Making Sense of Rising Medicaid Costs

Colorado’s growing Medicaid expenses are being driven by the need to serve our aging population and the high cost of long-term care. Medicaid’s expansion under the ACA is not to blame.

On November 14, Colorado’s Joint Budget Committee kicked off its first week of meetings to begin the long, intricate process of passing a state budget. The Governor’s FY 17-18 budget request asks for a $142.8 million increase for the Department of Health Care Policy and Financing (HCPF), which administers Medicaid, called Health First Colorado. The discussion turned to why the HCPF budget continues to grow and what can be done about it given the projected state budget deficit. It won’t be the last time we talk Medicaid this session, and the conversation is sure to grow more important after Inauguration Day. But for now, here are some things to keep in mind:

  • Medicaid provides important support for many types of Coloradans, including many who are working. In last year’s presentation to the JBC, HCPF documented it insures 1 in 5 people in our state. Health First Colorado insures pregnant women, approximately 43 percent of Colorado child births, children and adolescents, working adults (approximately 74 percent of those insured by Medicaid are employed), and the elderly and disabled. About one-third of Coloradans over age 65 are living with a disability, according to a report from Caring Across Generations.
  • Next fiscal year, according to the Office of State Planning and Budgeting (OSPB) 9 percent of Medicaid members will be elderly and people with disabilities, but they will account for 42 percent of the overall FY 17-18 expenditures. This week the governor said, as the Bell has noted, these numbers will continue to grow. Lieutenant  Governor Donna Lynne echoed that this rising piece of the Medicaid caseload will tap right into the general fund. She added, “long-term care is the single biggest driver with respect to our Medicaid budget.” Long-term care can be provided in a variety of ways, from home- and community-based care to skilled nursing. It can also be very expensive. Genworth, which collects annual data on these costs, found that the annual cost for a private room in a nursing home this year is over $97,000 in Colorado. Long-term care costs are not covered by Medicare or most other forms of health insurance. And, older adults are living longer – a major bright spot, but one that has implications for the cost of care. For many older, middle class Coloradans, there may come a point when they can no longer afford to pay for long-term care costs on their own. Many will be forced to spend down their assets to the point they qualify for Medicaid, in order to cover their long-term care costs.
  • Colorado’s Medicaid expansion under the Affordable Care Act (ACA) is not the main source of general fund pain. The nonpartisan Colorado Health Institute released a report last May that provided a snapshot of Colorado’s ACA Medicaid expansion efforts to date. It found that the total cost of expansion under the ACA in Colorado was $1.6 billion as of June 2015, which was more than expected. However, this was almost entirely paid for by the federal government. Less than five percent of the expansion was paid for by the state, and those costs were paid out of the hospital provider fee (HPF), not the general fund. The larger-than-expected costs are in part because we experienced growth in enrollees who were already eligible for Medicaid before we expanded Medicaid, but who had not previously enrolled. Starting next year, the state share of the expansion will grow, capped at 10 percent by 2020 under current federal law. Revenues from the HPF are supposed to cover this expense.

Additionally, there is evidence Medicaid expansion has benefited Coloradans’ health and the state’s economy.

CHI projects the ACA expansion will give nearly 363,000 people health insurance by mid-2017. That is a significant number of Coloradans. People are healthier when they have access to health services, including less expensive items such as screening and preventive care. The Kaiser Family Foundation has stated “consistently, research indicates that people with Medicaid coverage fare much better than their uninsured counterparts on diverse measures of access to care, utilization, and unmet need.” Their research brief also points to an often-cited experiment in Oregon that found having Medicaid increased access to care and health care use, improved self-reported health, “markedly” improved mental health (though it was inconclusive with respect to physical health), and that it virtually eliminated catastrophic medical expenses. On the flip side, research by the National Academies’ Health and Medicine Division that found access to care, quality of care, sickness and even life expectancies are worse for uninsured Americans.

On the economic front, a Colorado Futures Center (CFC) report found “Medicaid expansion, largely funded by the federal government, is already having and will continue to have a significant positive impact on the state’s economy.” Specifically, it has expanded state GDP, grown employment, and increased annual household earnings. CFC also predicts that a larger economy will “result in increased General Fund revenue from greater income, sales and use taxes.” A study by the State Health Reform Assistance Network, a program of the Robert Wood Johnson Foundation, found other expansion states have experienced related budget savings, increased revenue, and economic growth as well.

The need to serve our growing aging and disabled population is the main factor driving the increased costs in Medicaid, not its expansion under the ACA. In fact, Medicaid expansion has been a win for Colorado on many levels. It has provided expanded health care for many Coloradans putting them on a path to better health. It also helped grow our economy. We need to focus our energy on finding smart, sustainable, patient-focused ways of reducing these costs – not on a wild goose chase that blames the ACA for something it didn’t do.