LITTLE ROCK — Expanding health care coverage in Arkansas through the so-called "private option" would be less costly for the federal government than many have assumed, state Department of Human Services officials said Monday.
In a meeting with reporters, DHS Director John Selig and state Medicaid Director Andy Allison said a new analysis shows that the private option, which they called the "premium assistance option," is estimated to be at most 13-14 percent more costly to the federal government than expanding the state Medicaid rolls — and possibly no more costly at all.
"People thought, ‘Oh, there’s this huge difference of as much as 50 percent,’" Selig said. "Not in Arkansas, from what the experts tell us. It’s really close."
The analysis was conducted for DHS by the actuarial consulting firm Optumas; legal consultants with Manatt, Phelps and Phillips LLP; and the state Insurance Department. They analyzed the cost to provide health insurance to Arkansans earning up to 138 percent of the federal poverty level by paying for them to buy private insurance through the state health insurance exchange rather than by expanding the state Medicaid rolls, as was originally proposed under the federal Affordable Care Act.
Republican legislators who were resistant to Medicaid expansion had asked Gov. Mike Beebe to inquire whether a private alternative was permissible. Beebe said last month that the Obama administration had said yes to the proposal.
Under either option, the federal government would pay the entire cost for the first three years, after which the state’s share of the cost would increase gradually to 10 percent.
The Congressional Budget Office has said it could cost $3,000 more per person to provide private insurance to people in the expansion group than to provide them with Medicaid coverage. Some have raised concerns that the federal government would be on the hook for hundreds more millions of dollars a year under Arkansas’ private option, with Arkansas paying 10 percent of that higher cost by 2020.
Selig and Allison said Monday that adding an estimated 250,000 Arkansas to the Medicaid rolls is estimated to cost $1.3 billion in the 2014-15 fiscal year, which would be the first full year that the expansion would be in effect. By 2020, Arkansas would be spending $130 million a year, not counting for inflation.
According to the new analysis, the private option is expected to cost no more than 13 percent or 14 percent more than that. Per person, the annual cost is estimated at $5,975 to provide private private insurance to someone in the expansion group, compared to $5,200 to provide that person with Medicaid coverage.
The new estimates are based on a number of factors, including:
—The differential between the cost of private insurance and Medicaid in Arkansas is about 25 percent, which is much lower than in other parts of the country and lower than the CBO’s estimates, which were not specific to Arkansas.
—Introducing 250,000 low-income adults into the private insurance market through the exchange is expected to increase competition between carriers and put price pressure on providers. The price pressure is expected to reduce private reimbursement rates in the exchange by 5 percent.
—The competitive nature of private health-plan management and the possibility for cost sharing the faster decision-making are estimated to knock 5 percent off of the cost differential.
—The differential could be reduced further because certain small groups, such as the medically frail, will remain on Medicaid.
Selig and Allison said the estimate of a 13 percent to 14 percent differential is conservative, and that other factors conceivably could wipe out the differential entirely, including:
—Competitive pressure on reimbursement rates is expected to apply to all participants in the exchange, including people earning more than 138 percent of the federal poverty level who would be eligible for federal subsidies to buy private insurance under either expansion option, which could lower the cost to the federal government to provide those subsidies.
—If the state were to opt for Medicaid expansion, it would need a significant number of new commitments from providers, which might require higher Medicaid reimbursement rates. This possibility was not taken into account in DHS’ previous projections of the cost of Medicaid expansion.
"Prior to this, my biggest concern was that the cost differential might be too high and cause people to say, ‘We love having people in the private market but we just can’t afford it,’" Selig said. "I just feel much better seeing these numbers, that that’s not a significant concern anymore."
"We’re very excited," Beebe spokesman Matt DeCample said Monday of the new analysis.
"(Previously) the only numbers that anyone had were these CBO numbers. We’re able to look at it specifically for Arkansas now, and those numbers look a whole lot better," he said.
House Speaker Davy Carter, R-Cabot, said Monday he had not yet had time to digest the new numbers. Sen. Jonathan Dismang, R-Searcy, said his immediate reaction to the new analysis was "positive."
"I think it helps validate some of the arguments that we had made in regards to allowing the markets to work and letting the private side have this type of process in place," he said.