Would ColoradoCare be an adverse selection magnet for people moving to Colorado?

Colorado will certainly be a state to watch in 2016. Not only is Colorado up for grabs in the presidential election, it’s also the only state in the country – so far – where voters will be asked to decide whether the state should switch to a single payer healthcare system, dubbed ColoradoCare. I explained an overview of how ColoradoCare would work in a recent About.com article, and I’ve also explained my own reservations about ColoradoCare from a personal perspective.

Here’s the text of Initiative 20/Amendment 69. Colorado voters will decide next fall whether or not they want to implement the single payer system outlined in the initiative. And here’s a cost comparison for 2019 under our current system versus ColoradoCare. If voters approve ColoradoCare, it would take effect in 2019. A small transitional fee would begin to be assessed on Colorado residents and employers starting in July 2017, and continuing until November 2018. The transitional fee would be only three tenths of a percent of income for employees, and six tenths of a percent of payroll for employers. In December 2018, the transitional fee would be replaced with the full ColoradoCare fee: 10% of income, but for people who have an employer, the employer pays two thirds of the fee and the employee pays just one third.

Should ColoradoCare have a deductibleSavings would be most pronounced for employers who currently pay the highest premiums for workers’ comp insurance, since ColoradoCare would replace the medical coverage portion of workers’ comp (workers’ comp would still be necessary to cover disability and lost wages, but premiums would be lower). Businesses that are in dangerous professions (tree trimmers, roofers, etc.) would pay the same ColoradoCare premium tax as businesses with office workers, as opposed to the disparity that currently exists in workers’ comp based on the level of danger inherent in the job.

How to prevent people “gaming” the system?

There is certainly some risk involved in being the first state to take the single payer leap. It appears that the risk is heightened by the fact that ColoradoCare would have no deductible (from my own perspective, I’d prefer to have a deductible). The ColoradoCare information booklet indicates that a rent receipt might be adequate for demonstrating residency, and there’s no waiting period for accessing benefits. So in theory, a person could move here, submit a rent receipt as proof of residency, immediately access healthcare – with no deductible – and then leave the state once the treatment ended.

If every other state has plans that charge deductibles, Colorado could seem like an attractive destination for someone in need of significant healthcare, leading to adverse selection for ColoradoCare. But that could be solved by assessing an ACA-style deductible (probably somewhere between $3,000 and $6,000) for anything other than preventive care received during the first year after a person moves to Colorado:

  • The deductible would be waived for people with incomes that would have made them eligible for Medicaid under the current system (income up to 138% of the poverty level). There is still a risk of Colorado being an attractive destination for people who live in states that haven’t expanded Medicaid, but 30 states and DC have expanded Medicaid so far, which means Colorado has plenty of company in this regard.
  • The deductible could be reduced for people who would have qualified for the ACA’s cost-sharing reductions under the current system. Residents who move here now and have incomes under 250% of the poverty level (particularly those with income under 200% of the poverty level) are eligible for silver plans with lower out-of-pocket costs. So perhaps the ColoradoCare deductible could be pegged somewhere between $1,000 and $2,500 for new arrivals to Colorado who would have qualified for cost-sharing reductions.
  • For everyone else, a deductible in the range of $3,000 to $6,000 could be assessed if they need treatment beyond preventive care in the first year after they move here. That would put their care on a par with what they’d have received prior to the implementation of ColoradoCare, if they had been purchasing a private plan through the exchange or in the individual market outside the exchange.

A deductible during the first year would make Colorado just like every other state (or at least the 30 that have expanded Medicaid), and not particularly any more attractive for people who have immediate healthcare needs. Upon moving to Colorado, new residents could be enrolled in ColoradoCare but with a temporary ID card that indicates their deductible level. After a year in the state, they’d be eligible to switch to regular ColoradoCare without a deductible.

State Senator Irene Aguilar is spearheading the ColoradoCare initiative, and I spoke with her about this issue. She mentioned that the definition of “resident” was intentionally left vague in the initiative, so that the Board of Directors would be able to solidify the definition and add any additional requirements that might be necessary to prevent someone from gaming the system based on residency. Deductibles are one possibility, as is the ability to discern whether or not a new arrival in Colorado is moving here as a result of a job offer. If not, it would certainly bring into question the person’s motives for moving to Colorado – assessing a deductible when someone moves here without a job offer might be one way around the adverse selection that could otherwise occur.

EDIT, 1/19/16: I’m reading through the ColoradoCare information booklet again, and I noticed a footnote that I missed the first time around. On the bottom of page 11, it says:

*If there were a financial strain on ColoradoCare as a result of people with high cost health care needs moving to Colorado for affordable health care, ColoradoCare could establish one-year pre-existing condition limits for new residents. Such limits would need to be in compliance with Medicaid and Affordable Care Act waivers.

That would solve the problem just as well as a deductible… probably even better, since an all-out exclusion would make Colorado less attractive than other states for people with serious health issues. It would certainly seem to solve the problem of people wanting to move to Colorado in order to get medical care.

About Louise Norris

Louise Norris has been writing about health insurance and healthcare reform since 2006. In addition to the Colorado Health Insurance Insider, she also writes for healthinsurance.org, medicareresources.org, Verywell, Spark by ADP, and Boost by ADP, and Gusto. Follow on twitter and facebook.

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