If voters approve, could ColoradoCare really pay for itself? It's complicated 

Visualize universal coverage

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  • Will better insurance lead to more health spending?

Imagine universal health care. Now imagine how much it would cost.

The latter thought has caused the biggest debates about an initiative cleared for the Colorado ballot, which aims to insure every state resident. Amendment 69, or ColoradoCare, was recently hit hard by an independent analysis of its financial plan by the Colorado Health Institute, which found that under its most "plausible scenario" ColoradoCare would run a deficit of $253 million in its first year and $7.8 billion by 2028.

CHI's findings run counter to Amendment 69's own financial analysis, performed by University of Massachusetts-Amherst economist Gerald Friedman and updated by Colorado Foundation for Universal Health Care Executive Director Ivan Miller. The two predicted that ColoradoCare would have a surplus of $1.6 billion in its first year.

But can anyone really know how such a major, unprecedented overhaul would play out, given that a bevy of variables could affect its bottom line? CHI acknowledges this challenge in its report, noting that "the lack of firm details makes it difficult to predict the financial effects over a decade with the highest degrees of certainty."

The report lays out a variety of scenarios based on different variables, saying ColoradoCare's best-case scenario would be a first-year surplus of $5.5 billion and sustainable funding through at least 2028 (the study period). The worst-case scenario would bring a first-year deficit of $6.5 billion, growing larger every year. It considers both extremes "highly unlikely."

Anders Fremstad, assistant professor in the economics department at Colorado State University and a ColoradoCare supporter, says that while no state has tried this before, Europe's single-payer systems show that ColoradoCare not only could succeed, but also could save people a lot of money. And while he says the CHI analysis is well-done, he doubts its ability to predict whether ColoradoCare would succeed far into the future.

"Ten-year projections are extremely difficult to do well," he says. "Everybody's 10-year projections should be taken with a grain of salt."

All this is important because, if passed, ColoradoCare would amend the state Constitution to create a tax-funded health insurance system. Everyone not already covered under federal insurance like Medicare would be eligible for coverage, which would include copays for certain services but no deductibles. Private insurance would still be available, but it's thought few would buy it.

CHI estimates ColoradoCare would bring in $36 billion in its first year and cover 4.4 million people. It would be run by a board of directors and would likely go into effect in 2019, after a preliminary period during which it would charge a tax of .09 percent. When running, it would be funded mainly by a 10 percent income tax, two-thirds paid by employers, one-third paid by employees. The self-employed would pay the full 10 percent tax.

Additionally, ColoradoCare would seek waivers to gain access to federal and state funds that currently flow into the health care system, including Medicaid dollars.

CHI thinks the system will be short on cash, basing financial predictions on several key factors including: administrative costs and savings of ColoradoCare, how much those covered under the plan would use health services, how much federal funding the program could attract, what copays consumers would pay under the plan, how many people would choose to pay an additional amount to buy private insurance, and the taxes the program would draw in.

While the analysis is complex, CHI sees two key flaws with ColoradoCare funding. First, it predicts tax revenues would grow at a rate of 4 to 4.5 percent per year, while health spending would grow at between 6 and 6.8 percent per year. Second, CHI does not expect that ColoradoCare will be able to secure all the federal funding it expects, due to requirements. It thus predicts that ColoradoCare would get about $4 billion less per year in Medicaid funds than supporters predict.

This was music to the ears of Coloradans for Coloradans, which opposes ColoradoCare and boasts the support of business organizations and many Colorado elected officials.

"This new, impartial study from the Colorado Health Institute shows just how risky and uncertain Amendment 69 is for Colorado," Sean Duffy, spokesman for the no campaign, stated in a release, which he told the Independent fully represents the campaign's views. "It demonstrates that ColoradoCare is financially unsustainable and will bleed red ink virtually from Day One. The only way they can stop the bleeding is to further limit the accessibility and quality of health care or increase their already sky-high taxes. The study shows us our state's fiscal future under Amendment 69, and it isn't pretty."

But the ColoradoCare campaign, which recently scored the endorsement of noted intellectual Noam Chomsky, challenges those assertions. It believes the $4 billion in Medicaid funds — or at least part of it — would be made available annually, and it notes that CHI failed to calculate a reduction in health care costs.

(CHI did calculate a reduction in administrative costs, but also counted upon an increase in those seeking care under the system. It did not calculate long-term health savings of the system, based on improved health outcomes, stating it did not have enough detail to project those changes.)

"We wouldn't be chasing a windmill," the yes campaign's Owen Perkins told the Independent. "We wouldn't be chasing something that's not going to work."

Interestingly, the ColoradoCare campaign sees a lot of positives in the CHI report.

"I think we found the report, we thought, was a really strong validation for the model that we put out and I think they concluded that our costs are accurate, reducing health care costs is accurate, our ability to cover everybody is realistic, the savings that ColoradoCare would project basically equal the cost of adding all the uninsured," Perkins notes.

"They seem to have all of our math correct in terms of what we'd spend and what we'd save, and I think the main difference is their speculation on what we'd bring in, and a change in what we'd bring in from the federal government."

State Sen. Irene Aguilar, D-Denver, a physician who first proposed a version of ColoradoCare in the Legislature, says via release that the federal government, under the Affordable Care Act, has been very flexible in granting waivers to states for other "Medicaid demonstration projects," and she believes ColoradoCare would get the federal funds. Likewise, Fremstad says he thinks it's unreasonable to assume the feds would hold back $4 billion.

Perkins further notes that if ColoradoCare could not get the money it needs to run, the system would never go online. The only cost to try out the system would be that .09 percent preliminary tax meant to help with startup costs, the leftovers of which would be returned if ColoradoCare failed to move forward.

It's a little less certain how much health care spending would increase in the coming years if ColoradoCare passed, as compared to tax revenues. Knowing the answer to that question requires predicting how Coloradans would behave under the new system.

Would people go to the doctor more, especially since ColoradoCare would not have a deductible? Or might they seek more preventative care and decrease the occurrence of serious health problems that cost big dollars to treat, like heart attacks, saving money over time? ColoradoCare's own financial analyst, Friedman, says that even organizations critical of ColoradoCare predict it would lead to savings on health care costs — and if those savings are big, they could have huge impacts on the system's bottom line.

But Fremstad says that maybe all of that doesn't matter. If ColoradoCare couldn't pay its bills, he says, perhaps it could ask for a slight tax increase. Given that health care costs are expected to grow at 6 to 6.8 percent a year, according to CHI's analysis, one thing is abundantly clear: The current system is unaffordable for many, and will only grow more so over time.

"It's just hard to believe that the system we have right now is ideal," he says. "And it's hard to believe it can be, given the extreme amount of bureaucracy it relies upon."

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