In Sickness and in Wealth

Medicaid patients could be facing death by a thousand cuts.

The problem certainly hasn't been Colorado's generosity. Each state is allowed to set its own eligibility levels for Medicaid, and Colorado has some of the toughest in the nation. A family of four can't have an income larger than $533 a month to qualify -- in a city where the average rental rate in 2000 was $762. As a result, Medicaid covers only 5.1 percent of Colorado's non-elderly population versus a national average of 12.1 percent. Despite this tightfistedness, though, more than a third of all births in Colorado are paid for by Medicaid, as well as 20 percent of all children's health care and 50 percent of nursing-home care for the elderly.

"A significant portion of that is related to the economy," says Karen Reinertson, director of the Colorado Department of Health Care Policy and Financing, which supervises Medicaid. "For the state, when our money goes down, demand goes up."

The situation became so dire that in January, Governor Owens joined two Republican colleagues -- Governors Jeb Bush of Florida and John Rowland of Connecticut -- to write the president about Medicaid. They told him that the program now takes up more than 20 percent of state budgets, that spending has increased nationally at a rate in excess of 13 percent annually, and that they want authority to design their own Medicaid programs.

Paula Oborsh could lose benefits that provide home 
care for her son, Nicholas.
Anthony Camera
Paula Oborsh could lose benefits that provide home care for her son, Nicholas.
Lorez Meinhold, of the Colorado Consumer Health 
Initiative, is fighting to keep Medicaid benefits.
Anthony Camera
Lorez Meinhold, of the Colorado Consumer Health Initiative, is fighting to keep Medicaid benefits.

Owens is hoping to find a way to keep the growth of Medicaid from hurting other state programs -- but he has already made it clear that he will protect spending for prisons and highways in next year's budget. He is also insisting that $10 million be given to tourism promotion. So legislators are targeting the few areas left, such as the state's colleges and universities, for some of the most draconian cuts. "We have higher education at appropriations levels that we saw in the mid-'90s," Senator Reeves says.

Ironically, the state coffers were actually hurt by the booming economy of the last decade. Under the law, the federal government is required to match Medicaid spending at a higher rate in states with lower annual incomes, which gave Colorado a higher percentage of funding during the 1980s oil bust. At that time, the federal government chipped in $54.40 out of every $100 in Medicaid spending while the state paid $45.60. Now, thanks to the rise in Colorado's average incomes during the past ten years, the bill is split fifty-fifty, accounting for an extra $67 million in costs to Colorado last year.

Colorado's voters bear a good deal of the blame for the state's current crisis. The main culprit is the so-called Taxpayer's Bill of Rights (TABOR) amendment, which was passed in 1992. It strictly limits how much the state's budget can increase from year to year and requires all tax increases to be approved by voters. But its "ratchet" effect means any cuts made during bad times cannot be restored once the economy improves and tax revenues go back up. So even if state tax revenues start increasing next year, the legislature will not be able to expand Medicaid to cover those it kicks out of the program this year.

"I think the ratcheting-down effect will take a tremendous toll on the services the state provides," says Reeves, who believes it's time voters changed the amendment.

Colorado Consumer Health's Meinhold doesn't believe voters understood the potential impact of the amendment when they approved it. "When you ask people about TABOR, they think taxes won't be increased without a vote of the people," she says. "They wanted accountability; I don't think they were looking to ratchet down government's role in providing services."

The Bell Policy Center, a nonpartisan think tank, recently completed a study of TABOR for the amendment's ten-year anniversary. Its research indicates that some of the state's budget constraints are attributable to the relationship between TABOR and Medicaid.

"TABOR is the most restrictive tax-and-spending limitation in the country, which has been eating away at vital programs and services and will make it much more difficult for the state to recover from the current budget crisis," says Carol Hedges, author of the report and director of the center's fiscal project. "One of our most disturbing findings is that all programs have not been impacted equally. Programs driven by forces outside the budget process -- Medicaid and Corrections -- have expanded, causing programs such as higher education and public health to bear a disproportionate share of the spending reductions."

In fact, while higher education saw a .88 percent drop annually in funding between 1992 and 2002, Medicaid jumped 5.96 percent each year -- the highest increase of the seven key appropriations areas looked at by the study -- primarily because of rising medical costs and increased demand for service.

Compounding the problem is Amendment 23, which voters added to the constitution in 2000. That amendment was a well-intentioned effort to boost school funding in Colorado, which had been falling behind for years even though the state was enjoying record budget surpluses. Under the amendment, school spending must increase every year above the rate of inflation. Unfortunately, those mandatory increases continue even in bad times, which means that other parts of the state budget -- like the optional Medicaid programs -- must take an even larger hit. Under TABOR, the more set-aside funding created -- whether by voters or federal mandates -- the more disproportionate the budget cuts become in other areas.

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