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The Arkansas Scheme to Expand Medicaid

April 04, 2013 J

By: Nicole Kaeding

In February, Governor Beebe of Arkansas met with Health and Human Services Secretary Sebelius to discuss a new plan to expand Medicaid. Under Beebe’s plan, Arkansas would expand Medicaid to cover all individuals below 138% of the federal poverty level, but the individuals would be put into President Obama’s health insurance exchanges, not the traditional Medicaid system. Conservatives are rushing to support the Governor’s plan talking about “choice” and “competition.” Unfortunately, Beebe’s plan is another bad alternative to Medicaid expansion.

Beebe’s plan would expand Medicaid eligibility from 17% of the federal poverty level to 138% of the federal poverty level—approximately $31,000 for a family of four. Instead of receiving their insurance through the traditional, flawed Medicaid system, recipients would receive premium support–paid for by state and federal taxpayers–to buy insurance through a health insurance exchange.

The Arkansas Scheme is just expansion by another name. It doesn’t matter if Medicaid is expanded under its traditional program or through a premium support model; 225,000 new Arkansans will be dependent on government for their health insurance. No matter how you spin it, it’s expansion, not reform.

Supporters are arguing that this scheme would allow Arkansas to better serve its Medicaid population by providing them with a better insurance product. Study after study has shown that Medicaid is indeed worse than private insurance in terms of health outcomes. Many things work together to make Medicaid an inferior insurance product, namely governmental involvement and bureaucratic restrictions. By allowing enrollees to purchase private insurance, supporters argue, enrollees will be better-off by the choices available to them.

But supporters ignore a very important aspect. The insurance plans available for purchase in 2014 through President Obama’s health insurance exchanges aren’t the same as private insurance available today. Plans sold via the exchange are known in health care policy world as “qualified health plans.” QHPs will be subject to the hundreds of pages of regulations from the Obama Administration dictating all aspects of the plans such as mandating coverage in ten broad categories of treatment. These coverage areas apply regardless of whether the insured needs them. For instance, all plans must cover pediatric dental care whether or not a child is part of the policy—a mandate that only raises the costs for individuals. Only the plans that meet the whims of state and federal regulators will be available for new Medicaid enrollees; some “choice.”

Medicaid expansion under the Arkansas plan is more expensive for taxpayers. According to the Congressional Budget Office, private insurance costs 50% more per enrollee than Medicaid. Adding people through the Arkansas model will inflate the already high costs of Medicaid for taxpayers. Arkansas seems to be little concerned with this aspect as the federal government will be paying 100% of the costs for the first three years and up to 90% thereafter, but federal taxpayers should sure care.

Instead, supporters in AR are touting analysis from a group of actuaries saying that this model of expansion won’t be any more expensive than traditional expansion. First, that ignores that the total costs for state and federal taxpayers will be almost $15 billion more over the next ten years than not expanding. But importantly, the actuaries’ assumptions are dubious at best calling into question the idea that private-insurance expansion would somehow be cheaper. Their assumptions basically say that buying a more expensive insurance policy somehow saves the state money.

Finally, the Arkansas scheme is being sold as a flexible alternative to traditional Medicaid expansion. The plan details numerous waivers that Arkansas will ask HHS for federal approval. That highlights the key point to this debate. Medicaid is a joint-run state and federal program where the federal government has always been in control. States function just as the administrator of the program. Any and all changes that AR wants to make to its Medicaid system must be approved by HHS. That’s not flexibility; that’s begging for permission.

This model is spreading like wildfire. Numerous states including Ohio, Tennessee, Florida are discussing a similar expansion with HHS. What is bad for Arkansas is bad for these states as well.

Expanding Medicaid, through a private insurance or a traditional expansion, isn’t the right policy for Arkansas. Increasing costs for state and federal taxpayers and encouraging even more government dependency isn’t reform. Instead of running to HHS to soak up “free” federal money, Arkansas should reject this flawed expansion scheme.

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