Arkansas Falls for HHS Bait and Votes to Expand Medicaid

Published June 3, 2013

In an attempt to find a middle ground between accepting the Medicaid expansion under President Barack Obama’s law and rejecting it, the Arkansas legislature passed a bill with the intent of using Medicaid dollars to allow recipients to purchase a form of private insurance.

The proposal relies heavily on two assumptions: that adding new, subsidized customers will result in increased price competition among providers, and that the new coverage will not prove significantly more expensive than the originally intended Medicaid plans, an aim that could prove daunting.

Under the plan approved by the legislature, the state will apply for a demonstration waiver from the U.S. Department of Health and Human Services (HHS). According to the Centers for Medicare and Medicaid Services, the 1115 waivers are a method “states can use to test new or existing ways to deliver and pay for health-care services in Medicaid.”

Nicole Kaeding, state policy manager at the Americans for Prosperity Foundation, says the legislature agreed to the waiver request under false pretenses.

“Sadly, the Arkansas legislature decided to pass Medicaid expansion under the guise of free-market reform. Proponents, like Speaker Davy Carter (R-Cabot), kept propelling the laughable argument that supporting the so-called private option was a vote against the health care law,” said Kaeding.

She continued, “Instead, Arkansas is now set to draw-down billions in federal funding over the next ten years and add approximately 250,000 new individuals to a government entitlement program all in the name of fiscal conservatism.”

Less than Meets the Eye Arkansas Gov. Don Beebe (D) had taken the idea of using the Medicaid expansion dollars to pay for private insurance coverage to HHS Secretary Kathleen Sebelius in February, at the behest of Republican lawmakers. Initially, his response was very positive.

“Basically [HHS has] agreed to give us about everything that we’ve asked for,” said Beebe in February remarks to legislators. “What that really amounts to is taking the Medicaid population that would be expanded … and use those federal Medicaid dollars and purchase insurance through the exchange. … [HHS has] given us permission to do that.”

According to Avik Roy, senior fellow at the Manhattan Institute, while other states will be paying attention to how the unique plan proceeds, there is broad skepticism the plan will function as well as legislators hoped.

“What we all found promising about the Arkansas approach was the opportunity to liberate the poor from the broken Medicaid system and offer them higher-quality private insurance. It would have given us the opportunity to show that private insurance can do a better job of providing health coverage, thereby giving momentum to broader reforms,” Roy said.

Good Friday Redirection But details released by HHS in a memo released on Good Friday illustrated numerous restrictions on what Arkansas could do, making the idea less advantageous.

“As with all demonstration proposals, the actuarial, economic, and budget justification (including budget neutrality) would need to be reviewed and, if approved, the program and budgetary impact would need to be carefully monitored and evaluated,” HHS stated in the memo, also writing, “States must have mechanisms in place to ‘wrap-around’ private coverage, to the extent that … cost sharing requirements are greater than those in Medicaid.”

According to Roy, state legislators who had initially been optimistic that Arkansas could chart an appealing path on the Medicaid expansion changed their minds when they saw these restrictions.

“Unfortunately, we learned on Good Friday that HHS was having none of that. The expansion population would be governed under the Medicaid law, with all its restrictions and flaws. And Arkansas’ waiver will expire in 2016, at which point HHS can pull the plug on the whole gig,” Roy said.

Continued Expansion of Entitlements According to Greg J. Kaza, executive director of the Arkansas Policy Foundation, this latest step is just the most recent expansion of entitlements in the state under Republicans and Democrats alike.

“This continues the policy of an expansion of state health care that began under Governor Huckabee. This expansion of 250,000 is the biggest in Arkansas history. The long-term picture has been one of expansion of state health care,” said Kaza.

In addition to the question of funding the new Medicaid recipients into the future if the federal government decides to change its matching rates, Kaza notes there is already a doctor shortage in Arkansas. He wonders how adding thousands of people to the government insurance rolls will impact access to care.

“Adding all of those patients without adding physicians is going to create even worse shortages than there already are,” Kaza said. “To add 250,000 patients, they would have to add 100 doctors seeing 2,500 patients each,” said Kaza, or 500 doctors would each have to accept 500 more patients.

A Model for Other States? According to Roy, the real risk states face is that HHS will make “a display of showing flexibility now, because the agency knows that it can withdraw that flexibility later on, after the coverage expansion has been implemented, and states have relinquished their negotiating power.”

At this point, Roy notes, HHS could withdraw the waiver for any number of reasons, particularly the budgetary ones outlined in the Good Friday memo.

“Expansion-supporting Republicans in Arkansas are being snookered,” Roy said.

Kaeding agrees.

“Hopefully other states don’t rush to repeat Arkansas’ folly,” Kaeding said.

Internet Resources

HHS Memorandum: “Medicaid and the Affordable Care Act: Premium Assistance,” March 2013: