Three Health Gambles in Governor Hickenlooper's Budget

Governor John Hickenlooper released his 2016-17 budget plan Monday night, and it’s going to give people plenty to fight about in the next five months. Health care will play a starring role.

Overall, the budget calls for modest spending increases, but once you factor in tax refunds and enrollment growth in Medicaid and public schools, a lot of departments will be facing cuts. 

Hickenlooper’s plan is sure to pit different interest groups against each other.
Colleges are in for a $20 million cut, and Hickenlooper plans to subtract $50 million from K-12 schools.

This is where it gets interesting for health policy. The governor is gambling on three big items in his budget plan.

Gamble 1: The Hospital Provider Fee

Expect to hear a lot about this fee between now and next spring. It has become central to the state budget, because it’s forcing refunds under the Taxpayer’s Bill of Rights (TABOR).

This fee was enacted in 2009 as a way to fund a pre-Affordable Care Act expansion of Medicaid, as well as to compensate hospitals for the cost of charity care. It draws more than $600 million a year from hospitals, plus matching funds from the federal government. Most of the fee, plus the matching funds, are then returned to hospitals — making them big supporters of the program. (If you need a refresher on the Provider Fee, check out our blog from April.)

TABOR requires tax refunds when the state budget grows faster than inflation plus population growth. This year, the state will exceed the TABOR cap by a projected $289 million. Without the Provider Fee, Colorado would be under its TABOR limit, and no refunds would be needed for years to come. Hospitals are the main beneficiary of the fee, but TABOR refunds are paid by the general fund, leaving less for schools, colleges and highways.

Hickenlooper said last spring that he would push to reclassify money from the Provider Fee so it is no longer subject to TABOR. But his new budget doesn’t do that. Instead, it calls for a $100 million reduction in the fee, which means TABOR refunds would still happen next year, but the projected amount would be lowered by $100 million. The move also would require Colorado to give up $100 million in federal matching funds — money that would have gone to hospitals. 

Here’s the gamble. Most Republicans don’t want to reclassify the fee. It’s unclear whether Hickenlooper intends to push for his original plan, but his budget inflicts pain on hospitals. He could be betting that hospitals will shout loud enough to get the attention of legislators from both parties and encourage them to remove the fee from TABOR calculations.

Gamble 2: Provider Rate Cuts

Hickenlooper is calling for one percent provider rate cuts for doctors, social workers, and just about anyone who provides services to people who receive government benefits. The big exception is primary care providers, who would be exempt. The cuts would save a projected $45.6 million.

This is a gamble for Colorado’s Medicaid program, which has been pushing to get more doctors and dentists to accept its clients. Medicaid enrollment has exploded since the Affordable Care Act took effect, reaching nearly 1.27 million people last month. The governor’s budget office is predicting only a modest increase of about five percent, to 1.35 million by June 2017, the end of the 2016-17 fiscal year. Still, many reimbursement rates are low already, and finding providers can be a challenge. The governor’s office is betting that another rate cut won’t make the situation worse.

Gamble 3: The Contraception Debate

The governor’s budget includes $2.5 million for a program that provides long-acting reversible contraception (LARC). It’s a tiny sliver of state spending, but it could end up being ground zero for the whole budget debate.

The funding would replace grant money for a program that supporters credit with a large drop in the rate of unintended pregnancy in Colorado. Senate Republicans turned down a bill in 2015 to provide $5 million to keep the program afloat. Some cited moral and religious objections, while others said it’s not the government’s role to provide birth control.

Hickenlooper wants to put the funding straight into the budget without running a separate bill. The administration was told that this wasn’t allowed during the last legislative session, but a new legal opinion has changed that. Funding LARC through a line item in the budget could force opponents to either accept the program or risk derailing the whole budget next spring. The governor is hoping for the former choice.

The Hickenlooper administration has placed its bets on this strategy. Early next year, opponents will get a turn to play their cards.

Joe is Manager of Public Policy Outreach at CHI.