined from 5 percent of GDP to around 2 percent now. They are projected to show little change between now and 2020 (Friedman, 2003; Gould, 2011). Increasingly aggressive and innovative tax planning may make even that forecast optimistic (Kleinbard, 2011). There is interest in reforming the corporate tax in either a revenue-neutral way or to raise additional revenue (Gray, 2011), but it is doubtful at best that corporate tax revenues could be restored to the levels of the 1950s. In 2005 U.S. corporate tax revenues as a percentage of GDP were the third lowest among countries in the Organisation for Economic Co-operation and Development (OECD), at 1.8 percent of GDP. The weighted average for all OECD countries, however, was only 2.5 percent of GDP (CBO, 2005). The potential for deriving large amounts of new revenue from the corporate tax, at least relative to the size of the federal budget, is therefore fairly low.
Federal excise tax revenues have dropped even more than corporate taxes and currently raise about $100 billion annually, again with little change forecast. Estate and gift taxes now generate yet smaller amounts of federal revenue, $19 billion in 2010, due again to changes in law during the Bush administration. These changes were extended, along with the tax itself, as part of a budget agreement reached at the end of 2010 between the Obama administration and Congress. The CBO projects that if the estate tax is extended in its current form it will generate revenues of about $70 billion in 2020 (CBO, 2011a,b; Gale and Harris, 2008).
THE POLITICAL AND ECONOMIC SETTING FOR PUBLIC HEALTH FINANCE
The budgetary developments described in the previous section, which affect all three levels of government and have been decades in the making, can be regarded as tectonic in magnitude, character, and tempo, and they require similar and equally powerful forces for an explanation. These are the forces with which public health finance must contend, and for this reason they must be understood.
The basic facts to be explained are that government spending has consistently gone up at a rate faster than revenue, and that this now appears to be on a trajectory that is unsustainable for the federal and many state governments—data about local governments specifically are more difficult to find, as often information is reported for state and local governments together. The structural deficits result from growing problems in revenue generation as well as increases in spending. Why has this occurred, and why has the response of policymakers been so inadequate, for so long?
The explanation consists of economic, demographic, and political factors. Although some are familiar or have already been touched upon, they are mutually reinforcing, and summarizing them helps show this. They can be further broken down into factors affecting general public finance and related, but distinctive, factors affecting public health finance. These two categories will therefore be examined separately.
The levels of taxes and government spending are, of course, among the most fiercely contested issues in U.S. politics and policy, both historically and perhaps especially today. These controversies are also inextricably woven into the history of the subject. The purpose of this paper is to provide guidance to the committee about how to improve funding for state and local public health departments. While this may be accomplished in part by mobilizing additional private resources, it is highly unlikely that this can be a complete solution.
In any case, focusing on this option alone would not constitute a complete examination of the problem. In view of the budgetary trends discussed in the third section of this paper, as well as the evidence supporting financing of local public health departments with taxes presented in the second section, the solutions must include the possibilities of finding new sources of tax revenue as well as of providing greater stability to existing tax bases. The discussion in the next two parts of the paper is intended to be an objective analysis of how best to meet the needs and policy concerns specifically of public health. For the reasons just given, however, it cannot avoid raising and addressing issues that are politically controversial.
General Budget Politics
It is often observed that Americans more than citizens of many other countries hold “antistatist” views, meaning they are “less concerned with what government will do to benefit individuals than what government might do to control them” (Lee et al., 2006; Oliver, 2006, p. 196). In earlier periods of U.S. history, however, deficits occurred primarily during wartime or economic crises such as the Great Depression and were rarely if ever structural (Suddath, 2009). Even if general observations about Americans’ ideology along these lines are accurate, it is necessary to look beyond them to find explanations for the development of structural deficits in recent de-
cades, and their emergence presumably should be more or less contemporaneous with it. All of the considerations discussed below meet these criteria.
The aging of the population and of the baby boomers in particular results in predictable increased spending on programs for retirees and the elderly, such as pensions, Social Security and Medicare, as well as more specific services. It also increases the “dependency ratio” (the ratio of retirees and younger dependents to the working population). Retirees also earn less income and spend less, and they qualify for specific income and property tax exemptions without regard to need (GAO, 2010; Lav et al., 2005).
Health Care Costs
Health care costs have risen faster than general inflation for decades. Taking into account tax expenditures, and even before the ACA, government sources accounted for about 60 percent of health care spending (Honoré et al., 2011). The tax expenditure for the exemption of the value of employee-sponsored health insurance alone represents about 11 percent of the total (Sessions and Lee, 2008a). Both private and government health care spending are increasing regardless of age of the population served (Oliver, 2006), but the increase is greatly exacerbated by the aging of the population (Lee et al., 2006).
The rapid growth of the Internet and online sales has already reduced state and local sales tax revenues substantially. “Use” taxes attempt to collect the amounts owed from the purchasers but have an extremely low compliance rate. There are constitutional constraints on state efforts to combat this problem by taxing out-of-state sellers. In Quill v. North Dakota (504 US 298 1992) the U.S. Supreme Court held that a state cannot compel a vendor to collect sales and use tax unless that vendor has a “physical presence” in the state. Congress could authorize states to do so under the Commerce Clause, and states are attempting to address the problem in part through interstate compacts, but the progress so far has been modest (Brunori, 2007b).
Globalization and International Competition
Globalization involves and is in part due to increased mobility of capital. This places pressure on corporate taxes at all levels of government. As discussed earlier, corporate mobility increases as the jurisdiction gets smaller
and the benefits offered by that jurisdiction are more easily available elsewhere. This implies that the plausibility of strengthening corporate taxes gets weaker at each lower level of government—federal, state, and local, in that order.
Increased Income Inequality and Age Stagnation
Globalization is in turn one of the explanations offered for wage stagnation and increased income inequality in the United States, in addition to computerization and other advances that provide increasingly higher rewards to skilled labor and lower wages to others (OECD, 2007). In mid-2008 the highest-earning decile of the U.S. population earned nearly half of all income, higher than its previous peak before the Great Depression. A very high proportion of income (7 to 9 percent, in the late 1990s) goes to the top 0.1 percent of households. Average family income roughly doubled between 1947 and 1973, but it grew by only 22 percent between 1973 and 2007, which itself was largely attributable to the increase in two-earner families (McCarty et al., 2008; Piketty and Saez, 2007; The Economist, 2010).
A marked increase in political polarization is evident from the briefest glance at the news. This is true both electorally and legislatively (Aaron, 2010; McCarty et al., 2008). McCarty and colleagues argue at length and provide copious data documenting that polarization is itself strongly correlated with income inequality. They also cite studies and provide their own data concerning a number of pernicious consequences of polarization for the political process. These include undermining citizens’ trust in the capacity of government to solve problems and legislative gridlock (McCarty et al., 2008).
Economic and Political Power of Corporations
The economic and political power of corporations is the subject of academic literature and popular media and is accepted to some extent across the political spectrum, but it is seldom quantified. One simple way to do so is to compare corporate revenues with government receipts. For example, in 2009 the revenues of the top six companies in the Fortune 500, about $1.67 trillion, was roughly equal to total expenditures of all 50 states. Measured this way, California, the state with the highest spending, would have ranked number 5 on the Fortune 500. Safeway, ranked 50th on the Fortune 500 that year, had revenues approximately equal to the spending of Michigan, the 9th highest-spending state (CNN, 2009; NASBO, 2010).
These can be regarded as comparisons of apples (revenues) and oranges (spending), and they are based on corporate revenues rather than profits. While not intended as serious statistical findings, they are nevertheless meaningful. They illustrate both the economic interests that corporations have to protect, and the resources they can bring to bear in the form of lawyers, lobbyists, media campaigns, campaign contributions, and the like, to protect them. The marked increase in income inequality presumably makes these statements true also of extremely affluent individuals. As an illustration of the kinds of financial clout that corporations can wield and strategies they can employ to block government action, it was recently reported that Amazon threatened to sever ties with as many as 25,000 online advertisers in California in response to a provision in the state’s budget requiring Internet retailers to collect sales tax from consumers (Aaron, 2010; CNN, 2009).
Orchestrated Efforts to Change Public Attitudes
Hillary Clinton’s statement concerning a “vast right-wing conspiracy” may have been a rhetorical misstep, but antitax and antigovernment forces constitute a well-orchestrated effort and make no pretense to the contrary. Few would dispute, for example, that Grover Norquist’s Americans for Tax Reform, with its “taxpayer protection pledge” and other strategies, has been tremendously successful. Earlier efforts by conservatives to develop an intellectual base and coordinated strategy to promote their agenda date back at least to the 1950s (Wooldridge and Micklethwait, 2004), and reached one relative high-water mark with the “Tax Revolt” leading to Proposition 13 in 1977.
The Politics of Public Health Finance
At roughly the same time that U.S. political conservatism started to gather strength, public health began to take on a new set of roles. This is not entirely a coincidence, since the change in public health resulted in large part from improvement in control of infectious disease, which led in turn to increased emphasis on chronic disease in both health care and public health. Ironically, but not coincidentally, health care spending then began to increase rapidly, while the political case for public health spending began to become more challenging. This parallels trends behind the movement toward greater individualism and antistatism in general budgetary politics, but it creates a separate set of political challenges for public health finance in particular (Epstein, 2003; Gostin and Bloche, 2003).
Public health services have always been public goods. The increased emphasis on chronic disease changes the case for government funding of public health, however, that tends to weaken political support for it. Even
in the earlier, infectious disease model, the benefits of public health services may be less visible than schools, roads, water systems, and police and fire department protection (police cars and fire trucks are visible enough). On the other hand, in this model public health is similar to other government services in that its benefits potentially accrue to the entire populace. Like the police and departments, it also protects against a seemingly external and immediate threat. The prompt increase in federal funding of public health following the anthrax attacks in 2001 illustrates these factors in the politics of public health prevention of infectious disease (Frist, 2002).
By comparison, to the extent that chronic disease is seen as inevitable or the product of individual behavior, public health can be viewed as pointless or not a suitable use of public revenues. Within U.S. culture particularly it may be relatively natural to see chronic disease as more appropriately addressed on an individual basis by health care providers, a viewpoint that is also consistent with providers’ economic interests. Similarly, more than efforts to prevent infectious, and particularly epidemic, disease, public health interventions directed at chronic disease can be seen more easily as redistributive both economically and geographically, even within a single local jurisdiction. Finally, any benefits produced in preventing chronic disease are also realized over the long run rather than immediately, making them even less visible and more subject to doubt.
These difficulties are exacerbated when the scope of public health is expanded further to encompass efforts to address the social determinants of health. The timeline for results becomes even longer, the causal relationships even more complex, and the boundary between public health and general social policy increasingly difficult to discern.
Public health scholars are well aware of these political problems, but public health policy has done too little to address them. Arguably, it represents a failure of public health to make a political transition that corresponds to its changing responsibilities. For example, although the goal remains improved population health, a clear understanding of this in the public health policy community does not translate into a clear understanding of it by the public itself. Especially in view of the dominance of medical care in the United States, it is not necessarily obvious to a layperson that prevention of infectious disease through infection control and sanitation measures and prevention of chronic disease are even the same enterprise. If, moreover, there is no agreed-upon definition of “public health” even within the field, how can the public be expected to know what it is and to support increased funding for it?
There is extensive evidence in the literature that this is more than a rhetorical question. According to Sorenson, for example, results of a 1996 poll indicated that “most people have little or no idea of what ‘public health’ means” (Wooldridge and Micklethwait, 2004). In an article entitled
“Americans’ Conflicting Views About the Public Health System, And How to Shore Up Public Support,” Blendon and colleagues state that they did not use the term public health in surveys conducted from 2008 to 2010 to answer this question because “[p]rior surveys have shown some confusion on the part of Americans about what the term public health means” (Blendon et al., 2010, p. 233). An analysis of public health in communities with a population larger than 100,000 found that two of the 20 public health activities whose perceived effectiveness were rated as relatively low were “providing health information to the public” and “developing support and communications networks among health-related organizations, the media, and the public” (Mays et al., 2004a, p. 1022).
The failure of one recent public health finance initiative should be evaluated in light of these observations. A proposal to tax sugared beverages in New York State was defeated despite earlier indications of public support, after an intense lobbying effort in which proponents were outspent on advertising by opponents by a 4:1 ratio (Gershman, 2011). The baseline of public opinion at which the debate started may have mattered, however. While there are problems with this proposal, as with all proposals, the intellectual case for reducing obesity to improve the nation’s health and reduce health care costs is simply overwhelming (Lakdawalla et al., 2005; Ludwig, 2007; Sturm, 2002). Yet Blendon and colleagues report that in 2009 only 9 percent of those polled named obesity as one of the two diseases or medical conditions that they believe pose the greatest threat to Americans, after cancer, heart disease, HIV/AIDS, influenza and diabetes, without regard to steps needed to address the problem (Blendon et al., 2010).
The surgeon general’s report on tobacco in 1964 was a major news event that reverberated for years and was instrumental in leading to the gradual, but pronounced, reduction in tobacco use that followed (Department of Health Education and Welfare, 1964). How many Americans, by comparison, are aware of the surgeon general’s “Call to Action to Prevent and Decrease Overweight and Obesity” in 2001 (Surgeon General, 2001)? The world of media and communications today, and in 2001, is very different from that in 1964. Public health must emulate the example of the 1964 report despite these differences, however, if it wants to build a political base for itself within the electorate and legislatures.
While there is a general awareness within the public health community that it will be difficult, or even very difficult, to increase or even stabilize its funding, there is much less understanding of the precise nature of the difficulties. The proposals offered to date therefore cannot, and do not, fully grapple with them. The criticisms of the field of public health finance
mentioned at the beginning of the paper thus can be extended to include a neglect of these considerations and of the strategies needed to deal with them effectively. They are a function of the legal, economic, and political factors above. They affect both public finance in general and public health finance more specifically, but their combined effects on public health are mutually reinforcing and not merely overlapping or additive.
The goals of improving public health system performance and ensuring its financial stability are likewise, and fundamentally, complementary. The statement made by Honoré and colleagues that “maintaining support for taxation policies can be greatly influenced by demonstrating a return on taxpayer investments” may seem banal, but it is important (Honoré et al., 2011, p. 2). In addition, public health and public health finance operate in a federal system that is itself experiencing severe problems at each level. Since funding for public health has historically cascaded downwards, so also do the problems. They must therefore be addressed through an approach that encompasses all three levels of government, and which also takes into account the great variety of public health departments and services in question.
Finally, to secure stable and adequate financing over the long run public health must bring the same tenacity, ingenuity, and patience to bear that the antitax movement has in striving to reduce taxes. Whether or not one agrees with the political agenda of that movement, there can be little doubt regarding its success as a public relations campaign. Public health is unlikely to be able to match the resources of antitax advocates, but neither is it wholly destitute. As a practical matter, the limitations of its resources in pursuing the financial well-being of public health policy mean only that they should be employed more effectively and in a more coordinated fashion up and down the ladders of government.
The following discussion first reviews previous proposals for improving public health finance as well as models that are experimental but have already been employed. It then describes alternative approaches. The proposals predate enactment of the ACA, and some aspects of them were incorporated into it, but only to a limited extent. The details of this will not be explored here. The specific alternative proposals are intended to illustrate a general strategy implied by the analysis earlier in the paper in addition to standing on their own.
In 2009 a report from the TFAH made a number of recommendations for improvement of public health finance (TFAH, 2009). They include the following
• Create a federal Wellness Trust, as initially proposed by the Brookings Institution. According to the TFAH description, “The Wellness Trust would ensure every American has access to a core set of proven preventive care services, including immunizations and clinical prevention, screenings, and health counseling. The Trust would become the primary payer for these services for all Americans, and it would also have the authority to provide funding for infrastructure improvements. [Financial] support … would come from federally funded health agencies and private insurers determining their spending and resulting savings from preventive services [and] general revenue, in a process similar to how Medicare is funded, and would increase annually by the estimated projected growth in national health expenditures” (TFAH, 2009, p. 6).
• Create one or more similar wellness trusts at the state level.
• Redirect a percentage of Medicare spending toward public health programs. The TFAH states that “Medicare would more than likely recoup the investment in future savings” (TFAH, 2009, p. 6).
• Similarly, redirect a percentage of federal Medicaid spending (with a required state match) toward public health.
• Set up Medicaid Administrative Accounts, under which states would use a part of federal Medicaid matching funds to support public health and prevention programs.
• Institute surcharges on employer-sponsored health insurance, which would be waived if insurers agree to a prevention investment package.
• Impose or increase several behavior-related or “sin” taxes, including soft drinks (as proposed in New York), candy or snack taxes, and existing taxes on alcohol and tobacco.
• Impose a food advertising profits tax, such as for advertising on convenience foods, candy, and soft drinks, reflecting an estimated $11 billion in spending on direct media advertising.
A recurrent theme of these proposals is the possibility of recapturing health care spending and diverting it to public health. This is intuitively plausible and is sensible economically and as a matter of health policy. If health spending is viewed as a combination of spending on health care and spending on public health, it seems very likely that spending at the margin should be routed to the latter. On the other hand, in some ways this funding mechanism replicates the problems in funding public health it is designed to solve. It is complicated, and costs and benefits are difficult to measure and assign, in much the same way as they are with public health finance generally. In addition, healthcare is already extremely expensive, and this approach would make it even more so, or at least appear to be. The costs
would almost certainly be passed through to the insured population. That point would not go unnoticed by opponents, and they would bring it to the attention of the public at large.
McNally and Pine describe two cases in New York City in which relatively small grants from the New York City Community Trust, a private foundation, were used to jump-start programs to increase screening rates for colon cancer, and to increase school-based screening and treatment for sexually transmitted diseases. Both programs achieved favorable results, especially compared to the size of the grants ($1.65 million and $85,000, respectively). For example, there was an increase in colonoscopies of 68 percent in 1 year in the three hospitals participating in that program (McNally and Pine, 2009).
Private grants can also furnish an opportunity for public health agencies to obtain increased funding from the government. The Robert Wood Johnson Foundation (RWJF) announced in 2007 that it would spend $500 million to try to reduce childhood obesity rates. One program, in Louisville, Kentucky, has received $740,000 from RWJF and an additional $8 million from CDC to implement a broad-based, community-wide effort that includes education programs, the introduction of a 100-mile bicycle and pedestrian loop around the city, and addition of bicycle racks to city buses (Strom, 2011).
As McNally and Pine note, public–private partnerships may have a greater chance of succeeding when the goal is to increase the demand for health care services of current health care providers, who therefore have a clear economic interest in the arrangement (McNally and Pine, 2009). Similarly, Halvorson and colleagues report that collaboration between public health and medical care providers is more likely in markets characterized by higher HMO penetration and lower HMO competition, presumably because this increases the chances that prevention services for the community will benefit the HMOs’ patient populations (Halverson et al., 2000).
“Process” markers such as an increase in clinical screening may also be simply more likely to yield positive results than are health outcomes markers. The evidence that the RWJF program in Louisville is reducing obesity appears to be anecdotal, but the fact that it has been sustained for nearly a decade (since 2003) should also not be dismissed.
Social Impact Bonds
Social impact bonds (SIBs) are a new form of financial instrument that attempts to finance public services by offering private investors a share of
any savings realized by government as a result. They are thus also a form of public–private partnership, but one that is relatively untested. It appears that only one issue of $8 million has been floated, with another in the process, although the Obama administration’s budget includes $100 million to create pilot programs for SIBs (Ross, 2011). The proponents of SIBs recognize that, at least initially, it would probably be necessary to recruit investors interested in socially beneficial outcomes and not just a financial return (Social Finance, 2010).
The transaction costs for SIBs are likely to be considerably higher than for public–private partnerships involving existing health care providers, such as those reported by McNally and Pine. In addition, the one issue of SIBs that was successfully launched is intended to reduce prison recidivism in the United Kingdom (Ross, 2011; Social Finance, 2010). It is not clear how readily this example can be adapted to health care or the United States. To be returned in part to investors, the savings need to be measureable by the institutions realizing them. Presumably it would be desirable for the population to be readily identifiable and attributable to a specified set of providers or payors such as insurers, since savings from the intervention could otherwise accrue to others. Both of these issues are likely to be greater problems in the United States than in the United Kingdom.
In addition, the time horizon for prevention of chronic disease, where public health finance most needs help, may be longer than for prison recidivism, for which results may be observable even within a year. Possibly such an arrangement would work for some public health needs, such as prevention of falls by older adults, exacerbation of congestive heart failure, or diabetes control, but asking investors to wait for a financial payoff from primary prevention of the underlying diseases could be a tough sell.
On the other hand, SIBs can also be regarded as venture capital, with the investors providing the capital, and those who develop and implement the services providing the “sweat equity.” Their prospects of success possibly could be enhanced through cultivating direct relationships between these two groups, as occurs in more typical venture capital settings.
Tax expenditures have grown enormously in recent decades, in part because they have been favored by both major political parties (Gould, 2011). Tax expenditures might be used in public health finance by helping to support public–private partnerships. For example, investment in SIBs might be encouraged by providing favorable tax treatment to any income they generate. On the other hand, tax expenditures are almost universally regarded as poor tax policy (Brunori, 2007b). The long-term political trends are also against them, as illustrated by the fact that Republicans in Congress
vehemently opposed to tax increases are considering the possibility of reducing some current tax expenditures (Paletta, 2011). Creation of new tax expenditures might play some role in public health finance, but political as well as policy currents are moving strongly in the other direction.
Designing alternative approaches and having them adopted by policy makers requires taking into account the legal and political constraints discussed at length in this paper. Alternative approaches should also reflect the comparative advantages offered by different levels of government and in different locations, as well as the data indicating that public health funding is most effective if it is generated locally. On the other hand, if possible a comprehensive approach should provide a floor that ensures funding particularly for the poorest local jurisdictions. The discussion below presents options for the federal, state, and local governments, followed by other elements of a more comprehensive approach.
Many public finance experts believe that in order to achieve budgetary stability the federal government will need to institute a new, broad-based tax such as a VAT (Graetz, 2008; Sessions and Lee, 2008a) or a carbon tax (Graetz, 2011). In 2005 Emanuel and Fuchs proposed that a dedicated VAT be used to fund a system of universal health insurance vouchers, with 0.5 percent of the revenues set aside each year to finance an independent Institute for Technology Outcomes and Assessment (Emanuel and Fuchs, 2005). This idea could easily be adapted to dedicate a similar amount to public health. The possibility of enacting a VAT, however, has given rise to a political battleground unto itself. Any new broad-based tax will be adopted only in the context of legislation enacted to achieve comprehensive budget reform that would overcome the entire set of political barriers described in this paper. This is highly unlikely in the foreseeable future except, perhaps, in the event of a collapse in the financial markets even more severe than that which occurred in 2008. In any case, the political forces involved are too large to make this a useful strategy for public health.
Creating a trust fund solely to fund public health can be considered to be at the next level down in order of political magnitude. The ACA includes a Prevention and Public Health Fund, and it authorizes and appropriates increasing amounts to the Fund, reaching $2 billion in fiscal year 2015. It appears, however, that the Fund lacks a dedicated source of revenues, meaning that it is in fact subject to the annual appropriations process each year. One source of revenues that might be considered for this or a similar public health fund is the federal estate tax.
The expiration of the estate tax at the beginning of 2011 under prior law was postponed for 2 years in an agreement reached between the Obama administration and Congress at the end of 2010. The top estate tax rate had, however, already undergone a scheduled decrease from 55 percent to 45 percent under legislation enacted during the Bush administration, and starting in 2011 the tax applies to estates with a value for estate tax purposes of over $5 million, raised from $3.5 million by the agreement (Jacobson et al., 2007).
The estate tax, to a great extent successfully relabeled the “death tax” by opponents, will continue to be a matter of political controversy and intensive legislative wrangling as the new expiration date approaches. About half of estate tax revenues come from estates with a taxable value of $10 million or more, and more than a third from estates with a value of $20 million or more (IRS, 2011). As noted previously, CBO estimates that if extended in its current form the estate tax would raise an additional $50 billion annually by 2020, as compared with the $20 billion that the TFAH estimates is needed for public health.
This presents an interesting opportunity. It may be possible to craft a proposal to make the estate tax permanent while increasing the top rate, perhaps back to 55 percent, but to apply the top rate (or conceivably even the tax itself) only to estates with a value of more than $10 million, $20 million, or even $100 million. The revenues yielded could then be dedicated either to the existing Prevention and Public Health Fund or possibly an alternative fund, as discussed below.
There are numerous potential advantages to this proposal. First, it is doubtful at best that making the estate tax permanent would be seriously deleterious to the economy. The estate tax has been in effect for 90 years. To say that the performance of the U.S. economy over that time has followed changes to the estate tax would be a strained interpretation of the data, to put it mildly. In any case, there is certainly reason to believe that the effects of the estate tax on economic productivity are low compared to almost all other taxes. Moreover, from the standpoint of financing the federal government, the estate tax is already in some peril. As a result, it can be argued that an extension or modification of it applicable to very large estates would supplement other government revenues rather than preempt their use, meaning that they could be dedicated to public health without placing an additional burden on the federal government’s fiscal posture.
The estate tax would also be a stable source of revenues. Compared with proposals to recapture and redirect funding from health care to prevention via a trust fund, the proposal is much less complex, and it would not increase health care costs. It has the further advantages of serving as a partial correction to increased income inequality, and of shifting resources from old to young, the opposite of many current federal and other programs that account in part for the financial straits of government.
Estate tax opponents, and antitax activists more generally, have successfully used labels to advance their cause, including not only the “death tax,” but phrases such as “tax relief” and “job-killing taxes.” Possibly with the assistance of marketing experts, this strategy could be employed in reverse. It is hard to think of a one-word alternative to “death” tax that offers its rhetorical advantages. Care would be needed to avoid choice of a name for this proposal that cannot be easily parodied. An acronym such as “Wealth in Service of Health,” or “Wealth Serving Health,” as in the WISH tax, might be susceptible to that problem. The argument would be, however, that with revenues dedicated to public health the tax would not be a “death” tax, but one supporting health, as well as a contribution by a fortunate subset, literally and figuratively, of one generation to the renewal of another.
Another option might be to dedicate the revenues to a new fund that is designed precisely to ensure that all local public health departments have at least a minimal amount of funding, such as $20 per capita. In that case, the tax could be promoted using the numbers of both the threshold for the tax and the floor for public health department funding, such as “10 for 20,” or “20 for 20.” That is, an estate tax or tax rate on estates with a value over $10 million or $20 million would ensure that everyone has local public health services worth at least $20.
Yet another alternative would be to dedicate the revenues to both public health and education, or possibly to the health and education of children. If a trust fund were set up to benefit children only, the threshold for the top rate might even be higher, e.g., $50 million or $100 million. In any case, modification of the rate and threshold affords flexibility in designing a revenue source to match public health needs.
A final possible advantage of the proposal is that it would offer public health advocates an opportunity to raise the profile of the needs of public health more generally every time that the tax is discussed in the media. In effect, it could provide free advertising, meaning that it would have value for public health even if it is never enacted.
Patashnik (2000) has argued that the case for dedicating tax revenues to government trust funds is most compelling and their resistance to subsequent change is strongest when underlying promises are based on a reciprocal exchange of specific tax payments now for benefits later—reciprocity, and when individual beneficiaries subsequently become reliant on these promises—reliance. Because of the inherently diffuse nature of the benefits of public health, it is difficult to design a trust fund for public health that satisfies these criteria. Arguably, however, any dedicated source of revenues for public health that can be enacted and that has a stable revenue base is more reliable than purely general revenues. Owing especially to the peculiar current political circumstances of the estate tax, it warrants consideration as such a revenue source. Although such a trust fund arguably would be
characterized by low rather than high reciprocity and reliance, spending from it can nevertheless enjoy privileged status within the budget process. For example, under the Highway Trust Fund (financed by motor fuels taxes) officials can enter into binding obligations under “contract authority” in advance of appropriations. It is difficult for the appropriations committees to deny appropriations of funding that have been legally and politically committed in this way (Patashnik, 2000).
All states impose an estate tax, most at rates that enable the entire amount to be credited against the federal tax. As of 2005, 17 states and the District of Columbia had decoupled their estate taxes from the scheduled sunset of the federal estate tax (Brunori, 2007b). Thus, an estate tax option similar to that just described might also be available at the state level.
As discussed earlier, state sales tax bases are eroding, in part due to the increasing share of services in the economy. Taxes on sugared beverages, snacks, and other such foods do not suffer from this problem. Imposing such a tax at the state level would limit the ability of consumers to avoid it by purchasing outside the jurisdiction. The amounts raised by the tax should be dedicated to public health or to obesity prevention in particular, both for policy reasons and to capture the fact that the tax would be intended to offset the costs of obesity in terms of additional health care spending. The revenue potential is large, e.g., a tax of 1 cent per ounce on sugar-sweetened beverages would raise an estimated $1.8 billion in California, and approximately $1 billion in Florida, New York, and Texas (Brownell et al., 2009).
This is not a new idea, and its policy advantages and disadvantages have been discussed elsewhere (Bittman, 2011; Brownell and Frieden, 2009; Brownell et al., 2009; Leicester and Windmeijer, 2004). To have a reasonable chance of enactment, however, it needs a better political strategy. One component of this strategy is simply for public health to do a much better job of raising public awareness of the problem of obesity, and of making the case for taxes of this sort, than it has so far. For example, a search for video clips of television coverage of this issue generated very little, principally a clip from Fox News covering a decision by the American Medical Association to drop its support for a sugared beverage tax (Hutchison, 2011).
Rather than employing a scattershot approach, public health leaders should make a choice about a limited number of messages to be conveyed repetitively and relentlessly until they become “water cooler” talk. One option would be wide dissemination of the maps of the United States, such as the animated map on the CDC Web site (CDC, 2011), that visually display the rise of obesity across the nation. They are impressive and alarming,
and should be everywhere that public health advocates can afford to place them. The long-term increase in health care costs per capita due to obesity could form the basis of a second message. Some dollar figure or set of figures representing the best estimates of this increase could be identified and, again, repeated until it becomes a matter of common knowledge, and can be compared by average voters with the per capita revenues raised by the tax. For example, Thorpe and colleagues estimated that obesity accounted for 12 percent of per capita increases in health care spending from 1987 to 2001 (Thorpe et al., 2004).
As with the estate tax option, this approach would also serve an educational function for public health regardless of its fate in the legislative process. The strategy should be national in concept, but it could be carried out with particular emphasis on one or a small number of states that offer the best opportunities for enactment, for whatever reason. The national campaign should make a conscious selection of the state or states and work backward from this, rather than forward solely by chance or revenue needs. The food industry is aware of this possibility (Hartocollis, 2010), but that should be viewed as an endorsement rather than a criticism. Patience and looking for a policy “window of opportunity,” as described by Kingdon (1995), are in order rather than rejecting this option because it has not succeeded so far.
This will not be easy. An important purpose of the analysis earlier in the paper was to demonstrate that it will never be. Despite the inherent unpopularity of taxes and the financial power behind them, it was not necessarily easy for antitax advocates to move that agenda forward and, with the possible exception of Proposition 13, it did not happen quickly. Public health advocates should take note.
Public health finance is threatened if public finance is threatened. For this reason, public health policy makers should be aware of the importance of protecting and broadening the tax base of all jurisdictions. For the federal government this could include enactment of a VAT or carbon tax. It is extremely doubtful that the voice of public health can be heard in this context over the continuous din of federal government politics. The ability of public health advocates to provide meaningful input on issues of general public finance is, however, likely to grow as the jurisdiction gets smaller. Influence at the state level does not seem out of the question, particularly in the smaller states, and it should be an even more realistic possibility at the level of local government.
Local governments have relatively few options for dependable tax revenues of their own other than the property tax. Sales, excise (including
beverage and similar taxes), and corporate taxes suffer from the limitations discussed earlier. Particularly in view of the evidence that public health spending that is locally funded is most effective, local public health officials should therefore become property tax proponents. Dedicating some property tax revenues to a specific public health purpose, as in the states mentioned in the third section of the paper, may have policy advantages as well as soften political opposition.
Assistance will nevertheless be needed from state governments and the federal government, especially for the poorest communities. In addition to providing funding directly addressing this problem, the federal government (or state governments) could consider a program similar to the “Race to the Top” program employed by the Department of Education, now in a second round of funding (U.S. Department of Education, 2011). For example, the Department of Health and Human Services (HHS) could initiate a competition designed to identify a small number of model public health systems across the country, with several categories based on the size of the population served. In addition to any financial inducements, the public health systems so identified should be awarded a designation, such as a “Star” program. Once this is accomplished, HHS could then offer funding to other communities, if it is needed, to adopt the practices or meet the standards of the model systems. One purpose of such a program would be to engender, and then take advantage of, the civic pride that is possible especially for smaller communities.
Public health finance alternatives that are small individually may nevertheless be meaningful in the aggregate if adopted by a large number of local public health departments. This presents an opportunity for the use of public–private partnerships, potentially including SIBs. There is a pun on “SIBs” that may be merely amusing, but which might be used also to take further advantage of civic pride and cooperation. Possibly, investors in more affluent communities could work together with officials in other, lower-income communities to assist with public health finance in the latter. These would be cooperative arrangements between sister communities, or “SIBs for sibs.”
Patashnik has argued that the case for dedicating tax revenues to government trust funds is strongest when underlying promises are based on reciprocity and reliance, as he defines these terms (Patashnik, 2000). The two examples of high reciprocity/high reliance trust funds that he offers are the Social Security and Medicare trust funds. In these two cases, program reductions are readily seen as a betrayal of the program’s beneficiaries and of their previous payments into the funds. By comparison, according to
Patashnik, the federal Highway Trust Fund, which depends on motor fuels taxes, involves high reliance but low reciprocity (Halverson et al., 2000).
As noted previously, it will be challenging to design a trust fund for public health that has a high degree of reciprocity and reliance, especially at the level of the federal and state governments. Both the Medicare and Social Security trust funds, of course, involve taxes paid while employed for benefits to be received on retirement, and there is at least a plausible relationship between the taxes and future benefits. This relationship is more difficult to demonstrate for the benefits of public health given the diversity of age and circumstances of the entire population. If there were no such difficulty, the problems of public health finance could be much more easily solved without the trust fund. Arguably, the proposal that bests fits this model is Emanuel and Fuchs’ plan for a value-added tax dedicated to pay for health insurance, modified to have a portion of the revenues set aside for public health. As noted earlier, however, that proposal will not be enacted outside the context of a comprehensive budget agreement not easily envisioned at the moment.
The idea of a wellness trust fund financed through savings recaptured from health care is another version of this idea, but suffers from its own potential political problems, also previously discussed. Moreover, even if in theory the reciprocity between burdens and benefits for the wellness trust fund is high, reciprocity may be difficult to perceive owing to the complexity of the relationships involved, both at any given time and across time, and the fact that those paying into the fund will be large institutions that have their own internal economic complexity. This might also weaken the element of reliance, with the result that, by contrast with Social Security and Medicare, many such institutions might be more than happy to have the program abandoned so that the taxes, which are easily and necessarily quantified, can be repealed.
Because the benefits of public health are diffuse both geographically and politically, public health may tend to be chronically underfunded. For this reason, as a matter of policy it may warrant dedicated revenues at the federal level that do not necessarily meet Patashnik’s tests, such as the estate tax proposal discussed above. There would be a potential symbolic link between the tax and public health, but very little reciprocity. The element of reliance might grow over time, however, once programs based on it are established, and particularly if it is used to fund the least affluent jurisdictions. Conceivably, though perhaps paradoxically, reliance might be more powerful politically than for a wellness fund specifically because the tax would not be premised on reciprocity and so would not be plagued by a continuing argument regarding how well this criterion is being satisfied.
The extent to which dedicated property taxes involve relative reciprocity and reliance depend on the details, such as there would be less reciprocity for a dedicated property tax to fund senior services than one funding general public health services. For a local property tax, the relationship
between taxes paid and services provided might be simpler and more easily followed than in the case of trust funds at higher levels of government. The sense of reciprocity and reliance thus might also be stronger politically for dedicated local taxes.
As a political matter, other things being equal, if a dedicated source of revenues that is politically viable can be found, one can argue, again somewhat paradoxically, that it should be used to fund either popular or unpopular public health spending. In the former case, the attractiveness of the use serves to counter hostility to the tax. General revenues can then be devoted to other public health services justifiable as a policy matter but which have less popular appeal. In the latter case, the trust fund would be used to ensure funding of public health services that are most likely to be politically threatened.
For the most part, public health departments across the country struggle with finance on their own. Efficiency and effectiveness, as well as the complexity of the challenges they confront, described in this paper, dictate that their efforts should be coordinated. They should be able to learn from their individual successes and failures specifically in the area of finance, and they should be able to join forces and pool resources in making their case to the public. This should be facilitated at the national level either by the federal government, by public health organizations, or both.
This could include development of criteria when innovative financing arrangements such as public–private partnerships, including SIBs, might best be used. It could also catalog and monitor cases in which they have actually been employed. This would be analogous to the successful agricultural extension program employed by the U.S. Department of Agriculture, as discussed by Gawande in his analysis of cost-control pilot programs in the ACA (2009). As an added feature, it might also attempt to coordinate the efforts of public health leaders across the country to formulate and execute a national plan for public health finance, including by improving the understanding of, and increasing support for, public health by the electorate and legislators. This coordinated approach to public health finance across the federal system, vertically and horizontally, is similar to and might follow the model of “collective impact initiatives” described by Kania and Kramer (2011).
Public health leaders cannot afford to assume that convincing or even overwhelming scientific data mean that the public is convinced. The so-called birther controversy demonstrates that truth does not automatically
drive belief. Businesses around the world have marketed their products—some with very limited merit, others obviously harmful—successfully for decades. The antitax movement is certainly media savvy. Public health should be also. It does not have the advantage of selling a simple product, such as a soft drink, but it will be hard-pressed to ask voters to fund it if they cannot even say what it is. Defining the 10 essential public health services is helpful for public health research and communication within the field but not for communication with the broader public or as a media strategy.
Simple, repetitive messages work in marketing: think of the Nike “swoosh.” In an analysis concluding that marketing has played a central role in the rise of obesity in the United States, Zimmerman notes that “the number one rule of marketing … is to have a single, consistent message that is hammered home in many different media and modes” (Zimmerman, 2011, p. 297). Public health may not be able or even need for the general public to understand and support all of its services, but it does need to win the public over. There are many compelling stories to tell, and public health should mine its data base to find them. If it is really the case that some public health departments are able to spend less than a dollar each year—less than the cost of a typical vending machine soft drink—for each of its residents, the public should know that. The presentation of health disparities in the United States in terms of the “eight Americas” (Murray et al., 2005) is powerful, but its power to effect change is severely limited if only readers of the American Journal of Preventive Medicine are familiar with it.
HOW MUCH SHOULD BE SPENT ON PUBLIC HEALTH?
As noted in the introduction to this paper, there is a consensus among public health experts that spending on public health in the United States is too low, as well as a number of estimates of the amount of additional funding needed. These include the estimate reported by TFAH of an annual shortfall in national public health spending of $20 billion, used as a general point of reference in this paper. The TFAH estimate was based on a consultation with 15 public health experts, which relied in turn on two analyses: the amount needed for the United States to match the average of public health spending for countries in the Organisation for Economic Co-operation and Development (OECD), determined to be $24 billion; and an extrapolation from a detailed needs assessment for the state of Washington, calculated at $18 billion (TFAH, 2008a).
The fact that the two results roughly coincide provides a modest amount of support for TFAH’s overall estimate of $20 billion. Nevertheless, like other such estimates it should be regarded as tentative and preliminary. For example, basing the estimate in part on OECD averages exposes it to ambiguities due to the lack of a universally accepted definition of public health, noted earlier, which creates problems in comparing public health ex-
penditures in different countries. In addition, TFAH acknowledges explicitly that the Washington State model “uses a default population without defined demographic characteristics” and “may understate or overstate the necessary increase in public health investment when extrapolated nationwide” (Sensenig, 2007; TFAH, 2008b).
Top-Down vs. Bottom-Up Approaches
The two analyses underlying TFAH’s estimate illustrate two general approaches to estimating national public health spending needs. Top-down approaches look at the total amount of spending on public health and assess whether it is adequate based on some benchmark. TFAH’s comparison of public health spending in the United States with spending in other OECD countries is an example. Bottom-up approaches start with analyses of spending needs of smaller jurisdictions within the United States, such as the Washington state needs assessments relied on by TFAH, and build up from them to calculate a total for the entire population.
An alternative top-down approach is suggested by studies examining the costs incurred, such as through increased spending on medical care, or lost productivity, that are attributable to health conditions that might be prevented or reduced through effective public health measures, such as obesity (Lakdawalla et al., 2005; Thorpe et al., 2004). The argument is that increased spending on public health would be cost-effective to the extent that it would reduce these other costs. For example, if $10 billion in spending on medical care could be saved annually by preventing obesity, then perhaps that amount should be spent instead on public health. The strength of the argument depends, however, on whether the increased public health spending would in fact improve health status, and that this would in turn lead to reducing other spending. In effect, if the argument is made only in terms of dollar outlays (i.e., leaving aside the inherent superiority of prevention over subsequent treatment), the $10 billion in the example does not necessarily identify a public health spending target, but rather only establishes a maximum. How much should be budgeted for public health up to that maximum depends on how effective the public health measures would be in reducing obesity relative to their costs.
Estimates under both the top-down and bottom-up approaches should be sensitive to context. For example, both require taking into account the size of the budget reasonably available, perhaps disregarding political considerations. This also generates difficult problems. For a top-down approach, one possible relevant national “budget” is U.S. GDP. Framing the problem this way, however, arguably would require examining all possible alternatives for the proposed spending, public and private, a daunting task to say the least.
A second option that has considerable intuitive appeal is to use the total
amount spent on health as the budget framework, including medical care, public health, and health-related research. If, however, the United States spends too much on medical care, as many believe it does, then that framework is also distorted. Adjusting for the distortion would in turn require establishing how much ideally should be spent on health care. This presents both the same problem as the proposal of comparing public health spending to GDP and additional complexities of its own. Similar issues arise for state and local budgets, and hence bottom-up approaches, since all spending involves the opportunity costs of other uses of funds, and there is no limit to the possible competing demands.
Bottom-up estimates of what spending is needed on public health also require an assessment of how effective public health spending is, which in turn requires the choice of a metric to make that assessment. Metrics employed by bottom-up research include comparative effectiveness measures such as quality-adjusted life-years (QALYs) (Kindig and Mullahy, 2010), performance of the 10 essential public health services (Mays et al., 2006), and others (Mays and Smith, 2011). None is free of problems (Zimmerman, 2011), and each may have appropriate uses, depending on the context and, as a practical matter, simple availability of the data. For example, QALYs may facilitate comparison with health care spending, and so might be more useful to the U.S. Congress, whereas performance of essential public health services may be more useful to local public health officials. As a practical matter, simple availability of the data may dictate the choice until better standardization of databases is achieved. The multiplicity of standards, however, further complicates the conceptual problems.
In any case, no methodology for estimating the amount of public health spending needed in the United States has yet gained general acceptance. Moreover, even if accurate, the existing estimates are not well suited to budget planning, in that they provide aggregate numbers and not an estimated cost of specific proposals, whether of new or existing public health activities, designed to achieve identified public health goals. Public health finance researchers have in fact recognized that at present there is a shortage of evidence concerning the value of specific investments in public health that would support such budgetary proposals (Mays and Smith, 2011). Indeed, one group of scholars has gone so far as to suggest that the issue “whether public health performance is correlated with improved community health” is itself an open question (Scutchfield et al., 2009, p. 270).
Public health finance researchers thus face both theoretical and practical difficulties in determining how much the United States should spend on public health. This also presents obvious problems in making the political case for devoting additional resources to public health. On the other hand, there are important differences between the academic research agenda and the wide variety of political communities. This means that their approaches
to the questions are also different and, in the case of the political process, variable. There is an overlap between the research agenda for public health finance and the informational needs of political institutions, but they are not identical. Progress on the research agenda will benefit the political process, but it will not necessarily drive it. The analysis of the question thus differs depending on the setting.
The Research Agenda
Although it is something of an idealization, public health finance researchers can be considered a single academic community, whose goal is to develop a consensus on the most rationally defensible answer to the question of how much public health spending is needed, supported by the best possible evidence base. The sooner that consensus is arrived at (if ever), the better, but there is no deadline and the timetable is indefinite. Bottom-up and top-down approaches perform different functions in striving to achieve that goal.
Neither the bottom-up nor top-down approaches can avoid the conceptual problems noted above. Bottom-up approaches encounter the specific problem of choice of metrics to a greater extent than top-down ones. Unlike top-down approaches, however, bottom-up research generates information to support specific evidence-based interventions in public health. These data are also potentially useful for decision makers at all levels of government—local, state, and national—again unlike top-down estimates. In the process, the data constitute small components of an overall estimate, and are more readily converted into budget proposals than top-down estimates. The conduct of bottom-up research will also help motivate efforts to consolidate how information is recorded and made available, and targeting the goal of an aggregate estimate provides an incentive to achieve agreement, or as much as is possible, on the relevant metric or metrics.
It may be worth noting in this context that despite their disadvantages, QALYs facilitate comparison of public health interventions with medical care. QALYs fail to capture all of the relevant value achieved through improved health (Gostin, 2008). To the extent, however, that public health advocates wish to make the policy and political argument that public and population measures would reduce medical costs, and therefore be cost-effective in that sense, this may provide a reason for greater use of QALYs in public health finance research in appropriate cases. A similar argument can be made in favor of conducting research in terms of other health outcomes such as morbidity and mortality. The 10 essential public health services, on the other hand, are effectively process measures and may be less readily suited to arguments comparing the value of public health interventions with medical care.
Bottom-up research also has to assign priorities. These presumably include the feasibility of the research. As a policy matter, however, it may be desirable to increase research on local jurisdictions with very low per capita spending on public health. To the extent that this research bears out the hypothesis that such jurisdictions have significant and urgent needs for increased funding, it could be used to support a dedicated financing mechanism to provide that funding, as discussed in the fifth section of this paper. One possibility along these lines is suggested by the model public health systems proposal, analogous to the Department of Education’s “Race to the Top” program, also outlined in section five. Per capita spending in the model public health systems serving populations of various sizes could be used to set thresholds for minimum spending in jurisdictions of similar size.
Top-down estimates are not as well suited to budget planning as bottom-up estimates, but they can serve a broader hortatory or aspirational function in the policy and political processes. The methodology used to generate the existing estimates thus far can be fairly easily criticized, however, and efforts should be made to improve them. There may be a limit to the amount of precision and reliability that can be achieved, but progress toward that end will also enable top-down estimates better to perform a second, more academic function. That is, top-down and bottom-up approaches have a dialectical relationship, in that top-down estimates serve as guidelines for assessing the state of development of fine-grained research. The larger the gap between top-down and bottom-up estimates, the more that remains to be done on bottom-up research (assuming that the top-down estimate is generally accurate).
Because top-down estimates are developed not only for the amounts actually spent on public health, but also for the amounts that should be spent, this benchmark function of top-down estimates will remain relevant even if work on bottom-up estimates has reached a very high level. At present, the gap between top-down estimates and any estimates based on bottom-up research is likely to be very large. Ideally, in the long run, the two types of estimates should converge, but they would continue to be checks on each other. Thus, both top-down and bottom-up approaches are and should remain useful for academic purposes.
The Political Arena
By contrast with a theoretically unified research community, there is an enormous number of overlapping political communities. They include not only every political jurisdiction in the country, at every level of government, but countless subpopulations within each jurisdiction, such as legislatures, legislative committees, executive branch officials and agencies, and voters, which in turn have various political alliances and predilections. What will
count as sufficient evidence that a given amount should be spent on public health, and how public health is defined for that purpose, will depend on these predispositions. Democrats will differ in this respect from both Republicans and independents. It will also depend on the time and circumstances, even for the same individual or individuals. The political and economic environment in 2012 is different from that in 1965, or even 2008.
Political communities are also presented with specific questions, to be answered at a more or less specific time. For example, legislators may be asked to vote on an annual appropriations bill or instead for a trust fund financed with an earmarked tax. A local public health board has to decide how to allocate its budget at a particular point in time with the information it has available. Elections occur on scheduled dates. In the current era of political gridlock, legislative action can be deferred seemingly indefinitely, but there are practical consequences of delay.
The upshot of considerations such as these is there is no single or unchanging standard employed in politics to assess how much spending is needed on public health, even in theory.
The Prevention and Public Health Fund included in the ACA can serve as an example. It provides for substantial increases in public health spending without specifying details, and without a dedicated financing mechanism. Members of Congress who voted in favor of the ACA, and thus the Fund, are doubtless more favorably disposed toward government spending, and spending on public health in particular, than those who voted against it. It seems likely that they would, and probably should, have been less inclined to vote for the Fund if it had provided for permanent appropriations financed with an earmarked tax (Patashnik, 2000). To the extent that bottom-up evidence in favor of public health spending is underdeveloped, and given the large amounts involved, a vote in favor of the Fund thus would appear to be supported by top-down rather than bottom-up evidence. Both as an explanation and a justification, this seems consistent both with the political inclinations of its supporters and the substantive nature of the Fund. This example concerns policy making for the federal government, but similar factors would apply analogously to decisions at the state and local level.
Politically, more evidence in favor of a given position is always better. Both top-down and bottom-up estimates can be useful depending on the context. Thus, both top-down and bottom-up approaches have a place in politics as well as in academics. In the political arena, however, this is not because of an attempt to converge on a single answer to the question of the appropriate amount of public health spending by comparing top-down with bottom-up estimates, but for practical, rhetorical purposes as well as in the interest of good policy. Nevertheless, it does result in a substantial overlap in the agendas for public health finance researchers in the political and academic contexts.
Developing the public health finance database will take a substantial amount of time, even if efforts to do so increase markedly over present levels. As discussed in section five, laying the political groundwork for political support for increased public health spending will also require a considerable investment of time. As a result, and somewhat fortuitously, these efforts can be thought of as on somewhat similar timetables, and so can to some extent proceed in parallel.
It might be argued that in the meantime public health policy should be put on hold, or even that in the absence of compelling evidence in favor of public health interventions there should be no public health spending at all. There are presumably very few policy decisions, however, especially budgetary decisions, that are supported by truly overwhelming and irrefutable evidence. Decision makers therefore have no alternative to making choices in the face of uncertainty (Kindig and Mullahy, 2010).
On the other hand, there is no room for complacency. Asking voters or legislators to increase taxes to support new public health activities, or even to devote existing revenues to public health rather than alternative uses (including tax cuts), is challenging enough. Uncertainty about the amount of funding that is and can be put to effective use in public health makes that challenge even more formidable. The fierce competition for public funds, the distressing condition of the economy now and for the foreseeable future, and pressure to reduce government spending all dictate that finance be assigned a high priority in the public health research agenda.
This research itself requires funding. Several commentators have argued recently that public health interventions should be included in comparative effectiveness, or patient-centered outcomes, research funded by the ACA and, earlier, the American Recovery and Reinvestment Act (Kindig and Mullahy, 2010; Scutchfield et al., 2009). In view of the need to improve the evidence base, and thus the political case, for public health finance, these arguments deserve urgent and close attention.
The financial challenges faced by public health cannot be dealt with adequately in isolation from and ignorance of broader challenges to public finance. It is unlikely that state and local health departments will be able to obtain secure and adequate funding if government finance more generally is collapsing. It will therefore be necessary not only to pursue funding options targeted specifically to public health, but also for public health leaders to work with others in addressing these broader public finance concerns.
Public health leaders should also work to pursue funding options designed specifically to support public health, and to increase funding of public health out of whatever revenues are available. To do so effectively they must
understand the constraints involved at all three levels of government and how they relate to one another. They must be able to convince voters and legislators of the merits of the public health activities that the revenues in question will finance. They should coordinate their efforts for reasons of both politics and policy. They should assign a high, even very high, priority to research in public health finance. The severe pressures on public health finance for the foreseeable future make all of these elements of a comprehensive strategy imperative now, if they were not already.
Both the broader threats to public finance and the difficulties more specific to public health finance are long in the making. The demographic and economic changes, and the changes in the mission of public health caused by the increased emphasis on chronic disease and upstream determinants of health, are also long-term in nature. The powerful influence of the antitax movement is partly the result of its having followed a patient, long-term strategy whose beginnings can be traced to the 1950s, with periodic successes that were first consolidated and then built upon. It has been an enormously well-orchestrated and well-financed effort that has played into and contributed to changes in the economy as well as Americans’ skepticism about government.
It is unlikely that public health can match the financial resources of the antitax movement even if it joins forces with other policy communities. It does, however, need to match that movement’s focus, coordination, and long-term perspective. The intellectual case for much of what public health wishes to accomplish is strong, even overwhelming, but public health must also make this case in a way that is more compelling to the average voter than it has in recent years.
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