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Arkansas and HHS Agree to Expand Coverage with Exchanges, Not Medicaid; 'A Whole New Ballgame'

February 27, 2013

By Avik Roy

If reports coming out of Arkansas are true, Gov. Mike Beebe (D.) and the U.S. Department of Health and Human Services have agreed to implement Obamacare’s coverage expansion in the state using the law’s subsidized private insurance exchanges, instead of with the Medicaid program. The devil is in the details, but if this deal holds, it could dramatically change the course of Obamacare in the states, in a way that will offer lower-income Americans far better—but costlier—coverage than they would have received from the health law otherwise.

GOP leverage led HHS to cut a deal

Arkansas has a Democratic governor and a Republican legislature. As with many other states, the Republicans in the legislature have expressed deep (and sensible) skepticism about Obamacare’s mandate to significantly expand the Medicaid program in their state. Medicaid is a broken program that provides the worst health outcomes in the developed world, and its joint state-federal funding mechanism has encouraged waste, fraud, and abuse. Getting Republicans on board is especially important in Arkansas, where a three-fourths majority is required in both chambers of the legislature in order to sign on to the expansion.

As David Ramsey of the Arkansas Times reports, Gov. Beebe has announced that "basically [HHS has] agreed to give us about everything that we’ve asked for. 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. So they would buy private insurance through the exchange for the entire population, and [HHS has] given us permission to do that."

To be clear, this is meaningfully different from what states like Wisconsin have done, in which Medicaid would be partially expanded in order to all adults above the poverty line to participate in the exchanges. If the Arkansas deal holds, Arkansas will not expand Medicaid at all, and instead offer subsidized coverage on the exchanges to everyone that would otherwise have been eligible for Obamacare’s Medicaid expansion.

Republican legislators sound satisfied

Republican leaders in the legislature expressed openness to the idea. "I think this just confirms that we actually have a chance," said Senate President Michael Lamoreux. "I think if they had come back today and said no to all these questions, it would have probably been nearly impossible for us to get an agreement…Basically they’re not going to prevent us from doing what we think we need to do to make it work in Arkansas."

House Speaker Davy Carter agreed. "We’re certainly moving the ball down the field…This is a 180-degree turn from what we thought were the options just a few weeks ago…Generally, I think there would be more support for private plans than under the Medicaid coverage. That’s something that my colleagues were very much in favor of…Everyone in that room, to my knowledge, thought it was a move in the right direction."

"There was some discussion about how procedurally that would work, and we do have a lot of work left to be done," continued Carter, "but I thought it was very positive…It’s a whole new ballgame."

Exchanges are better, but more expensive, than Medicaid

According to the Congressional Budget Office, coverage on the exchanges will be about 50 percent more expensive than coverage through Medicaid: about $9,000 per person per year on the exchanges, vs. $6,000 with Medicaid. That is largely because the exchanges will pay doctors and hospitals more money than Medicaid does, resulting in better access to care, and ultimately, superior health outcomes. Hence, the Arkansas deal results in the state receiving 50 percent more federal funding than they would have received otherwise.

As the federal matching rate for the expansion goes down from 100 percent to 90 percent, Arkansas would be on the hook for 50 percent more money than they would have been otherwise. But poor Arkansans will get better health coverage under that scenario, because doctors and hospitals will receive higher reimbursement rates.

However, federal health spending would significantly increase if HHS offered this deal to every state. And, now that HHS has cut this deal with Arkansas, other states will have every incentive to reopen their negotiations with HHS to ask for a similar one. Congress will need to figure out if HHS is legally authorized to spend more money in this fashion, and if so, if Congress should reduce spending elsewhere to offset it.

Arkansas moves us one step closer to the Swiss model

One option, one that former CBO director Douglas Holtz-Eakin and I wrote about last week, involves raising the Medicare retirement age in order to fund expansion of the exchanges into the Obamacare Medicaid population. This would involve a substantial redirection of resources from wealthy retirees to poor uninsured Americans, which, in the case of health care, would be a good thing. The Swiss have achieved market-based universal coverage with something very similar.

If Obamacare had originally been structured in such a way as to apply the exchanges to Medicare and Medicaid, it could have gained significant bipartisan support. It wasn’t, because Democrats had 60 votes in the Senate, and many of those Democrats are ideologically opposed to a role for private insurers in the health-care system. But Mike Beebe’s deal in Arkansas shows us that bipartisan deals are possible, ones that improve the quality of care that we deliver to the poor, and to everyone else.

Original Source:



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