Source: Southern Colorado Business Forum & Digest
Changes in U.S. healthcare policy will be a source of strain for Colorado in coming years. Cuts to Medicaid in the recent budget reconciliation law, as well as the likely expiration of expanded subsidies for purchases on the individual marketplaces established by the Affordable Care Act (ACA), will impact the state’s finances, healthcare providers, businesses and individuals.
The share of the population without health insurance declined significantly as the ACA, signed in 2010, was fully implemented in 2014. Colorado’s uninsured share fell below the national average – in part, this was because Colorado participated in the expansion of Medicaid under the law, but 10 states have not. The higher uninsured rates in most of these states, including Florida (10.9%), Georgia (12.0%) and Texas (16.7%), pull up the national average.
Responsibility for Medicaid is shared between state and federal governments, and the program is administered by states. In Colorado, it is known as Health First Colorado.
Medicaid Cuts and Impact
The recent federal budget reconciliation law included significant cuts to the program, which mainly take place after 2026. The health policy research organization KFF, based on estimates from the Congressional Budget Office, projected the Medicaid cuts would lead to 130,000 more Coloradans becoming uninsured by 2034, which would add approximately two percentage points to the state’s uninsured rate.
Because the responsibility for Medicaid is shared with the state, the cuts add pressure on Colorado’s budget. An increase in the number of uninsured residents will also impact health insurance expenses for businesses, as some costs for uncompensated care may be passed along in higher charges. In turn, higher costs for employer-provided health insurance will push wages down. Employers compensate workers with wages and benefits based on the value of what they produce – if the benefits part of compensation rises, the wage portion has to shrink.
Marketplace Subsidies and Adverse Selection
Currently, the 2021 expansion of tax credits to help people afford health insurance on the individual marketplaces established by the ACA are set to expire at the end of the year. This is another national program that is administered at the state level – Colorado’s marketplace is Connect for Health Colorado. The individual marketplaces are particularly important for small businesses and entrepreneurs who lack the scale to get favorable rates in the group market. One concern is that, with the expiration of the subsidies, the healthiest people in marketplace plans will be most tempted to forgo insurance, leaving a less-healthy, and therefore higher-cost pool – economists call this “adverse selection.”
As the impact of these changes starts to be felt, Coloradans should prepare for some difficult conversations and challenges around healthcare.
