Fact vs. Fiction: Arkansas' Game-Changing Medicaid Expansion Plan

A lot of information is floating around about the state's first-of-its-kind plan to expand Medicaid under Obamacare. Arkansas' Medicaid director sets the record straight.

Last month, Arkansas changed the entire conversation around the Affordable Care Act's Medicaid expansion. When Gov. Mike Beebe announced he had reached a preliminary agreement with the U.S. Department of Health and Human Services (HHS) to use Medicaid dollars to pay for private coverage sold on the insurance marketplaces that are being created by the ACA, health policy wonks and GOP officials across the country took notice.

In short, the state has proposed using the Medicaid expansion dollars (almost all of which will come from the federal government) to pay for the Medicaid expansion population (138 percent of the federal poverty level and below) to purchase private coverage on the marketplaces, formally known as exchanges. It was a first-of-its-kind plan.

Republican governors and lawmakers in at least a half dozen states have said they might be interested in doing something similiar. For obvious reasons, the prospect of putting more people into private insurance is ideologically appealing to conservatives who initially (and some still) viewed Obamacare as government overreach. But there are still a lot of questions surrounding the proposal. Can HHS authorize such a move? Is this going to be cost-effective? Many experts are doutful because Medicaid is almost always cheaper than private coverage. And if it is approved in Arkansas, can any other state get a similar deal?

Governing spoke with Andy Allison, Arkansas' Medicaid director, to work through some of the facts and fictions surrounding his state's plan. What follows is a transcript of our conversation, edited for clarity and length.

True or False? You proposed this because the Republican-controlled legislature wouldn't pass a regular Medicaid expansion.

Andy Allison (AA): I think the emerging answer to that question is true. We don’t ever know till the end of the legislative session what the legislature would or wouldn’t do. But certainly the message that we received is we’re looking to do something different from a traditional Medicaid program, and it was very clear that the likelihood of a passage of a standard expansion was dicey at best. I think it has become evident in the last several weeks that in fact we would have very little, if any shot, at passing a traditional Medicaid expansion.

I didn’t see this coming myself. I’ve been in Medicaid for 20 years. It is essentially undiscovered territory. I don’t think until the last several weeks that the possibility we’re now pursing was on anyone’s mind. I’ll give credit to the legislative leaders who continued to press for alternatives that would put people into the exchanges so they could buy private coverage. That was the spark. I wish I could say it was my idea, but I really didn’t predict it.

HHS has fully signed off on your proposal.

AA: Conceptually, true. Principally, true. The formal approval will have to await a formal and specific request. We’re of course waiting to make any formal and specific request until after our legislature has decided what’s going to happen. They are currently considering a bill. That sequence of events has to be completed for us to gain formal approval, but there is no doubt in any of our minds that they’ve approved the concept, that they’ve approved the principles and that we’re on very solid footing and therefore proceeding with our legislature.

You're pursing this plan without any waiver authority -- or at least outside the usual Medicaid waiver process.

AA: That’s false. We’ll have to proceed through a statutory process. We’re waiting to confirm exactly which waiver we’re going to need. I believe it will be a Section 1115 waiver authority that's required. Once we get legislative approval, then we’ll begin the formal waiver process very, very quickly.

Of course, the nature of a 1115 waiver is that there is a research and demonstration value in it. It used to be my job at (the federal Office of Management and Budget) to review these kinds of waivers. We believe that there is a profound opportunity for research and evaluation of this ‘private option’ and its potential widespread applicability across the country. I think there is a tremendous value to the country in looking at this.

This is going to end up costing the state and federal government more than the regular Medicaid expansion.

AA: That’s false. The big question for Arkansas or any other state is: Is there enough provider access to support an expansion? What we believe is that our reimbursements are not enough for Medicaid to ensure access for a quarter-million new participants in a traditional expansion, at the same time that another 100,000 are gaining access to private coverage through the marketplaces. That’s a great deal of new access.

So Medicaid is going to have to pay-to-play. And Medicaid is going to have to pay-to-play even if it were a traditional expansion. We'd have to increase reimbursements to ensure access. So, no, we don’t believe that this is some costly exercise.

Let me put it this way: From the provider’s point of view, whether it's a provider who is currently serving a Medicaid population or one that might choose to serve a private expanded population in the future, they have to decide to accept new patients. I really don’t believe that they’re distinguishing whether it’s a private or a public payer. They have a dollar amount they’re going to need in order to provide that service. I don’t think that dollar amount is any lower in Medicaid than it would be in a competitive private insurance market. Payments would have to be at the same level for either one. Put simply: I don’t think we can beat the market.

Let me give you another example: There are states that currently cover this population at this income level with Medicaid. They use traditional Medicaid managed care, which are potentially in any state the very same companies who would serve the private exchanges. The only difference is the source of the funding. Do we think that those managed-care companies had some significant advantage in creating sufficient access for their members that the private carriers on the exchanges next year will lack? What advantage do the Medicaid managed-care companies have that private insurers lack? I can’t think of one. Why would a provider relate differently to one than the other? It’s exactly the same population. There’s no greater ethical obligation. There’s no greater social obligation. It all comes down to the payments.

I really believe that this possibility is so new that folks haven’t thought it through. There is likely to be easily as much price competition on the exchange as there is in competitively bid Medicaid managed-care procurements. I fail to see, again, how we could beat the market. I really believe the negativity is premature.

Putting Medicaid recipients into the insurance marketplaces will drive down premiums for everybody by increasing competition.

AA: That’s true. Or that’s a prediction that I believe will be proven true, I should say. Here’s the explanation.

The standard theory on making insurance markets is that you want its competition to be continuous. The way to do that is to see that the risk pool of covered lives is a large, stable and ideally relatively health population. I cannot think of a larger, more stable and relatively healthy population, in proportion to the rest of the exchange population, than the Medicaid expansion population. They are systemically younger than the rest of the population. That’s one of the reasons that they're poorer.

Our program design is also going to pull out the highest-risk people from the private option and treat them in the traditional Medicaid program because we would have had to supplement for many of their services. (Editor's note: Federal law requires Medicaid premium assistance to 'wraparound' to make sure recipients get the same amount of coverage through private insurance as they would in Medicaid). That’s very hard to do. It’s both care and administratively burdensome. Those individuals, the highest five to 10 percent costly individuals, would be better served in a single program, and by definition that would have to be the traditional Medicaid program.

This will make the population that will be contributed to the exchange healthier and lower-risk. For those reasons, this private option directly counteracts that adverse selection (Sicker people seek insurance while healthier people don't) that people have been concerned about and the resulting impact that it would have on premiums. And it should draw more insurance carriers to the state. We’ve seen that time again in Medicaid managed care. That’ll all make the exchange more attractive. More carriers, more competition. Everyone will benefit.

Dylan Scott is a GOVERNING staff writer.