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Denver Health medical center, photographed on Thursday, April 4, 2019. (Jesse Paul, The Colorado Sun)

Colorado lawmakers’ latest plan to reduce health insurance prices has hit a major snag: If it passes, the state could potentially lose out on more than $2 billion annually that it currently receives, including more than $1 billion a year in Medicaid money from the federal government.

The problem has to do with how lawmakers plan to pay for their ambitious “reinsurance” program, which would lower insurance premiums for people in the individual market by helping insurance companies pay their highest-cost claims. As it’s currently structured, the money would come from hospitals, which would be required to put up $500 million over a five-year period.

If the state did that, though, it would almost certainly push the total taxes and fees specifically on hospitals in Colorado above 6% of their net patient revenues. Federal law forbids states from going above that threshold.

And if they do? The feds cut off all Medicaid dollars that the states receive related to those fees, according to an analysis prepared for the HealthONE hospital system, which shared it with state officials and the Colorado Hospital Association last week.

The analysis stopped the reinsurance bill in its tracks. If the analysis is correct, the bill would threaten the hospital provider fee — a vitally important mechanism through which the state pays for the Medicaid expansion and also keeps rural hospitals afloat.

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The provider fee system allows the state to charge hospitals a fee — about $900 million last fiscal year — and then draw down extra Medicaid dollars from the federal government, about $1.3 billion last fiscal year.

If both of those go out the window and the state loses other dollars related to hospital-specific taxes and fees, Colorado stands to lose about $2.4 billion a year, said Katherine Mulready, the hospital association’s chief strategy officer. That’s about 8% of the entire state budget.

And, because the state is currently hitting hospitals with taxes and fees that are about 5.5% of patient revenues, according to the analysis, it now appears that Colorado won’t be able to count on any additional dollars from hospitals to pay for reinsurance.

“This memo basically says you can’t strike that deal,” Mulready said.

This is the second enormous setback for the reinsurance bill.

The idea behind reinsurance is not particularly controversial. States gather up a pool of money to help insurers pay their most expensive claims, thus allowing insurers to lower premiums for everybody. Lower premiums mean the federal government spends less in subsidies to help people buy insurance, and, with federal blessing, states are allowed to put those savings into their programs.

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Seven states have implemented reinsurance programs, mostly by charging taxes or fees to insurers. But Colorado tried to do something different by restricting what hospitals could charge. When it became apparent that the Trump administration was unlikely to sign off on that plan, lawmakers pivoted to the plan that required hospitals to make the initial ante.

State Rep. Chris Kennedy, a Lakewood Democrat who is the House assistant majority leader and also a cosponsor on the bill, said lawmakers have asked the state attorney general’s office to review the analysis. But he said the bill’s sponsors are also looking for new funding sources in the waning days of the legislative session.

Other sponsors of the bill could not be reached for comment Monday.

Mulready said the analysis caught hospitals by surprise. Though supportive of the general goal of a reinsurance program, she said hospitals are now sitting back and waiting to see what lawmakers do next.

“This is entirely new information to all of us,” she said. “…It was really kind of out of left field.”

John Ingold is a co-founder of The Colorado Sun and a reporter currently specializing in health care coverage. Born and raised in Colorado Springs, John spent 18 years working at The Denver Post. Prior to that, he held internships at...