Research & Commentary: Why Arkansas’ Medicaid Rollback Could Be a Model for Expansion States

Published May 19, 2017

Medicaid expansion has placed a severe financial strain on the budgets of the states that chose to expand under the provisions instituted by the Affordable Care Act (ACA). In several states, lawmakers are offering proposals to roll back or repeal their Medicaid expansion under new plans designed to improve the flawed program. Medicaid expansion, at its core, builds on a failing model in which the federal government dictates multiple aspects of the government insurance plan, thereby losing the beneficial aspects of market competition.

Arkansas is the originator of private-option model that many states used to expand their Medicaid programs. With its Medicaid expansion failing to contain rapidly increasing costs, Arkansas will soon become the first state to enact reforms significantly scaling back Medicaid expansion under the ACA.

Under Arkansas’ premium assistance” model, which was passed in 2013, an estimated 250,000 new enrollees were added to the state’s Medicaid rolls. These new enrollees are able to purchase private insurance from the state’s Obamacare health insurance exchange, receiving a premium-support payment to purchase the insurance. Despite the private-market veneer, Arkansas’ program maintained many of the most problematic aspects of the state’s failed Medicaid system and has led to increased costs.

In a statement on Arkansas’ Medicaid rollback, Americans for Prosperity say, “The reforms recently passed by state lawmakers decrease eligibility for the program from 138 percent of the federal poverty level (FPL) down to 100 percent FPL. This reform is estimated to reduce state Medicaid rolls by 60,000 people, or approximately 20 percent of Medicaid expansion enrollment in the state – which has ballooned far beyond what the state ever projected and subsequently added tens of millions of dollars in cost.”

In in its initial expansion, Arkansas chose not to impose premiums on beneficiaries with incomes under the poverty level, and despite the fact it had obtained a waiver from the Centers for Medicare and Medicaid Services to do otherwise, it never collected premiums from people with incomes from 100–138 percent of the federal poverty level.

The new law also requires state leaders to submit requests to the federal government for a waiver that would allow the state to require work requirements for able-bodied individuals seeking to enroll. The Trump administration has suggested it supports similar reforms in past, which means the waiver will likely be approved. The new work requirements that would be included with the rollback use methods that proved to be very effective when they were included in the welfare reforms of the 1990s; in a study examining poverty after the 1990’s welfare reforms, the Manhattan Institute found the inclusion of work requirements led to substantial reductions in poverty nationwide.

Amongst the most significant problems with Medicaid expansion is a lack of clear funding in the future. The federal government has promised to cover 100 percent of the costs of newly eligible enrollees until 2017, but the matching rate declines over time, so states will eventually have to find other ways to pay for the newly eligible population.

In a report from the Department of Health and Human Services (HHS), an examination of Medicaid’s finances found the average cost of ACA’s Medicaid expansion enrollees was nearly 50 percent higher in fiscal year 2015 than the levels HHS had projected the previous year. In 2015, Medicaid expansion enrollees cost an average of $6,366; HHS had predicted it would be $4,281.

Medicaid expansion is already straining and stretching Arkansas’ budget and creating serious issues related to waste and fraud. According to The Washington Post, the initial projections by an actuary firm hired by Arkansas to review the plan found the premium-support model would cost federal taxpayers $18.9 billion over the next 10 years and an additional $1.59 billion from Arkansas taxpayers.

Arkansas is not the only state to consider rolling back its Medicaid expansion. Legislators in Ohio and Oregon are considering reforms similar to what was passed in Arkansas.

States that have not expanded should avoid doing so, but for states that have expanded Medicaid, Arkansas’ reforms could be a good model for limiting the growth and cost of Medicaid expansion. Other states should take advantage of the waiver process while there is an administration in the White House willing to approve reform-minded Medicaid changes.

The following documents examine Medicaid reform in greater detail.

The Personal Health Care Safety Net Medicaid Fix
This article by Justin Haskins, Michael Hamilton, and S.T. Karnick of The Heartland Institute outlines a proposed reform plan for Medicaid, the Personal Health Care Safety Net Medicaid Fix. The authors say their Medicaid Fix would expand patient choice and give each Medicaid enrollee real money, not false promises, in the form of a personal safety net that would empower even the poorest of families to take care of itself and give more than 70 million Americans access to the private health insurance market.

The Report Every State Legislator Should Read
In this article published by National Review, Chris Jacobs writes about a new report issued by the Congressional Budget Office that analyzes profit margins for hospitals over the coming decade. It concludes Medicaid expansion will not make a material difference in hospitals’ overall viability.

Evidence Is Mounting: The Affordable Care Act Has Worsened Medicaid’s Structural Problems
In this Mercatus Center paper, Brian Blase examines the effect of the Affordable Care Act on Medicaid. Blase’s findings reveal Medicaid expansion has worsened many of the structural problems in the program. “The unanticipated expense casts doubt on the value of the ACA Medicaid expansion. The enhanced federal match incentivizes states to boost ACA expansion enrollment and to categorize Medicaid enrollees as ACA expansion enrollees, and also encourages states to set high fees for ser­vices commonly used by expansion enrollees and high payment rates for insurers participating in states’ Medicaid managed care programs,” wrote Blase.

The Growing Medicaid Expansion Bubble
In this edition of the Consumer Power Report, Executive Editor Justin Haskins examines Medicaid expansion and all the problems it has created for states, physicians and patients. “Despite the lack of attention the issue is getting, the growing Medicaid population could lead to state government meltdowns around the country and a national health care crisis for which most Americans are completely unprepared,” wrote Haskins.

Here’s Why States Must Resist the Temptation to Expand Medicaid – 420cec6d5b80
Sally Pipes, president of the Pacific Research Institute, argues in this Forbes piece states should resist any push to expand Medicaid. Pipes recommends replacing Medicaid entitlements with block grants. “If governors and state legislatures really want to help low-income folks while keeping their budgets under control, they should insist Washington[, DC] replace the failed, open-ended Medicaid entitlement with block grants pegged to inflation,” wrote Pipes.

Government Report Finds Obamacare Medicaid Enrollees Much More Expensive than Expected – 75a85aba2dd0
Brian Blase of the Mercatus Center at George Mason University wrote in Forbes the costs for newly eligible adults were not decreasing as expansion supporters predicted they would. Blase says in a new report, HHS says newly eligible adult Medicaid enrollees cost about 23 percent more than the Medicaid enrollees who were eligible prior to expansion.

The Oregon Experiment—Effects of Medicaid on Clinical Outcomes–effects-of-medicaid-on-clinical-outcomes?source=policybot
This article from The New England Journal of Medicine examines Medicaid outcomes in Oregon. Oregon gave researchers the opportunity to study the effects of being enrolled in Medicaid (compared to being uninsured) based on data from a randomized controlled trial, the “gold standard” of scientific research. The results showed no improvement in health for enrollees, but it did reveal better financial protections for patients and increased medical spending.

Why States Should Not Expand Medicaid
Writing for the Galen Institute, Grace-Marie Turner and Avik Roy outline 12 reasons states should not expand Medicaid and should instead demand from Washington, DC greater control over spending to better fit coverage expansion to states’ needs, resources, and budgets.

Effect of Medicaid Coverage on ED Use – Further Evidence from Oregon’s Experiment
Amy Finkelstein, Sarah Taubman, Heidi Allen, Bill Wright, and Katherine Baicker examine the effect Medicaid coverage has on emergency room use. They found people enrolled in Medicaid significantly increase their emergency room visits for around two years after they first sign up. “For policymakers deliberating about Medicaid expansions, our results, which draw on the strength of a randomized, controlled design, suggest that newly insured people will most likely use more health care across settings – including the [emergency department] and the hospital – for at least 2 years and that expanded coverage is unlikely to drive substantial substitution of office visits for ED use.”


Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Health Care News, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database. 

If you have any questions about this issue or The Heartland Institute’s website, contact John Nothdurft, The Heartland Institute’s government relations director, at [email protected] or 312/377-4000.