Colorado’s ongoing budget-gap struggles are the predictable result of structural problems with Medicaid.
Paragon Health Institute, a non-partisan research institute, recently published a new report, Preserve and Improve Medicaid, which explains the program’s inherent challenges and how states such as Colorado can take advantage of One Big Beautiful Bill (OBBB) reforms to improve outcomes.
However, it remains ultimately up to Colorado legislators to address the program’s systemic issues.
Medicaid’s ‘perverse incentives’
As economist Linda Gorman recently explained, the rapid 2010 expansion of Medicaid did not produce large gains in physical health, suggesting that the new expansion enrollees were mostly healthy people not in need of taxpayer-subsidized healthcare.
Because Medicaid spending in Colorado is mostly driven by enrollment, Gorman suggests the legislature target the bloated rolls to close the state’s budget hole and make healthcare spending more affordable and sustainable.
The Paragon report adds to that by noting Medicaid is “plagued by perverse incentives” that are fundamental to the programs’ structure due to its open-ended federal reimbursement of state spending.
“The policy encourages states to spend more to receive more federal money, leading to the proliferation of financing schemes that function as de facto money laundering mechanisms to obtain federal funds without commensurate state expenditures,” the report reads, in part. “The Affordable Care Act’s 90 percent federal reimbursement rate for able-bodied, working-age adults—providing roughly seven times more federal funding per state dollar than for traditional Medicaid enrollees—has diverted resources away from the truly needy.”
In Colorado, this has led to health care eating up one third of the state’s budget, quickly crowding out other budget priorities.
Facing Medicaid reality
The Paragon report also cites fraud and improper payments as contributing to the growing costs, which recent Colorado media headlines appear to back up.
Fortunately for states, Paragon argues, the OBBB actually offers a generational opportunity to address these perverse incentives by strengthening program integrity, ensuring successful community engagement requirements, holding managed care organizations accountable, and maximizing the Rural Health Transformation Program.
Unfortunately for Colorado taxpayers, it is questionable whether legislators have the appetite to attack Medicaid overspending at the source.
Rather than addressing the root problems endemic to Medicaid, lawmakers instead choose to overcommit and overspend, actually reducing state revenue through sweetheart tax breaks then blame TABOR, OBBB, and, of course, rich people for their own gross mismanagement of Coloradans’ tax dollars.
Nothing will be solved until the legislature deals with the Medicaid reality.
