Colorado’s Hickenlooper Rejects Call for Medicaid Waiver

Published December 16, 2011

Despite a significant rise in the cost of Medicaid, Colorado Gov. John Hickenlooper has repeatedly rejected calls to ask President Obama’s administration for waivers from the rules governing Medicaid in order to balance the state budget. 

Some 281,000 people are projected to be added to Colorado’s Medicaid rolls between 2007 and the end of 2012—an increase of 72 percent in less than six years. Medicaid funding will soon begin to crowd out funding for schools, colleges, and government.

Hickenlooper, a Democrat, says any waiver that would help Colorado balance its budget would have to eliminate services or reduce eligibility, something the federal government has been reluctant to grant in other states. However, if his administration fails to find an answer, the state might be forced to make cuts to K-12 education and other programs—a dilemma that has caused 26 other states to seek waivers for their Medicaid programs.

Overextended Medicaid Program

Linda Gorman, senior fellow and director of the Health Care Policy Institute at the Independence Institute, says Colorado’s exploding Medicaid enrollment is a result of strict federal guidelines prohibiting the state from limiting eligibility of the program.

“The state’s problem is so big that it will be difficult to find a solution. One possibility is to find a consumer-driven approach like Indiana’s, which set up health savings accounts for its Medicaid enrollees. Unfortunately, the waiver period expired and the reauthorization was denied by the Obama administration. In fact, it’s looking more and more like the only thing the administration will authorize is to copy ObamaCare or to increase managed care programs,” says Gorman.

Colorado reached this point by expanding Medicaid eligibility both before and after the passage of President Obama’s health care law. Colorado already had eligibility limits far above ObamaCare’s requirement of 133 percent of the federal poverty level—an eligibility level the state must now retain despite the fiscal burden, Gorman says.

“They are required to maintain their higher limits despite the damage it may do to their finances. This is unfair to state taxpayers,” said Gorman.

“It’s kind of like musical chairs, because once ObamaCare passed, that’s what you were stuck with. So in effect, the states have lost control of their Medicaid budgets and they should consider withdrawing from Medicaid. Barring that, the best thing we can do now is to make Medicaid go to block grants. Congress could turn Medicaid into a block grant like they did welfare in the ’90s, which was a roaring success. The problem is that special interests that profit from Medicaid spending have no incentive to reduce spending, and that’s one reason why Medicaid spending is out of control,” she said. 

Lessons from Texas, Florida

Dr. Roger Stark, a physician and health care policy analyst at the Washington Policy Center, says a Colorado waiver could be modeled on those in other states such as Texas and Florida. These states’ programs replace fee-for-service with a cap on the amount of funds enrollees may spend, Stark notes.

“The idea is to put all the state’s Medicaid enrollees into the HMO-type program and capitate the amount each enrollee can spend,” Stark said. “An alternative would be to do what Indiana did and try something different. They got a two-year waiver for the people in their project plan—about 80,000—and they created what amounted to a health savings account for them.”

Under the HMO-type plan, the agency would be run by the federal government but still be called Medicaid. Each person in a geographic area would have a network of doctors they could use. The down side is that once you were enrolled in the HMO, you would be obligated to use only those doctors and could be put on a waiting list to see your doctor, says Stark.

Stark says the Indiana solution is a preferable path—but signals from Washington have not been good about the possibility of expanding and extending that state’s waiver when it expires in 2012.

“I think Indiana’s approach is a wonderful idea and the way we should approach Medicaid reform, but it looks like the federal government is not going to extend the waiver there,” Stark said.

Many States Face Challenges

Stark points out Colorado is not alone in its experience. In several states, K-12 spending and Medicaid funding are now at odds.

“Some state constitutions call for providing K-12 education, and the teachers unions and other powerful interests would fight any challenge to funding. In other states, this creates a duel between health officials and defenders of education funding as Medicaid funding grows to become the largest or second largest line item,” said Stark.

Stark says there are some small steps that are politically feasible. He points to reforms of non-acute treatment such as long term and home health care—”it’s much cheaper to treat people in their home than in a hospital,” he said—but he says the problems of increased costs will remain.

“During the go-go years when the economy was booming and the states came into a lot of money, they expanded eligibility for the program. Now that funding is tight and more people are enrolling into the program, they’re struggling with how to curtail growth in spending,” said Stark.