Health Care

Alternative Medicaid plan may be much more expensive

April 25, 2019

Ray Carter

As Oklahoma lawmakers consider embracing the federal Affordable Care Act’s Medicaid expansion, which could give taxpayer-funded insurance to more than 600,000 able-bodied adults, lawmakers have suggested they may use Arkansas as a model. In Arkansas, state officials used Medicaid expansion funds to purchase policies off the private market for people added to the program.

But experts and independent evaluations of Arkansas’ program suggest there is one major problem with that proposal: It will dramatically increase Oklahoma taxpayer expenses.

Nicholas Horton, research director for the Foundation for Government Accountability, sums up Arkansas’ experience simply: “It’s been really expensive.”

In a 2014 report, the U.S. Government Accountability Office reviewed Arkansas’ Medicaid expansion program. The GAO found that the three-year spending limit approved for Arkansas’ “private option” Medicaid expansion was “approximately $778 million more than what the spending limit would have been if it was based on the state’s actual payment rates for services provided to adult beneficiaries under the traditional Medicaid program.”

A 2016 review by the Arkansas Center for Health Improvement reached a similar conclusion. Horton noted that study found traditional Medicaid expansion would have cost around $3,000 per person annually. It its first year, the Arkansas expansion cost more than $5,800 per person and costs were projected to continue increasing to $6,400.

Traditional private insurance pays providers more than does traditional Medicaid, which is why some hospital groups prefer the Arkansas model. But it also drives up expenses. The 2016 review found physician rates for outpatient services were 90 percent higher under the Arkansas expansion plan than under traditional Medicaid. The rate paid ophthalmologists was 165 percent higher. The rate for inpatient hospital stays was 53 percent higher, and rates for ER non-hospitalized visits were 205 percent higher.

Arkansas state Rep. Josh Miller said his state’s Medicaid expansion went well beyond the hand-up model most people envision.

“Here in Arkansas, the insurance that we’re providing them is better insurance than state employees or teachers have,” said Miller, a Heber Springs Republican and Medicaid expansion critic. “It’s a better insurance. I’m not making that up. It’s the truth. They might have a $5 co-pay or something like that.”

Yet Arkansas’ health ranking remains very low. The Commonwealth Fund’s 2018 Scorecard on State Health System Performance ranked Arkansas 46th nationally, only a few spots ahead of Oklahoma. And in the report’s “healthy lives” subcategory—which includes “measures of premature death, health status, health risk behaviors including smoking and obesity, and tooth loss”—Oklahoma ranked higher than Arkansas. On all health system measurements in the report, Arkansas was below the national average.

The higher costs associated with Arkansas’ “private option” Medicaid expansion may be one reason most other states have rejected that model, although New Hampshire, Iowa, Indiana, and Michigan all approved some version of it. In September 2018, the left-wing site Vox reported that all but Arkansas have since dropped or significantly altered those programs and shifted people into traditional Medicaid. Vox reported, “Premium assistance—alternatively known as the private option when it comes to Medicaid expansion—has almost been erased from the earth.”

“There’s a couple of other states out there that tried to replicate what Arkansas did, similar to what Oklahoma is potentially considering,” Horton said. “All of those states have gotten rid of it.”

Miller filed legislation to add Arkansas to the list of states that abandoned the “private option” and placed the expansion population in the traditional Medicaid program. The bill stalled this month on a 9-8 vote in a 20-member committee. The bill needed two more votes to get the majority required to advance, but three lawmakers abstained.

“It kind of made me sick to my stomach for me to be the one running that bill, because I’ve just been against Medicaid expansion period, but we have to do something to save some money,” Miller said.

Horton said the relatively lavish “private option” Medicaid expansion not only drives up underlying costs, but also causes people to shift from private insurance to taxpayer-subsidized plans.

“We actually have some evidence of folks in the state who had private insurance before,” Horton said. “Once they found out that they were eligible for a Blue Cross, Blue Shield plan for free, they dropped their private coverage and they took the ‘free’ coverage that was coming to them courtesy of taxpayers because it was a much better deal for them.”

There’s reason to believe Medicaid expansion could similarly “crowd out” private coverage in Oklahoma. In a recent report, the Foundation for Government Accountability reviewed Census data and concluded, “Most able-bodied adults who would become eligible for Medicaid under Obamacare expansion already have private health insurance.”

In Oklahoma, the report estimated that 46 percent of potential Medicaid expansion enrollees have access to employer-sponsored health insurance and another 14 percent already qualify for federal subsidies to purchase private insurance through existing Obamacare exchanges. Thus, up to 60 percent of people who could be added to state welfare rolls under Oklahoma Medicaid expansion defy stereotypes.

“When you’re talking about expanding Medicaid, you’re primarily talking about expanding Medicaid for folks that already have insurance,” Horton said. “That’s a very different story than what you hear from the left and the expansion proponents, but that’s what the data shows.”

While Horton and officials at the Foundation for Government Accountability say the Arkansas version of Medicaid expansion is very expensive, officials at the organization also say expanding the traditional Medicaid program to include able-bodied adults is very flawed.

“This is a population that they don’t need to be on Medicaid, they need jobs,” Horton said. “That’s what this population needs. And if they get a job, they’re going to get employer-sponsored insurance; they’re going to qualify for Obamacare subsidies. They’re going to have other health insurance options.”