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The Colorado Health Foundation's flawed Medicaid modeling

With apologies to Mark Twain, there is something fascinating about economic models in the hands of those who never met a government program they didn’t like. With a small investment in an off the shelf model, one can get wholesale returns of conjecture out of a trifling investment of fact.

An excellent example comes from the Colorado Health Foundation. It recently used the RIMS II input-output economic model from the Bureau of Economic Analysis to conclude that Colorado’s Obamacare Medicaid expansion is free. More specifically, “the combination of federal funding for expansion, the decision to use the [Hospital Provider Fee] as the source of revenue for the state’s share of expansion costs, increased tax revenue due to the larger post-expansion economy and modest savings in other state programs has and will allow Colorado to support this expansion at no cost to the state’s General Fund.” [Emphasis in the original.]

Asserting that more Medicaid spending makes people better requires believing that the tooth fairy pays federal taxes, that Santa Claus pays the hospital provider fee, and that costs matter only if they must be defrayed by the state’s General Fund.

icon_op_edThe private sector creates the value that supports government programs. Taking more money out of it to expand government programs reduces jobs, income, and individual well-being. Modeling exercises typically ignore those losses. Even so, the supposed economic benefits of Colorado’s Medicaid expansion are not much bigger than statistical noise.

The Colorado Health Foundation says expansion created 31,074 new jobs. The Bureau of Labor Statistics estimated that there were 2,582,000 people in the Colorado labor force at the beginning of 2016. Any estimated annual increase of less than 25,539 people would have a 9 out of 10 chance of being no different from zero. For the record, the jobs created are about the same as the number lost in oil, gas, and mining in 2015. And we don’t know whether these jobs are 4 hours a week jobs or 40 hour per week jobs. The RIMS II model cannot distinguish between them.

Medicaid expansion supposedly increased household earnings by $643 a year. This sounds like a lot, but consider that the 2013 American Community Survey put Colorado’s median household income at $58,823. The error associated with the estimate was plus or minus $808 (Earnings differ from income in that earnings include employer payments for health insurance). While no one would turn down $643, the premium increases on the coverage Obamacare forces people to buy probably lightened household wallets by at least as much.

Why such a lightweight report now? With expansion costs much higher than predicted, sensible state legislators are asking whether the gains from expanding Medicaid to able-bodied adults justifies smaller increases in programs like K-12 education, highways, and higher education. Tens of millions of state dollars have been spent to cover relatively healthy people who had health care before the expansion. This makes it hard to show that Medicaid expansion has created any broad improvements in health.

The Colorado Health Foundation needs to short-circuit this kind of thinking. It conflicts with its plans to transform health care. Rather than promoting policies that empower individuals to create the kind of health care they want by spending their money on it as they see fit, the Foundation and its fellow travelers are hard at work “driving integration of different healthcare delivery modalities including primary care, specialty care, oral health and behavioral health.”

Never mind highly integrated delivery systems like the VA deliver some of the worst health care in America.

Having government control health care makes it easier for the Foundation to get the transformation it wants. It influences government policy directly by giving millions of dollars a year to state and local governments. It spends millions more to fund smaller organizations to pressure governments to adopt its policies.

Unsurprisingly, the Foundation likes Medicaid expansion. It likes it so much that it baldly states that one of its goals is the “protection of policy and budgetary successes from the past few years, including, but not limited to, the Medicaid expansion, the Essential Health Benefits requirement, and the health benefit exchange.”

The Foundation has a lot of money to spend on its government-run health care protection push. In 2011 it sold its 45 percent share of HealthOne to HCA hospitals for $1.45 billion.  According to the Denver Business Journal, it then changed its focus from being a community partner with the hospital system to “encouraging healthy living.” In 2014 it reported assets of over $2.3 billion and its CEO made almost $600,000 a year.

With that kind of money and a non-profit’s immunity from taxation, it is no wonder that the Colorado Health Foundation efforts so often fail to consider the possibility that expanding government programs actually do more harm than good by raising the average person’s taxes, restricting his choices, and eroding his health care freedom.

Linda Gorman directs the Health Care Policy Center at the Independence Institute, a free market think tank in Denver.

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