LITTLE ROCK — The Arkansas Health Insurance Marketplace Board made a major decision in the past week, while the debate over private option heated up with the release of a report arguing the program will not be budget-neutral for the federal government.

LITTLE ROCK — The Arkansas Health Insurance Marketplace Board made a major decision in the past week, while the debate over private option heated up with the release of a report arguing the program will not be budget-neutral for the federal government.


The board voted Wednesday to seek to set up a state-run exchange for small businesses in 2015 and a state-run exchange for individuals in 2016. Coverage for small business would begin in 2016 and coverage for individuals would start in 2017.


The existing exchange, or marketplace, was established under a partnership agreement between the state and the federal government. The 2013 state law that created the marketplace charges it with deciding whether the state should operate its own exchange and guiding the state through the switch.


The soonest a state-run exchange could be established is July of next year, but Executive Director Cheryl Smith said the board did not want to rush into it.


"I think that they saw wisdom in taking a phased approach to all of this. In other words, let’s put a toe in the water now," she said.


Smith said a Small Business Health Options Program, or SHOP, is relatively simple to set up because unlike an individual exchange, no federal subsidies will be available through it, so a system of determining eligibility for subsidies will not be necessary.


"The SHOP is much less complex technologically to do, so it would seem the smart place to smart," she said.


Democratic Gov. Mike Beebe supported establishing a state-run exchange from the beginning, but because of legislative resistance he directed state officials to pursue the partnership. Beebe has no objection to the phased-in approach the board wants to take, according to spokesman Matt DeCample.


"If they think it’s going to take two years to complete that, that’s their call," he said.


Also last week, the Government Accountability Office, an agency that conducts audits and investigations for Congress, released a report arguing that the U.S. Department of Health and Human Services failed to ensure that the so-called private option, Arkansas’ version of Medicaid expansion, would be budget-neutral.


Under the private option, Arkansas takes money provided under the federal Affordable Care Act for Medicaid expansion and uses it to subsidize private health insurance for people earning up to 138 percent of the federal poverty level. By the end of August, 194,257 Arkansans had enrolled in the program.


The federal government will pay the full cost of the program for its first three years unless Arkansas exceeds a "budget neutrality cap." So far the program’s costs have exceeded the cap on a month-to-month basis, but the state Department of Human Services has predicted that will change.


The GAO said in its report that HHS set the cap at $778 million more than the cost of traditional Medicaid expansion would have been, and did so based on assumptions the state made without being required to show supporting data — including the assumption that traditional Medicaid expansion would have required raising Medicaid reimbursement rates.


HHS disagreed, saying the budget cap was based on the most reasonable cost assumptions available. Arkansas officials also disputed the report.


"Historically, clients across the country have had difficulties getting access to physicians willing to take Medicaid because of the low payment rates," DHS said in a statement. "It’s unreasonable to assume we could add hundreds of thousands of clients to the traditional program and not have had to raise rates."


Sen. David Sanders, R-Little Rock, one of the architects of the private option, said he believes the state and HHS are "on solid ground." Arkansas doctors would not have agreed to see an influx of new Medicaid patients without demanding a rate increase, he said.


"The GAO doesn’t understand the dynamics that exist in Arkansas, and it doesn’t understand market dynamics," he said.


But Sen. Bryan King, R-Green Forest, who opposes the private option, said the report weakens the case for renewing the program in the session that begins in January.


"It just points out, now that we’re into the program, exactly what some of us have said: That this is a more expensive program than what they’ve anticipated. I mean, they haven’t been right on any figures yet so far, in any of their projections that they started out with," he said.


Appropriating federal funds to continue the program will require a three-fourths vote of both chambers of the Legislature.