Helton: Amendment 69 does control health costs (column)
September 27, 2016
The Amendment 69 ballot initiative considered this November represents a positive change to health-care financing in Colorado. However, the media have published assertions made by the Colorado Health Institute (CHI) that are misleading. As a citizen of the state, a retired health executive, and a health economist, I am concerned that the media is echoing misinformation about Amendment 69. It is important that Coloradans get the facts — pro and con — for an informed decision about voting on this issue.
My concerns with projections cited in the CHI report include:
1. The CHI analysis improperly excludes federal matching payments from its calculations, omitting approximately $2.25 billion from its 2019 projection. That assumption is unfounded, since Colorado will continue to serve persons under Medicaid and would be entitled to those funds under federal law. Correcting this error puts ColoradoCare into a $250-million surplus in its first year of operation, before any other concerns are addressed.
2. CHI assumes that health care costs would escalate at 6 – 6.8% per year from 2019 to 2028, based on national averages. However, ColoradoCare would be able to negotiate payment changes to track with expense inflation, so the impact would be about 3-3.5% as projected by the Bureau of Labor Statistics. Correcting this assumption would result in ColoradoCare remaining financially viable without funding increases. Further, the ColoradoCare board can establish rates that are budget neutral against tax revenues. CHI does not consider realistic rate setting action by ColoradoCare.
3. CHI argues that health-care utilization will increase significantly when citizens have health insurance. While people with insurance do tend to use it, CHI fails to note its own data that suggests the majority of persons likely added to the state's insurance rolls under Amendment 69 would be the "young invincibles" remaining uninsured under the Affordable Care Act. These younger persons use health care at lower rates than today's currently insured.
4. CHI ignores that ColoradoCare would act as an insurance plan and take actions to minimize catastrophic cost losses. Health plans routinely use reinsurance to limit medical cost risk. ColoradoCare administration would be expected to use this strategy.
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5. It is unreasonable to expect providers will need three years to eliminate duplicative billing costs, as argued by CHI. Cost reductions should happen almost immediately. This error understates ColoradoCare surpluses by $500 million.
6. CHI underestimates administrative costs for insurers. Publicly available financial statements for commercial insurers indicate the amount for administrative costs approximates 19%. While there will be administrative costs to operate ColoradoCare, savings will exceed the 14% CHI estimate.
7. The CHI assumption that Colorado is too small to get savings from group purchasing is flawed. Commercial insurers reap discounts through contracting with Pharmacy Benefit Managers ("PBM"). PBM are separate entities from insurers and would have an incentive to work with ColoradoCare to reduce its costs.
8. The National Health Care Anti-Fraud Association states health care fraud costs of 3-10% are included in health care spending. Thus fraud is already in the CHI estimate. One would expect savings from a fraud-reduction program, not increased fraud above the existing average.
The CHI analysis cited in the media paints an inaccurate picture of ColoradoCare's future, grossly underestimating potential surpluses.
These differences are based on real-world experience not considered in the CHI analysis and must be included in our debate on the merits of Amendment 69.
Those who want to control health-care spending in Colorado must vote YES on Amendment 69.
Jeff Helton, Ph.D. is a retired health plan and hospital system chief financial officer. He teaches health economics and health-care finance to undergraduate and graduate students in health-care management.
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