ARTICLES :: WHAT WE HAVE LEARNED - A SERIES
May 10, 2005Colorado's Changing Demography
Understanding the Effects of Demographic Change on State Spending
By Forrest Cason
With each successive wave of economic expansion and retreat, there are subtle and pronounced changes in the demographic characteristics of Colorado’s populace. Some of these changes reflect the broader trends occurring throughout the United States, while others appear to be more regional or local. For example, the aging of the “baby-boomers” is a trend evident across the nation, as is the trend in the relatively slower growth rate of the non-Hispanic white population. Significant in-migration of baby boomers has greatly amplified the baby boom demographic in Colorado.
These demographic trends can have major consequences for our state. The rapid growth of baby boomers in their peak wage earning years continued to push Colorado toward the top of national rankings in per capita income, and resulted in strong revenue growth for the state and many local governments until the beginning of the recession in 2001. But as the baby boomers grow older, they will begin to retire, lowering our rate of growth in income and swelling enrollment in health care programs such as Medicaid and Medicare. Currently, Hispanics comprise 25% of Colorado’s public school students, but only 15% of high school graduates. So strong growth in our Hispanic population means that we need to focus on improving graduation rates and encourage college attendance if we are to continue to be the second leading state in the nation in educational attainment. Educational attainment is very important to our state because our highly educated workforce has been a key to attracting jobs and business investment to Colorado.
These examples underscore that knowing the details of demographic growth and change is a very important component of the public policy process. While lawmakers often use the shorthand of “averages” as they strive to craft a vision and direction for Colorado’s economic and fiscal future, the details of demographic trends can have huge consequences on the outcome of legislative initiatives. Current trends in the composition of Colorado’s population can affect the state’s spending for education and healthcare. Our recent economic downturn has forced the state to reduce funding in areas where the demographic needs are the greatest.
Colorado ranks 15th in the nation in the percentage of population under age 5. Early childhood education is the foundation for successful life-long education. In Colorado the number of families with children under age five who do not have sufficient financial resources to give their children access to “pre-school” is growing. In 2005 in the City and County of Denver alone estimates based upon data from the Colorado Department of Local Affairs indicate that 39% of three and four year olds live in households with incomes at or below 200% of the federal poverty level ($37,700) per year for a family of four). Meanwhile, fiscal year 2005 state funding for the Colorado Preschool Program which is a program intended to "serve 3 and 4-year olds who lack overall learning readiness" has declined by more than 14% compared to the 2003 fiscal year funding, according to the Colorado Children's Campaign.
Medicaid is expected to cost more than $3 billion and account for 22% of the state budget in fiscal year 2005. The Medicaid caseload for children increased by 74% between fiscal 2001 and 2005, but Medicaid expenditures per child declined by 8% during the past five years. One out of every six children in the state is covered by Medicaid.
Since 2001 the picture has become even more dramatic in terms of the demands on Medicaid resources and the state’s ability to keep up with these demands. Although the caseload associated with the elderly increased by 8.8% between fiscal 2001 and 2005, the state's expenditures for this segment of the population increased by over 20% between fiscal 2000 and fiscal 2005. In 2005, the average annual expenditure per elderly Medicaid enrollee is $14,495, the majority of which is devoted to nursing facility long-term care. Ten percent of Colorado’s citizens who are age 65 or older are covered by Medicaid.
While the demographic trends put increasing funding pressure on the state’s Medicaid programs, the limited flexibility available to increase funding for these programs has intensified the shifting of cost to healthcare providers and to insured individuals. As providers receive proportionately less compensation for each Medicaid patient they care for, they either absorb a greater portion of the total cost of that care or make it up by increasing the cost to insured patients. As the magnitude of the cost shift increases, individuals covered by Medicaid are finding less access to care because the providers can no longer absorb the cost shift.
Demographic trends will continue to impact the state in the years ahead. Data from the 2000 census indicate a disproportionate growth in the baby-boom generation when compared to the overall rate of the state’s population growth. In addition, many recreational communities report that non-resident baby boomers are purchasing homes and property in Colorado with the intent of retiring here in a few years. Assuming the majority of these baby boomers maintain their residence in Colorado, we can expect that they will add to the pressure on the state’s already stretched healthcare support system. In 2001, the Denver Metro Chamber of Commerce issued a report titled “Medicaid, the Uninsured and the Impact on Your Business.” Among the findings addressed in that report is that “Medicaid is the primary payer for 60 percent of all nursing facility expenses and 80 percent of alternative long-term care services in the state of Colorado.”
As can be seen from just these examples, the implications of demographic change on the state’s fiscal situation are manifold. Absent the ability to control the shifts in the composition of its population that impinge heavily on the consumption of public goods and services, the state can position itself for the future by understanding its past and by anticipating future trends.
Forrest M. Cason is the senior vice president of finance and CFO for the University of Colorado Hospital Authority which he joined in 1998. From 1996 to 1998 he served as the chief financial officer for the Stapleton Development Corporation, and from 1991 to 1996 he was vice president at Kirkpatrick, Pettis, Smith, Polian, Inc., working in public finance investment banking.