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Study: Expanding Medicaid Cheaper Than Not In Colorado

Opponents of the Medicaid expansion called for in the Affordable Care Act say states can’t afford it, even with the federal government picking up most of the tab. But a new analysis says it would actually be more expensive for Colorado to not expand Medicaid.

“While Medicaid expansion is not free, the combination of federal support for expansion populations and state savings in [other health and human services] programs makes full expansion less costly to the General Fund than no expansion until FY 2020-21,” concludes the analysis, by Denver economic consultant Charles Brown. Brown’s report was commissioned by the Colorado Health Foundation, a nonprofit, grant-making foundation endowed by the 1995 sale of non-profit hospitals to for-profit hospital giant HCA. It no longer has ties to those hospitals. (The Colorado Health Foundation funds health reporting at Colorado Public Radio.)

The expansion called for the in Affordable Care Act, which the U.S. Supreme Court declared optional last June, says the federal government will pay 100 percent of expansion expenses for the first three years, and then states’ share will ramp up annually, reaching 10 percent by 2020.

Colorado is expected to adopt the expansion. Gov. John Hickenlooper, a Democrat, declared his support for it in January. It will require changes in state laws, but Democrats hold solid majorities in both houses of the state legislature.

Brown’s analysis says expanding will save Colorado government $133.8 million compared to the cost of not expanding between 2014 and 2025. He says the state would save more than $20 million per year until 2018. After that savings decline, and then become costs starting in 2020, nearing the $20 million a year mark by 2025. But with the health law taking effect, those costs, Brown says, are still less than the state would spend by not expanding.

Hickenlooper has said that Colorado won’t have to tap the state’s general fund to pay for the expansion, but did not go so far as to say that it would be cheaper than not expanding. The governor says state expenses will be covered by revenue from a fee Colorado hospitals agreed to start paying in 2010 and by reforming how Medicaid care is paid for and delivered.

Brown’s analysis says not expanding will be more costly, in part, because, “even if Colorado chooses not to expand … (Medicaid) enrollments … are expected to grow due to other provisions of the ACA.” Those include the ACA’s requirement that most Americans have health insurance and the expectation that some people seeking coverage in the state’s insurance exchange will discover they are Medicaid eligible instead.  Medicaid rolls could also grow, according to Brown, because of a “reduction in employer-sponsored insurance in response to ACA’s other provisions,” including employers using more part-time employees to escape the law’s requirement for many employers to cover full-time employees.

The analysis says expanding would add 275,000 Coloradans to state Medicaid rolls and would reduce the state’s uninsured rate by 189,000, from 11.1 percent to 7.7 percent.

Those numbers are in line with three other recent estimates of how many Coloradans would enroll in an expanded Medicaid, which range from 240,000 to 297,000. One concludes that 78,000 will drop private coverage to join Medicaid.

The other analyses, from the Kaiser Family Foundation and Gov. Hickenlooper found that the ten-year cost of the expansion to the state will range from $1 billion to $1.5 billion and that the federal share will be $11.4-$13.5 billion. (Kaiser Health News in an editorially independent program of the Kaiser Family Foundation.)

Only the Brown analysis tries to quantify the overall economic impact to Colorado from expansion. It says it will grow the state’s gross domestic product by 0.74 percent, and add 22,388 jobs by 2025. “Of these jobs, 14,357 will be created in the first 18 months following expansion,” the report says. “Average household earnings … are $608 (per year) higher with Medicaid expansion.”

This story is part of a collaboration that includes Colorado Public Radio, NPR and Kaiser Health News.