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In Sickness and in Wealth

Medicaid patients could be facing death by a thousand cuts.

The Oborsh family doesn't fit the Medicaid-recipient stereotype.

The family lives on a comfortable suburban street not far from the Southwest Plaza mall. Their home is nestled next to a creekside park; large pine trees and a wooden fence give it a bucolic air.

Inside, Paula Oborsh watches over her two children, five-year-old Alexandra and eight-year-old Nicholas. With his dark blond hair and mischievous smile, Nicholas seems like a typical boy. But he has trouble holding himself steady when he walks, and he talks like a child younger than eight.

Alex Watson receives care from a home health aide, 
paid for by Medicaid.
Anthony Camera
Alex Watson receives care from a home health aide, paid for by Medicaid.
Pediatricians such as Dr. Lee Thompson are being 
forced to turn away Medicaid patients because of 
budget cuts.
Anthony Camera
Pediatricians such as Dr. Lee Thompson are being forced to turn away Medicaid patients because of budget cuts.
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.

Nicholas has suffered from a severe seizure disorder since he was a baby. He sleeps next to a monitor that alerts his parents if he has a seizure at night. His mother carries a cell phone with her at all times in case he has a seizure at school. And with developmental disabilities that make it harder for him to learn, Nicholas faces many obstacles to leading a normal life.

Which is why his middle-class family qualifies for Medicaid. The state and federal program normally funds health care for Colorado's poorest residents, but the Oborshes are part of a special state exemption that allows middle-income families with severely disabled children to receive Medicaid funding for home health care. Nicholas receives occupational and physical therapy, doctor visits, prescriptions -- at one time he was on eleven different medications -- and diapers, none of which would be covered by the family's regular health insurance.

"I'm scared to death where he'd go without the therapies," Paula Oborsh says. "We couldn't afford to pay for it. Financially, Medicaid has been a lifesaver for our family."

But as state legislators grapple with a budget deficit of nearly a billion dollars, care for Nicholas and other children like him could be on the chopping block. The legislature's powerful Joint Budget Committee spared them last week, but Colorado's economic situation is so dire that more cuts are likely later this year. Governor Bill Owens already agreed to cut Medicaid benefits for 3,500 legal immigrants on April 1. A week earlier, the American Civil Liberties Union had asked a federal judge for an emergency order preventing the state from cutting off immigrant aid, calling the legislation unconstitutional; however, as of April 1, Denver U.S. District Judge Robert Blackburn had not made a ruling on the request.

State senator Peggy Reeves, who serves on the JBC, says the committee may add a provision to the budget to pay for those immigrants already living in nursing homes, thus avoiding the spectacle of dumping elderly people in homeless shelters. Even so, she warns more cuts could be looming.

"A lot depends on the June revenue estimate," she says. "The war leads to uncertainty and hits the consumer, which really hurts us."

That is of little comfort to Paula Oborsh. "That they might take away this entire program is unbelievable to me," she says. "I know we're in a budget crunch, but this is not just a line item to us. Parents who can't keep their kids at home will have to institutionalize them. It will rip families apart."


Medicaid was created in 1965 to provide medical care for America's poor. Although it is often confused with Medicare, the two programs are very different. Whereas Medicare is funded entirely by the United States government, providing health care to seniors living on Social Security, Medicaid costs are split between state and federal resources. At a minimum, Congress dictates that states serve certain populations: the elderly and disabled who require nursing-home care; children living in poverty; families on welfare; and disabled people who qualify for Social Security benefits. In fact, half of Colorado's elderly living in nursing homes are covered by Medicaid, since Medicare does not cover most nursing-home expenses.

Any coverage beyond the federal minimum is up to each state. Colorado offers assistance to nine other groups comprising 30,000 individuals and covering everything from brain injuries to AIDS. For example, Nicholas Oborsh and 630 other children belong to the "Children's HCBS Waiver," which provides funds for at-home care for middle-class kids at risk of being institutionalized. Each Medicaid waiver is designed to keep patients in their homes rather than in nursing facilities.

But the more people covered, the higher the expense to the state, and for the past few years, Medicaid spending has spiked upward, thanks to soaring health-care costs and growing numbers of uninsured patients. By one estimate, nearly 1 million Coloradans have no insurance, largely because employers, weary of skyrocketing costs, are simply dropping health coverage. As a result, Medicaid spending now takes up 20 percent of the state budget -- well over $2 billion per year -- compared with 10 percent just a decade ago.

"We're adding to the uninsured and the underinsured; people more and more can't afford health care," says Lorez Meinhold of the Colorado Consumer Health Initiative. "There are huge gaps in the safety net."

The flagging economy is only making things worse: In the past two years, 48,000 people were added to the program. And because most of the 344,000 people on Medicaid in Colorado are in one of the mandatory-coverage groups, it's the optional programs - such as the one that covers Nicholas Oborsh -- that are targeted when budgets have to be cut.

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.

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.

But while political decisions have certainly deepened the Medicaid crisis, the real culprit is the rising cost of medical care. For the past two years, health-insurance premiums have risen by more than 12 percent per year, well over the rate of inflation. Many of these increases are the result of rising expenses for drugs and new technology. Those costs, combined with growing numbers of uninsured Coloradans, have sent Medicaid expenditures through the roof.


One of the ways Colorado has tried to restrain the growth of Medicaid spending is by cutting back on what it pays doctors to see patients. As a result, more and more physicians are refusing to care for Medicaid patients.

Arvada resident Amy Mayberry spent weeks trying to find a doctor who would see her pregnant sixteen-year-old daughter. She called all of the doctors listed in literature given to her by Colorado Access -- one of the state's managed-care Medicaid providers -- and was turned away by all of them.

"It's Colorado Access in name only; nobody takes this insurance," Mayberry says. "They all said, 'We don't take that anymore.' I just wanted to get her looked at to make sure she's okay."

It's a regular phenomenon: The Jefferson County social services office told Mayberry that they often get calls from Medicaid patients in tears because no doctor will see them.

"Most pediatricians in Colorado are not accepting any new Medicaid patients," says Dr. Steve Berman, a local doctor who is the former president of the American Academy of Pediatrics. "Doctors are losing $30 every time they see a Medicaid patient."

Such losses have led many pediatricians to make the gut-wrenching decision to stop serving families on Medicaid.

"We've always seen as many Medicaid patients as we could," says Dr. Lee Thompson, a partner in Aurora Pediatric Associates, one of the biggest children's practices in the metro area. "We felt we could provide a good medical home for everyone, regardless of what kind of insurance they had."

Thompson estimates that he and his partners were seeing Medicaid patients 10,000 times a year -- about 10 percent of their total number of patient visits -- and were being paid $65 per visit, which he figured just covered basic expenses.

"In 2001, it cost us $65 to see a patient. That covers all expenses except the doctor's salaries," he says. "Most of the insurers paid us $70 to $80 per visit -- which is where the profit comes from for the doctors. We felt we could see [Medicaid patients] at cost as part of our commitment to the public."

But when the state announced last year that it would trim Medicaid reimbursements for pediatricians to $45 per visit, Thompson realized it would cost the practice $200,000 a year. So he and his partners made the painful decision to turn away thousands of children on Medicaid. "We had to make a business decision," he says. "We had to drop 2,000 of these families. All of the doctors were distressed about it. It disrupted care for these families. Many of them couldn't find a new primary-care physicians and had to go to emergency rooms."

The Colorado Department of Health Care Policy and Financing agrees that the state has gone too far in slashing doctors' rates, but director Reinertson also knows it will be difficult for the state to find the money to reverse it. "We've been pretty open about the fact that we are not paying doctors enough," says Reinertson, who is the governor's spokesperson on this topic."I've had pediatricians say, 'It was one thing when you paid the gas and light bill; now you're not even doing that.'"

When doctors turn away Medicaid clients, those patients head for the same place as the uninsured: hospital emergency rooms. "Everybody except hospitals can walk away from patients," says Larry Wall, president of the Colorado Health and Hospital Association. "Employers don't have to provide coverage; physicians don't have to see Medicare or Medicaid patients. But hospitals are required to see people."

The United States spends more money per capita on health care than any other country -- $1.4 trillion, or more than $5,000 per person, last year -- but millions still go without health care, often letting problems fester until they wind up in hospital emergency rooms. People with serious illnesses are dying for lack of a physician's care when symptoms are first noticed -- exactly the time when many diseases, like cancer, can be successfully treated. Of course, at that point, the cost of treatment is much higher, leaving an even heftier burden for hospitals to cover.

In 1998, Colorado hospitals incurred a total of $467 million in losses from treating the uninsured; by 2001, that total had climbed to $736 million statewide. In just the last twelve months, Wall estimates, the cost of treating the uninsured has gone up another $100 million. "Hospitals have taken those costs and shifted them to other payers," he says. "Hospitals will continue to do that to the extent they can, but there will be a point where it will be difficult for hospitals to continue to provide care."

A recent study by the Colorado Coalition for the Medically Underserved estimated that those with health insurance paid $144 million more for care in Colorado in 2000 to make up for those who couldn't pay. And although the uninsured are often viewed as freeloaders in the health-care world, the study found that they paid $722 million out of pocket for care.

The system appears to be spiraling toward crisis: As more people become uninsured, hospitals pass the cost on to the insured, which helps fuel huge increases in insurance costs, which causes more employers to drop health-care coverage for their employees, boosting the ranks of the uninsured.

"When Medicaid reimbursement rates are low, like they are in Colorado, that forces additional costs on insurers," says the Bell Policy Center's Hedges. "Medicaid has shifted the costs onto the backs of employers and employees. The costs get shifted to employers trying to provide health-care coverage for their employees. It's a vicious cycle where fewer people are covered and more people are uninsured and more are on Medicaid."

The relation of that cost-shifting to health-insurance fees so worried the Denver Metro Chamber of Commerce that it convened a task force in 2001 to study the issue. The report -- "Medicaid, the Uninsured and the Impact on Your Business" -- called for Colorado to try to find ways to cover more of the uninsured. In the report's 2002 followup, "Recommendations for Reform," the chamber was adamant that two things not happen: further limiting those eligible for Medicaid and continuing cuts into doctor payments.

"Both approaches would significantly increase the amount of uncompensated care and, therefore, the cost allocated to private health-insurance premiums through cost shifting," the study reads. "If either of these options were to be implemented, the additional burden could become the 'tipping point' -- especially for small businesses -- in terms of the affordability of providing health-care benefits to employees in the private sector."

Instead, the chamber recommends that Colorado cut costs by putting more of its Medicaid patients into managed-care plans administered by private companies. The state has been experimenting with such an approach for several years, shifting thousands of Medicaid recipients into managed-care plans like Colorado Access. However, Reinertson recently told legislators that the managed-care companies had failed to save the state money, instead using more than $38 million for administrative expenses.

President George Bush's recent proposal to reform Medicaid would give the states more authority to determine who is eligible, something the Chamber of Commerce supports. States would receive a short-term increase in federal assistance, which would then be capped and turned into a block grant. Some Democratic governors have criticized the plan as a way to shift the primary responsibility for funding Medicaid to the states, because costs could continue to soar without additional matching money.

And squeezing Medicaid recipients can have unintended consequences.

Caroline Watson's family is a good example of how cutbacks in Medicaid can boomerang and ultimately boost costs to taxpayers.

Watson is a single mother with two sons. One of them, eight-year-old Alex, is confined to a wheelchair. He is unable to talk, unable to care for his basic needs and cannot be left alone. Even the doctors still do not fully understand his chronic health problems.

Through the Medicaid waiver program, Watson is able to have a home health aide come several days a week and care for Alex, allowing her to work full-time and provide for most of her children's needs.

"As a single parent, there would be no possible way to do this without an aide," Watson says. "For us, this is not optional. It's allowed me to go back to work. Taking care of Alex is a lifetime job, and Medicaid has been a lifesaver for me."

With her earnings, she is able to pay $10,000 a year for private medical insurance that covers many of Alex's expenses, but not the home aide. She estimates that Alex has had $750,000 in medical expenses in his short life, and most of that was paid by private health insurance because she was working.

In the past two years, the bill for Watson's private health plan has gone up by 50 percent. She has no choice but to pay it, because any other insurer would refuse to cover her son.

"If I canceled that policy, I couldn't get insurance for him," Watson says.

If the family lost the Medicaid waiver that pays for a home aide and Watson had to quit working and go on welfare, the government would have to pay for Alex's health care.

"It behooves the government to keep me employed," notes Watson.

It's likely the state would wind up spending more money in the long term if it cut the Medicaid waiver programs. "That's basically the rationale for all the waiver programs," Reinertson says. "If you can get the kind of services you need at home, it will probably cost less. The parents in those waiver programs will tell you it allows them to work. The logic is if people can keep working, it will save the state money."

If overwhelmed parents simply give up and deliver their children to institutions, the state will have no choice but to fund their care.

That also ignores the heartbreak of parents who desperately want to keep their families together.

"It would be unbelievably horrible if Alex was taken away," says Watson. "It would be heart-wrenching. Whenever possible, children should be able to grow up with their families."

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