Colorado’s new reinsurance program, one of Gov. Jared Polis’ biggest legislative accomplishments to date, could end up hitting the state budget a lot harder than previously expected, according to a new legislative analysis.

The bigger impact is the result of two recent developments as lawmakers gear up to decide on next year’s budget.

First, the program will count against the state’s constitutional revenue caps next fiscal year — meaning that some funding for the program could squeeze out dollars for other budget items. Then, in requests made last month, Polis asked lawmakers for an additional $60 million to fund the program through its two-year initial run.

So what does that add up to?

As much as $185 million of general fund impact over three years — $165 million more than originally projected — according to a staff analysis for the legislature’s Joint Budget Committee, said Dominick Moreno, a Commerce City Democrat who sits on the committee.

That figure has some lawmakers taking a closer look at the program.

State Sen. Dominick Moreno, D-Commerce City. (Handout)

“We’re really making sure the revenue is there to support this program, and we don’t have to keep coming back to the general fund,” Moreno said.

The Polis administration is standing by the program.

Reinsurance uses state and federal dollars to help health insurance companies pay some of their highest-cost claims, allowing those companies to reduce insurance premium prices for everybody. It will save some families who buy coverage without help from an employer thousands of dollars on their health insurance costs next year, something Polis has proudly touted across the state.

“The reinsurance program is reducing premiums,” said Colorado Insurance Commissioner Michael Conway, one of the program’s architects. “We’re always going to try to reduce premiums to the greatest amount possible.”

Gov. Jared Polis announces a 20.2% average decrease in 2020 health insurance premiums as a result of the state’s new reinsurance program, on Oct. 10, 2019. The decreases apply only to people who buy coverage on their own. (John Ingold, The Colorado Sun)

The TABOR problem

The constitutional revenue caps are a function of the Taxpayer’s Bill of Rights, which limits how much money the state government can take in each year. There’s a way to get around those caps, though, by designating a program as an “enterprise.” Revenue collected by enterprises is exempt from the caps.

Polis and the state lawmakers who created the reinsurance program intended for it to be an enterprise. But, in order to qualify for enterprise status, a program cannot receive more than 10% of its funding from the state — the rest has to come from money it raises on its own, through fees, for example.

Reinsurance is expected to be funded largely by federal dollars. The state’s annual portion comes from $40 million in new fees on hospitals, plus more in tax dollars from the general fund.

The governor’s office says the program will qualify as an enterprise in the current fiscal year and in the 2021-22 fiscal year. But “there is no path to enterprise status” for the program in the 2020-21 fiscal year, Polis’ budget director, Lauren Larson, said in a presentation to the Joint Budget Committee last month.

State Sen. Paul Lundeen, R-Monument. (Handout)

That announcement worried some lawmakers at the meeting. State Sen. Paul Lundeen, R-Monument, said the failure to reach enterprise status could cause a “cascading effect across the entire budget.”

The state is already expected to take in roughly $143 million more than the revenue caps allow in the 2020-21 fiscal year. Adding the money from reinsurance would push the excess even higher and would mean the state has to refund more money to taxpayers, Moreno said. That squeezes the rest of the budget a little tighter.

The budget committee has scheduled a hearing on reinsurance on Dec. 18 to learn more about the issue. The governor’s office, though, contends that the reinsurance program’s funding won’t affect TABOR refunds.

One possible way to blunt the issue is by telling hospitals they have to pay their $40 million in fees in the first half of 2020 — pushing that $40 million in revenue onto the current fiscal year’s books.

Julie Lonborg, a spokeswoman for the Colorado Hospital Association, said hospitals were at one point told that would be the plan. But Lonborg said front-loading the fee payments could hit small hospitals that hadn’t budgeted for such early payments especially hard.

“We’re trying to better understand this and trying for sure to understand whether this is legal and trying to understand what the impacts on our hospitals might be,” she said.

The Polis administration says it is still discussing the timing of the fee payments with hospitals.

The emergency room entrance to Saint Joseph Hospital in Denver, photographed on Oct. 22, 2019. (John Ingold, The Colorado Sun)

The extra $60 million

Complicating the budgetary picture even further, Polis has asked for an additional $60 million to fund the reinsurance program in its second year.

The governor’s office says the additional money shows just how much Polis values the reinsurance program.

“From the day Governor Polis took office he vowed to save Coloradans money on health care, and his budget proposal reiterates his commitment to do just that.” Conor Cahill, a spokesman for the governor, wrote in an email. “The governor’s request to fully fund reinsurance highlights the importance of this program for Colorado and why it remains a top priority for our administration.”

The budget request is a significant addition to the funding streams lawmakers identified for the program in the last legislative session.

When lawmakers passed the program and signed off on its funding sources, the plan was for the state’s share to be around $80 million or $90 million for each year. Polis’ budget request takes some of the money that lawmakers had planned to use to fund both years of the reinsurance program and devotes it solely to the program’s first year.

The result is that Polis’ budget request dedicates up to $120 million of state dollars to the first year of the reinsurance program, according to Conway and the governor’s office. That makes the newly requested $60 million necessary to fund the program’s second year.

Conway said the first-year money insures the state has enough to pay for the program even if officials underestimated how much it will cost. Anything left over can be rolled into the program’s budget for the next year.

But, at last month’s budget committee hearing, lawmakers were wary.

“I’m really worried about that because I’m not sure that’s the right way to use general fund (dollars),” state Rep. Chris Hansen, D-Denver, said after the hearing. “I think we’re going to have to think carefully about that balance.”

Colorado Gov. Jared Polis presents his budget proposal to the legislature’s Join Budget Committee on Nov. 13, 2019. (Jesse Paul, The Colorado Sun)

The funding surplus

Despite the request for extra funding, Conway is adamant that the state did the math right and that the program won’t be underfunded without it. That means he’s confident the state won’t likely need the extra money it’s putting into reinsurance.

Some background here: Earlier this year, The Colorado Sun reported that, with its original funding sources, the reinsurance program could come up as much as $50 million short in its first year, based on insurance company filings estimating how much they would receive from the program.

Michael Conway (Handout)

After additional reporting, The Sun asked Conway whether the filings used for that story took into account the impact of “cost sharing,” the health insurance industry term for things like deductibles and other out-of-pocket costs paid by consumers. Conway looked more closely at the numbers and said they didn’t. After factoring in cost sharing, Conway said the insurer estimates did not in fact show a shortfall. (The Sun has updated the original story with Conway’s position and some additional information here.)

So why is there now the need for extra money?

Conway said Polis “put his money where his mouth is,” to be sure the premium decreases from reinsurance would stick around.

“He agrees that this is an important thing for Coloradans, and he wants to continue that,” Conway said.

Earlier this year, Polis announced that the reinsurance program had reduced premiums for people who buy coverage on their own by 20.2%, knocking as much as $10,000 a year off some families’ health insurance bills. (For various complex reasons, though, some lower-income people could end up paying more.)

Lawmakers meet in the Colorado House of Representatives on May 1, 2019. (Jesse Paul, The Colorado Sun)

The big unknown

In addition to the state funding and hospital fees, the reinsurance program is paid for with federal dollars. But the federal government has yet to calculate how much it will give the state.

In an application for the funding, state officials projected the federal contribution at about $163 million in the first year. Conway said state officials should get a preliminary figure this month of what the federal government is actually going to contribute. A final figure won’t come until next year.

That makes it especially unpredictable to know whether Colorado will have enough money to pay for the program.

Still, state Sen. Kerry Donovan, a Vail Democrat who sponsored the reinsurance bill at the Capitol, said it’s important to continue the program, funding uncertainties and all.

“Of course I’m concerned about the financing of reinsurance because it’s been such a significant impact in the district,” she said. “But those are the challenges that come with the fiscal situation in Colorado.”

Staff writer Jesse Paul contributed to this report.

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