Is Medicaid spending devouring Colorado’s budget?
Among Republican candidates to be Colorado’s next governor, a common argument has emerged: Medicaid spending in Colorado, driven upward by the Affordable Care Act, is unsustainable.
Victor Mitchell talks about it in a campaign video. Doug Robinson references the concern on his website. George Brauchler spoke of it at the Western Conservative Summit last month: “We have lost the ability to prioritize any spending in our budget for roads, for education in rural areas because of what we’ve done with Obamacare,” Brauchler said. “It has gobbled up so much of our budget.”
Is Medicaid really eating the rest of the state budget alive? And could the state move large sums of money to other priorities by slashing Medicaid spending?
The answers are complicated — some yes and some no. Let’s dig in.
Is Medicaid spending growing relative to other items in the budget?
In the 1999-2000 fiscal year, the budget for the state department that oversees Medicaid in Colorado was just shy of $2 billion and made up about 17 percent of the total state budget that year, according to figures from the Colorado Health Institute. For the current fiscal year, the Medicaid department’s budget is $9.4 billion and makes up a third of total state spending.
But that’s really the wrong budget to look at. In addition to being a huge cost to the state, Medicaid is also a huge revenue source — the single largest source of federal funds that Colorado receives every year.
To look at how Medicaid impacts state dollars that could be spent on other things, you have to look at the smaller general fund budget. In 1999-2000, Medicaid also made up about 17 percent of the general fund budget, according to the Colorado Health Institute. Currently, it makes up a little over 26 percent.
Is the Affordable Care Act to blame?
No. At least not directly. The Affordable Care Act, often called Obamacare, swelled Colorado’s Medicaid rolls dramatically by expanding eligibility to people slightly above the poverty line. More than 400,000 people have signed up through the expansion, and that group now makes up nearly 27 percent of Colorado’s Medicaid population, according to the governor’s Office of State Planning and Budgeting.
But Medicaid’s costs are shared between the state and federal governments. And, for the expansion, the feds offer states a sweetheart deal: They currently cover 95 percent of the
costs. In the coming years, that share will drop to 90 percent, meaning Colorado will have to cover 10 percent of costs for the expansion folks.
Colorado pays its share with money from the hospital provider fee, a complicated mechanism by which hospitals pay a fee to the state and the state uses that money to get matching funds from the federal government. But Henry Sobanet, Gov. John Hickenlooper’s budget director, said federal rules prohibit using money from the hospital provider fee to pay for non-Medicaid expenses within the budget — on things such as roads or schools. The state also can’t use provider fee money to pay regular Medicaid expenses for people outside the expansion group.
“We could cancel the expansion, and we wouldn’t save a dollar in the general fund,” Sobanet said.
But the Affordable Care Act did impact Medicaid enrollment indirectly.
After the law required everyone to have health insurance, many discovered that they had been eligible for Medicaid all along and signed up. So, the state’s traditional Medicaid population has grown since the Affordable Care Act’s implementation, in part from what Colorado Medicaid spokesman Marc Williams calls “the woodwork effect.”
What is to blame for increased spending?
More people and rising health costs.
When the nonpartisan staff at the Colorado Legislative Council looked at this question last year, they identified several factors. One was rising health care costs — prices that consumers pay for medical care nationwide rose by a third between 2006 and 2015, according to the report.
Another was what the state is willing to pay for. In 2014, for instance, Colorado added a new dental benefit for adults on Medicaid worth up to $1,000 per person per year.
Perhaps the biggest factor, though, was rising enrollment and changing demographics. Colorado’s population has boomed, and Medicaid rolls especially grew during the Great Recession, the result of declining incomes for people already near poverty. But Medicaid — which covers 61 percent of elderly people in nursing homes in Colorado — is also grappling with an aging population.
“This population has significantly higher average medical costs relative to most other eligible populations,” the legislative council report states.
Can cuts to Medicaid free up money for other budget items?
Yes. But how much depends where you cut.
Conservatives, for instance, have argued that Medicaid shouldn’t cover able-bodied adults.
Non-disabled adults currently make up about 45 percent of Colorado’s Medicaid population, according to the state. Most of those people received coverage through the Medicaid expansion, and the remaining people account for about 12 percent of the state’s total Medicaid spending.
But the use of federal funds and the hospital provider fee in Medicaid spending means that for every dollar cut, there isn’t a full dollar saved that can be used in other areas of the state budget.
That means Colorado could remove all non-disabled adults from the program — cutting its Medicaid population almost in half — and the savings to use elsewhere in the budget would be in the hundreds of millions of dollars, not in the billions of dollars. (The state’s total general fund budget this year is $10.6 billion.)
Tackling bigger areas of general-fund Medicaid spending means focusing on other groups. People with disabilities and people in nursing homes, for instance, make up 10 percent of the state’s Medicaid enrollment — but account for 42 percent of state Medicaid spending.
These challenges are not unique to Colorado — they exist in every other state in the country, said John Hicks, the executive director of the National Association of State Budget Officers.
“States,” he said, “will continuously try to determine what they can do differently and better.”