Plain talk on Colorado's budget: Health care and our ailing General Fund

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This week, just about everyone who is anyone in health care policy in Colorado is hanging out at the Colorado Health Foundation's annual symposium in Keystone. One patient we hope they take some time to examine is General Fund, who is in poor health these days.

Previously, we told you General Fund is shrinking – in terms of real purchasing power per Coloradan, he's 25% smaller than he was eleven years ago. And we told you this is due to a combination of factors that have permanently reduced revenues to General Fund over time.

This matters, of course, because we depend on General Fund to do a lot for us. He's struggling to get the job done, which brings us back to health care and those folks up in Keystone.

Almost 900,000 Coloradans rely on Medicaid, the Children's Basic Health Plan Plus or other state support for health care. By far the largest program – Medicaid – has seen rapidly rising costs (a problem in both public and private health care systems) and unprecedented enrollment growth (as many families see their incomes fall enough to make them eligible). In fact, Medicaid enrollment has largely tracked the growth in family and child poverty in Colorado.

The blue line in Chart 1 shows the increased Medicaid enrollment over the decade. The red line reflects continued growth forecast by the staff of the Joint Budget Committee, which shows enrollment reaching 1 million Coloradans by 2016 or 2017.

Much of the recent growth has been among populations that are relatively inexpensive to insure – children and working-age adults. But the future growth will come largely among seniors as the baby boom generation ages – a population that will drive much higher costs.

Based on these trends, the DU Center for Colorado's Economic Future projects "General Fund expenditures associated with Medicaid medical services premiums" will grow at a compound annual rate of 8.4 percent between now and 2025, far faster than any reasonable projection of General Fund growth (Chart 2). This means Medicaid's share of General Fund spending will continue to increase.

So what are the options? One is to keep doing what we're doing. Under optimistic economic assumptions, the Center projects that, if nothing changes, just three program areas (health care, K-12 education and corrections) will consume 90 percent of the General Fund 14 years from now (Chart 3). Currently those three programs consume 73 percent of the General Fund.

That means everything else in the state budget (including colleges and universities, courts, safety-net programs and much more) would have to shrink from 27 percent to 10 percent of the General Fund. Shared evenly, that would mean a 60 percent cut to every other part of the General Fund.

You don't have to be a brain surgeon to figure out that option won't work.

A second option would be to eliminate some programs and services to permanently downsize state government. The most comprehensive proposal for further cutting state spending comes from the Independence Institute, a non-partisan, non-profit public policy research organization that "addresses a broad variety of public policy issues from a free-market, pro-freedom perspective."

In November 2010, the institute published The Citizen's Budget: Road Map for Sustainable Government in Colorado, a 170-page study that "includes legislative, constitutional, and policy recommendations to close the looming state budget gap – without raising taxes." Among other changes, they propose:

• Returning to 2007 eligibility levels for Medicaid and eliminating some coverage for low-income adults and increasing fees
• Moving toward a public health care system based on health savings accounts rather than more traditional coverage

There's a third option. A whole bunch of people in the state are starting to talk about getting more revenue for General Fund. Because the voters make these decisions in Colorado, these are critical discussions to have. We can't keep doing what we're doing and expect the problem to go away. If we're going to cure General Fund, we think finding more revenues has to be a part of the treatment.

Join the conversation. We want to hear your 2 cents' worth.

How do you think the state should respond
to increasing health program costs and enrollment?

Do you think it is possible to rely
on the "free market" to solve these challenges?

Can we address this issue effectively
without putting additional revenues on the table?

Email PlainTalk@BellPolicy.org and let us know how you answer these questions.

Note: This is the fourth in a series of emails addressing budget and fiscal issues in Colorado. It builds on the information in our In Plain Talk video and tool kit. Learn more and get involved by visiting our In Plain Talk video page or by "joining up" at www.boomorbustcolorado.com.