Fix the state's Health Services Account

The state's Health Services Account (HSA) was created in 1993, and is now the state's second largest account. During the last decade, state health care expenditures have increased eight-fold and the HSA has grown twenty times faster than the general fund.

The HSA receives funds from alcohol and cigarette taxes, taxes on HMO premiums, tobacco settlement funds, and federal ProShare funds. These funds are used to run the state's Basic Health Plan ($530 million), which has 140,000 enrollees, and the Medicaid for Kids program ($490 million), which has 350,000 enrollees.

Unfortunately, the HSA is facing a $570 million deficit caused by three major factors:

1. Legislators sold future tobacco revenues to patch a budget hole in 2002, which resulted in a $125 million loss in tobacco revenue.

2. Legislators assumed when they created their budget that the state would receive $300 million more than it actually will in federal ProShare funds. (At the time, EFF pointed out this was an extremely optimistic and unlikely forecast.)

3. Health care inflation is growing 50 percent faster than the "sin tax" revenues being collected to cover costs.

In an effort to address these funding shortfalls, Governor Locke has proposed eliminating Basic Health Coverage for 60,000 childless adults, while increasing community health grants by $23 million.

A better approach would be careful reconsideration of eligibility standards for recipients of state health benefits. We recommend the state consider the following actions:

1. Reduce eligible income from 250 percent of the federal poverty level (FPL) to 175 percent of the FPL. This would reduce eligibility for a family of four from annual income of $42,250 to $32,000. Washington would still have the highest eligibility levels in the Northwest, but the state would save $95 million each year.

2. Implement the state auditor's recommendation to start requiring verification of eligibility for recipients of Children's Medicaid benefits. This would save the state an estimated $35 million.

Prepared by Bob Williams, President and Senior Research Analyst (360) 956-3482

Evergreen Freedom Foundation P.O. Box 552, Olympia, WA 98507 Phone: (360) 956-3482, Fax: (360) 352-1874 Email: effwa@effwa.org