Collision Course: Growing Medicaid Need and an Increasingly Constricted Budget
Both the recently released September revenue forecast and the governor’s budget proposal provide stark reminders of Colorado’s ongoing fiscal challenges. Combined, the two make clear that the coming years will be ones of austerity, where public needs will far outstrip available revenue.
The reasons for Colorado’s budget crises are multifold. Yet, an undeniably significant portion of our challenges stem from growing Medicaid costs, particularly those attributable to a rapidly growing population of aging Coloradans. If unmitigated, these costs will further stress the state’s budget and could reduce the quality of health care services for older Coloradans and others.
Importantly, though, there are long-term solutions that can bring down Medicaid expenses while also ensuring older Coloradans receive the care they need. However, adopting these solutions will require long-term planning, dedication, and resources – all of which are often in short supply as a result of TABOR.
What We Know About Growing Medicaid Costs
Recent budget conversations have revolved around the state’s strained fiscal situation. When budgeting to current law, policymakers are beginning their planning for next fiscal year with a $921 million deficit. Despite this dire situation, the governor’s proposed budget includes a more than $458 million General Fund increase to account for projected Medicaid growth.
The governor’s Office of State Planning and Budgeting has attributed a portion of this Medicaid increase to the state’s older adult population. Colorado is one of the fastest aging states in the country. Notably, as we age, we’re more likely to need long-term services and supports (LTSS) – a classification of services that run the gamut from in-home support with daily activities to care in a nursing or assisted living facility. As it relates to our state’s fiscal situation, these services are both expensive and are most often accessed through Medicaid.
Over the past several years, the number of older adults using Medicaid provided LTSS has grown, increasing by 20 percent between FY14-15 and FY22-23. As expected, higher enrollment, due in-part to a greater number of older adults living in the state, has led to increased costs.
Notably, Colorado’s aging population is still increasing, with a growth rate three times higher than the state’s population as a whole. By the end of the decade, the yearly growth rate of older Coloradans will still be nearly two times higher than that of the state’s entire population.
A Fiscal Crisis Temporarily Obscured by A Pandemic
It’s not new that the aging population is contributing to growth in the state’s Medicaid budget.These trends have existed for quite some time. Importantly, however, the implications of these facts were temporarily obscured over the past several years due in part to an influx of federal funds.
Medicaid is jointly funded by both the state and federal government. During the COVID-19 pandemic, the federal government provided additional financial assistance to states in order to help cover the cost of increased Medicaid enrollment. As seen below, during the pandemic’s height, Colorado saw a higher percentage of its Health Care Policy and Financing (HCPF), the department which houses the state’s Medicaid program, costs covered by the federal government.
As the immediacy of the pandemic has come to an end, so has the enhanced federal Medicaid assistance. This reality has meant that the state must now resume its prior level of fiscal responsibility for ongoing increases in Medicaid costs.
Implications and Solutions
The growth in Medicaid expenditures explored above has significant implications, both for other budget priorities and for older adults on Medicaid. As Medicaid costs grow, the program inevitably takes up a larger part of the state’s budget, in turn crowding out other services essential for economic mobility. Importantly, and as the Bell has long documented, due in part to TABOR, Colorado is already underfunding a multitude of public services, from child care and transportation to K-12 and higher education.
Moreover, growing Medicaid costs endanger the health care services older and other Coloradans rely upon. For example, though the governor’s office increased total Medicaid funding in their recent budget proposal, they also put forward cost-cutting measures. These included reducing Medicaid reimbursement rates for select health care providers – an action that could reduce access to care if providers do not believe accepting Medicaid patients is financially viable.
The above-mentioned repercussions are already becoming a reality. Luckily, however, policymakers do have options that can bring down Medicaid costs while also ensuring older Coloradans receive the quality care they deserve. We explore three of these possibilities below:
Increase older adults’ financial security
Older Coloradans rely upon Medicaid’s LTSS because they can’t afford other paid care options. In fact, to qualify for the program, Coloradans must meet stringent income (earning 300 percent, or less, of federal Supplemental Security Income) and asset qualifications ($2,000 for individuals and $3,000 for couples). Collectively, this means that the state can reduce reliance on state Medicaid services by growing the economic well-being of older Coloradans and their families.
Concerningly, however, trends show that older adults across the country are facing increased financial stress. According to the Bell Policy Center’s State of Aging report in 2021, more than 20 percent of Coloradans over the age of 65 are at or below 250 percent of the federal poverty threshold. Moreover, national data has found that 20 percent of adults 50 and over lack any retirement savings.
State leaders have taken several important steps to better financially support older Coloradans. This has included passing and implementing a new Secure Savings program to help Coloradans save for retirement. State lawmakers have also made it easier to find and secure employment by passing the Job Application Fairness Act. However, this work is not done. Policymakers can continue to support Secure Savings, provide better upskilling and reskilling opportunities for older workers, and offer more assistance to unpaid family caregivers – the majority of whom are older and in the workforce.
Support additional LTSS funding options
The majority of paid LTSS in Colorado is funded through either Medicaid or private pay. This makes care out of reach for most middle income older adults who are not poor enough to qualify for Medicaid but do not have enough money to pay out of pocket for LTSS – which can run between $6,600 to $10,400 a month in Colorado. Unfortunately then, many older Coloradans are only able to access needed care by spending down all of their assets until they qualify for Medicaid.
Given what’s laid out above, growing the available LTSS payment options could help to reduce reliance on Medicaid. To achieve this, a first option involves increasing coverage through private insurance. Most private insurance plans don’t cover any LTSS, including basic services like in-home care and support. Additionally, long-term care insurance, which is solely meant to cover LTSS, has increasingly become an unstable source of funding. Given these gaps, the state could work with private insurers to increase coverage for certain LTSS. The Bell has documented several next steps as to how the state could engage in this work.
In addition to creating more funding options through the private market, Colorado could also follow the lead of states such as Washington, which has created a new social insurance program to specifically fund long-term care. As the Bell explored in its report examining long-term care practices throughout the country, this fund ensures residents will have at least
$36,500 to put toward LTSS throughout their life. Notably, the state adopted this policy after actuarial studies found the program could substantially reduce state Medicaid costs.
Adjust Medicaid regulations to better focus on preventative care:
Finally, the state can make changes within Medicaid to better prioritize preventative LTSS. Aging in one’s home and community is often less expensive than relocating to a nursing or assisted living facility. This is especially true when someone isn’t in need of acute long-term services, but instead, simply needs help with basic activities of self care for a few hours a week.
Unfortunately, however, largely due to cost, many older Coloradans aren’t able to access the low-intensity services they need. This challenge can, in-turn, intensify pre-existing conditions and necessitate a move to more expensive out-of-home placements. As this occurs, the costs of this more expensive care often falls to Medicaid.
Other states have recognized the potential savings of offering lower cost, preventative care, sooner, to older adults. This includes Washington state, which adjusted its Medicaid qualifications – including income eligibility – to allow more individuals to access low-level, preventative LTSS sooner. In taking these steps, policymakers hope to lessen the long-term need for more expensive nursing home care. Though still too early to fully realize the benefits, initial findings related to these changes are promising. The results from this and other efforts to more efficiently provide LTSS through Medicaid have the potential to offer lessons to policymakers in Colorado.
Moving Forward
Growing state Medicaid expenditures, driven in-part by an aging population, are causing challenges for the state’s budget. If these trends continue, other state services are at risk, as are the quality long-term care supports many older Coloradans rely upon.
Yet, there are steps state policymakers can take to alleviate these growing costs. To realize the benefits though, will require time, resources, and a commitment to prioritizing policies where the benefits may take several years to manifest. While these are challenges many leaders face when confronted with the need for structural change, they are particularly problematic in Colorado because of TABOR. This constitutional constraint makes long-term planning and resource allocation uniquely challenging. However, in the absence of an influx of additional funding, Colorado lawmakers will have to grapple with these difficult challenges.
