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ObamaCare and Colorado Medicaid Spending: Should Colorado Drop Out?

[This is an excerpt of the Citizens’ Budget: Road Map for Sustainable Government in Colorado. A PDF containing only the section on the Department of Health Care Policy and Financing (HCPF) is here.]

If the recent federal health care legislation remains as it currently exists, citizens and states might be better off exiting Medicaid and letting the federal government pay for health insurance for eligible Colorado citizens.

In FY 2013-14, the federal health care law forces states to expand Medicaid eligibility to people with incomes up to 133 percent of the federal poverty level (equivalent to an annual income of $19,378 for 2 people in 2010). In Colorado, the Department estimates that this will increase its caseload by 130,000 people at a cost of $625 million. The federal government will subsidize the state for the increased Medicaid spending in the first years of the program. After that, the Department estimates that ObamaCare will increase state Medicaid expenditures by $31.0 million in 2017, $39.1 million in 2018, $48.2 million in 2019, and $72.3 million in 2020. The total spending increase in those four years alone would be $190.6 million.

Although the Department’s estimates of future state Medicaid spending under ObamaCare are somewhat lower than the estimates of independent experts, all agree that ObamaCare will significantly increase state Medicaid costs.

Edmund Haislmaier of the Heritage Foundation estimates that ObamaCare will increase Colorado’s Medicaid spending by $637.3 million between 2014 and 2020.  At the historic match rate of 50%, this means that state Medicaid spending will rise by $318.6 million in six years. At a match rate of 57.4%, state Medicaid spending will rise by $271.5 million.

Estimates produced by John Holahan and Irene Headen for the Kaiser Family Commission on Medicaid and the Uninsured, long a strong advocate for the program expansions embodied in the ObamaCare law, also suggest that the Department has underestimated future Colorado Medicaid spending. They conclude that spending on low income adults alone will increase by a minimum of $286 million between 2014 and 2019, an estimate extraordinarily close to that produced by the Heritage Foundation analysts.  Under different assumptions, the Kaiser Family Foundation estimates that spending will balloon by $470 million.

Some states, notably Nebraska, Indiana, and South Carolina, have commissioned actuaries to estimate how much ObamaCare will increase their spending.

Indiana estimates that ObamaCare requirements will increase its Medicaid budget by $2.9 to $3.6 billion from fiscal year 2011 to fiscal year 2020.  It notes that Kaiser Family Foundation estimates of the effect of ObamaCare on state Medicaid budgets tend to underestimate the number of enrollees, and do not include ancillary costs such as increases in physician or pharmacy reimbursements, and pharmacy rebate losses.

South Carolina estimates that ObamaCare will increase state Medicaid spending by $914 million from fiscal year 2010 to 2019. In Nebraska, the ObamaCare Medicaid expansions are estimated to cost the state between $526.3 million to $765.9 million over the next 10 years.

The looming spending increases are so large that Haislmaier and Smith make a persuasive case that that states could almost all of their citizens better off by simply pulling out of Medicaid. Exiting Medicaid would likely benefit the low-income people currently dependent upon it because ObamaCare provides subsidies of up to $20,000 a year for the purchase of health insurance for a family of four provided that family is not enrolled in Medicaid. If a state maintains a Medicaid program, ObamaCare forces the state to enroll that family in Medicaid rather than in a private insurance plan. Numerous studies suggest that the privately insured receive better and more convenient health care. If Colorado were to exit Medicaid, everyone on the state program would be eligible for federal health insurance subsidies. They could replace often spotty and inconvenient Medicaid coverage with private health insurance.

Assuming that Colorado uses roughly $2 billion of the money saved by pulling out of Medicaid in 2013 to continue paying for long-term care for people currently getting it under Medicaid, Haislmaier and Smith estimate that state government could save $7.4 billion dollars from 2013 to 2019.  Their estimate assumes that the state also drops out of the State Children’s Health Insurance program, a program that would no longer be necessary with the subsidies provided for purchasing medical insurance.

Fiscal prudence, and a sincere concern for the well-being of Colorado citizens, dictates that both the State of Colorado and the Department give serious consideration to withdrawing from Medicaid.