Coming to Colorado: Single-Payer Health Insurance

It's here: universal health insurance for Colorado residents. Initiative 20, sponsored by the ColoradoCareYes campaign, proposes a state constitutional amendment creating ColoradoCare, a universal health insurance cooperative for all Colorado residents. Up for vote in 2016, it would replace Medicaid for Colorado residents and the Colorado health exchange that is mandated by the Affordable Care Act with one unified system of health insurance for all Colorado residents. 

Structure of ColoradoCare

There are two organizational structures for ColoradoCare.

  1. The Interim Board. If voters approve Initiative 20, an interim board is appointed. The Speaker of the House, the President of the Senate, the House minority leader, and the Senate minority leader each appoint 3 members to serve on the board. The Governor gets to appoint a final 3 members. This Interim board is responsible for getting ColoradoCare up and running with an initial consulting team and setting a few ground rules for the insurance cooperative, including election rules for the governing Board of Trustees.
  2. The Board of Trustees. Three years after the initial ratification of ColoradoCare, a governing Board of Trustees will be elected by Colorado residents. There will be 21 total trustees elected from 7 districts in Colorado (these districts are created by the Interim board). This Board of Trustees appoints a CEO, CFO, and CMO (Chief Medical Officer) to run ColoradoCare. They coordinate all responsibilities and duties required by law to effectively run ColoradoCare. They are elected for four year terms with staggered re-elections held every two years (similar to how U.S. Senators are elected). They are also limited to a total of two four-year terms. 

The Board of Trustees is not overseen by the Governor or the legislator. While it is a "political subdivision" of the State of Colorado, it is a cooperative business model. Read more here about what a cooperative is and how it works. Essentially, ColoradoCare is a resident-owned health insurance "business" where residents of Colorado elect their directors (i.e. the Board of Trustees) who in turn hire managers (like a CEO) to run the business. Fun fact: the Green Bay Packers is a cooperative. 

This means ColoradoCare runs on voter approval, not the political machinery of the state legislature or the Governor's office. 

What ColoradoCare Does

ColoradoCare is supposed to replace the need for private health insurance. It is a tax-funded health insurance cooperative that provides health care services to all Colorado residents, for life. From the bill: (Section 6)

ColoradoCare shall contract with providers to pay for health care services to beneficiaries that must include:

  1. Ambulatory patient services, including primary and specialty care
  2. Hospitalization
  3. Prescription drugs and durable medical equipment
  4. Mental health and substance use disorder services, including behavioral health treatment
  5. Emergency and urgent care
  6. Preventative and wellness services and chronic disease management
  7. Rehabilitative and habilitative services and devices
  8. Pediatric services, including oral, vision, and hearing care
  9. Laboratory services
  10. Maternity and newborn care
  11. Palliative and end-of-life care

ColoradoCare, again, is a health insurance cooperative that pays for the above services for all Colorado residents. It also covers work-related injuries. ColoradoCare also includes the same benefits for qualifying individuals on Medicaid and Children's Basic Health Plan (CHP+). The added benefit is ColoradoCare's insurance benefits don't go away if individuals lose eligibility for Medicaid or CHP+. There are no deductibles for any resident underneath ColoradoCare.

ColoradoCare is adaptable to Medicare coverage. Medicare recipients can either opt for ColoradoCare as their advantage plan (i.e. provides all Medicare benefits except prescription drugs) or they can keep their Medicare plan and use ColoradoCare for supplemental coverage. This is useful to those who require Part D, the prescription drug coverage. 

ColoradoCare finally simplifies administrative capacities and billing systems. Per the law, it creates a unified billing system and manages payments for all residents using ColoradoCare. It also negotiates for prescription drug prices and medical equipment (fulfilling #3 of the above list). 


Where the money comes from and where it goes is always the most important part of a big health reform like this. There are two stages:

  1. Transitional Funding. These taxes are immediately enacted if Initiative 20 is approved by voters. These transitional tax rates will continue for 3 years until the elected Board of Trustees takes over. 
    • Employee payroll tax increases by .3%.
    • Employer payroll tax increases by .6%. 
    • Non-payroll income increases by .9%. 
  2. Premium Tax Funding. These taxes are instituted 30 days before ColoradoCare begins health care payments and continues so long as ColoradoCare exists.
    • Employee payroll tax increases to 3.33%.
    • Employer payroll tax increases to 6.67%.
    • Non-payroll income increases by 10%. 

These taxes (both transitional and premium) are levied on income up to $350,000 for an individual or $450,000 for a couple. These caps are adjusted by inflation each year. 

The Board of Trustees may raise those premium tax rates once per fiscal year but only with a majority approval of ColoradoCare members (i.e. voters). The interim board (the one politically appointed) does not have the power to raise tax rates. 

What's the Catch?

There are still a few unanswered questions I have after reading through all of the available literature on Initiative 20, including the actual constitutional amendment. 

  1. Copayments. All of the available information is rather vague on how copayments work. For "designated" primary and preventive care, copayments are not allowed. Copayments can also be waived for "financial hardship" - the bill's term. However, if health care providers want to institute a copayment scheme, they need approval from ColoradoCare. My question is this: does approval from ColoradoCare mean approval from the Board of Trustees or all members of Colorado Care? If it's from all member (literally all residents of Colorado), that'd be a stupidly arduous process for voters to approve every single copayment scheme. Most likely, they wouldn't approve any. Secondly, if approval is from the Board of Trustees, how can we make sure there won't be corruption? I'm sure at least one Trustee will be involved in the health care industry: won't they be advocating for copayment schemes that benefit their own interests?
  2. Dental. Technically speaking, ColoradoCare doesn't cover dental. According to the campaign, there will be a surplus of money raised through the premium taxes (~$1.2 billion) that the Board of Trustees could expand ColoradoCare's coverage to dental -- but unless that happens, Colorado residents are paying out of pocket for dental. 
  3. Cost effects. Economic analysis of ColoradoCare versus the status quo shows there should be savings. Key words: should be. Everyone claimed the Affordable Care Act would reduce health care costs but there's mixed evidence on that. The main analysis shows massive savings in administrative costs (~$6.2 billion), drug & equipment cost (~$1.2 billion), and fraud (~$600 million). These savings are hinging on the fact that the CEO and workers of ColoradoCare perfectly execute a new unified billing system, payment processing, and effectively negotiate drug and equipment prices down. That's a big "if" in the world of health care. 
  4. Business effects. Businesses pay a disproportionate amount of the payroll increase (2/3 compared to only 1/3 for the employee). Does that offset the ~$3.8 billion in supposed total savings now that they don't need to cover health benefits through private insurance? In strict economic terms, it depends on the size of the business. Those large enough to already provide health benefits (or are required to by the Affordable Care Act) will see obvious savings from ColoradoCare. Smaller business that don't provide health benefits or aren't required to be the Affordable Care Act will see a jump in health-related expenditures. (Note: the economic analysis of the $3.8 billion saved is the difference between the current amount spent vs the amount spent underneath ColoradoCare, meaning business on average will be saving money). 
  5. Negatively impacting the self-employed. This is an interesting issue raised with a 10% non-payroll income increase: non-payroll income includes "business income" as defined by the law, meaning the self-employed would pay a huge extra amount in taxes. They already pay 15.3% for Social Security and Medicare; they would now pay roughly an extra 10% of their income for these benefits. That totals to a whopping 25.3% of income before deductions, not even considering income tax rates. (The campaign notes that the 10% state tax can be considered a deduction, meaning the effective tax rate on non-payroll income is anywhere between 5.3% and 8.73% -- still a large increase for the self-employed. See page 33 of this document for more information).  Unlike the individual mandate, the 10% tax increase can't be opted out of for a fine, meaning entrepreneurs are really taking a big risk starting a new business. Given that over 10% of the population of Fort Collins & Lakewood are already self-employed, this is going to have a big impact on Coloradoans. 
  6. Negatively impacting hiring practices. Since the payroll increase for employers is seen in W-2 wages, small businesses may be more incentivized to hire people as independent contractors (1099 form) or W-4 workers. This shifts the burden of paying for the health care solely to the employee (since working as an independent contractor means you're self-employed). Certainly, a lot of businesses cannot solely hire independent contractors, but I can almost guarantee there will be a spike. Also, businesses can't commit tax fraud by filing W-4s instead of W-2s, but there are obvious incentives to prefer independent contractors. 
  7. Unanswered questions on third-party insurance. There is seriously only one line in the amendment that even considers whether ColoradoCare "forces" people out of their current insurance plans and into the cooperative. This could become a headache for cross-state businesses paying for private health insurance for all their employees except the ones in Colorado. The cursory mention from the bill is Section 11 that reads: "ColoradoCare serves as a secondary payor to any health insurance plan in which a beneficiary is enrolled or which may be responsible for a beneficiary's health care expenses. The total of ColoradoCare's payment and all other payments shall not exceed the amount that ColoradoCare would pay if it were the only payor." This is so confusing to me: does that mean private insurance can only cover up to what ColoradoCare covers? Or, is ColoradoCare a supplemental payment system? 
  8. Unfair taxing practices. More importantly, if ColoradoCare doesn't force people out of their current plans, residents still pay 10% (split on payroll, not split on non-payroll) as a tax. What if someone gets "better" coverage through their current plan and wants to keep it? That's a huge increase in taxes for a service they won't be using, especially if ColoradoCare doesn't provide the same benefits as their private insurance plan. People will most definitely view this as unfair.
  9. Adverse affects on unemployment & funding. There are two points to this:
    • The unemployed in Colorado are covered by ColoradoCare -- they are residents of the state after all. If there is an economic downturn, ColoradoCare could have a large financial strain if there isn't enough revenue raised by taxes. That's a big solvency issue. (Yes, Social Security is funded the same way, but it's funded from the whole nation's labor force, not just a state's -- and it has solvency issues anyway). 
    • Unemployment could persist at higher rates since business may be less incentivized to hire employees. They pay higher taxes for all W-2 employees. Temporary unemployment may be offset by businesses hiring more independent contractors: if this is true, my point in #6 about taxation burden of the self-employed is only reinforced. 
  10. Negative demographic changes. Given ColoradoCare's health insurance model, a lot of people may want to move to Colorado for the same reasons they moved here after the legalization of marijuana: they want it. While the Board of Trustees could implement a "pre-condition" requirement (i.e. you can't move to this state for treatment for a medical condition you already have), it's still a huge influx of people. That exacerbates property demand, causing prices to jump even higher. Sure, we hope that more people = more businesses = more jobs = more economic growth = more tax revenue, but I don't how complete that picture could become. This is especially true for homeless & jobless individuals trying to take advantage of the new system. Is this a reason not to implement it? Probably not, but it's a consideration.
  11. Hospitals may be strapped for cash. ColoradoCare negotiates for pricing on drugs, equipment, and care. The American health care system model is based on a fee-for-service model, meaning doctors are paid for each service they provide. If the negotiations provide payment for services that are too low, hospitals could be running (too) thin profit margins on services. This prevents long-term investments, expansion of facilities, etc. This could be especially true for research hospitals. Hospitals could opt to salary their doctors to try and reduce costs, but that could cause doctors to leave, seeking a higher income in other states. I'm unsure as to the degree this would be happening: will doctors want the larger income or prefer to stay in Colorado because it's a great state to live in? I don't know. 
  12. Health care providers may be overcrowded. The no-brainer assumption: more people are going to be using health care providers (private practice doctors, hospitals, etc.) now that they have the insurance to cover them. While Colorado has seen dropping uninsured rates, a little under 10% of the population of Colorado are still uninsured. Will hospitals and private practice doctors be able to accommodate the new demand for services? Not in the short term. It takes time to build new hospitals and offices. It's possible the new system could entice new health care providers to join the industry (i.e. doctors move here or come out of retirement) to help along, but I'm unsure if there will be enough new practitioners to offset the demand. If these health care providers are overcrowded, how will quality of care be impacted? What will wait times be like? Will nurses and other assistants be too overworked that they begin to make mistakes on paperwork and medication? Those are just a few questions on the consequences of overcrowding. 

My above qualms/questions make a few assumptions.

The first is that a business is trying to minimize as many costs as possible. This isn't always true: sometimes companies want to attract top talent and will offer extra bonuses (like good health benefits + paid time off) and won't mind the change in taxation rates, considering it a "burden of doing business" in this great state. I would say, however, that most businesses do follow this assumption at some level. 

The second is that ColoradoCare will be executed perfectly. This is not going to happen. There will always be troubles in pulling off a massive health care reform, especially one that requires new billing systems, financing techniques, and negotiations for pricing. It would be a historical achievement for a politically-appointed board to find the right team to execute all of the above in a cash-strapped 3 years. I just don't see it happening without some kinks in the process. More importantly, the elected Board of Trustees would have to find the right CEO/CFO/CMO (Chief Medical Officer) to continue the perfect functioning of ColoradoCare.

The last assumption I'm making is that Initiative 20 would actually pass. It has little hope. Colorado's Taxpayer Bill of Rights (TABOR) requires voter approval for all tax increases. On a statewide level, voters have only approved one tax increase since 1992, when TABOR initially passed: it was a 64-cent increase on cigarettes (Amendment 35 in 2004). Although this is a voter's initiative and not an approval of a state legislative proposal, TABOR's history provides a proxy for Colorado's voting habits on tax increases. Do we realistically expect voters to approve a 10% increase on income? Absolutely not.

My last note is that ColoradoCare is not universal health insurance. In an "ideal" model of universal health insurance, everything is covered. That's why we can call it "universal." ColoradoCare does not cover dental (until they have a surplus of funds) and it allows copayment schemes for specialty care, medications, and tests that are only waived for financial hardship. This means people would still have to pay out of pocket for a lot of the necessary medical services and pharmaceuticals they need, albeit at a hopefully lower cost since ColoradoCare negotiates for prices, despite the higher tax rates in place. 

Initiative 20 does represent an example for future single payer health insurance models in America: make it a cooperative. Colorado residents own part of their business and will most likely feel invested in the success of the model (especially if those taxation rates remain that high). The political climate in Colorado is simply not ready for ColoradoCare. Even if citizens were ready, the economic consequences could be too adverse to make it worthy of funding. 

Full disclosure: Roosevelt @ DU has met with Sen. Irene Aguilar, the prime sponsor of Initiative 20, to discuss potential partnership work on health care policy. I have served on a campaign finance panel with Sen. Aguilar as well. This obviously doesn't stop me from critiquing policy.