LITTLE ROCK — The U.S. Government Accountability Office is projecting that Arkansas’ so-called private option will cost federal taxpayers $778 million more than expanding traditional Medicaid would have cost.

LITTLE ROCK — The U.S. Government Accountability Office is projecting that Arkansas’ so-called private option will cost federal taxpayers $778 million more than expanding traditional Medicaid would have cost.

The U.S. Department of Health and Human Services disagreed with the projections in the GAO report released Monday.

The federal Affordable Car Act proposed that states expand their Medicaid rolls to include people earning up to 138 percent of the federal poverty level, but Arkansas obtained permission to use the federal Medicaid money that would have gone to traditional Medicaid expansion to subsidize private insurance for people in that income group.

The federal government is to pay the full cost of the program for the first three years, after which the state’s share of the cost will increase gradually to 10 percent. The GAO said in its report that it does not expect the program to be "budget-neutral" for the federal government during its first three years.

"In approving the demonstration (known as the private option), HHS did not ensure budget neutrality," the report states. "Specifically, HHS approved a spending limit for the demonstration that was based, in part, on hypothetical costs — significantly higher payment amounts the state assumed it would have to make to providers if it expanded coverage under the traditional Medicaid program — without requesting any data to support the state’s assumptions.

"We estimated that, by including these costs, the three-year, nearly $4 billion spending limit that HHS approved for the state’s demonstration 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."

The GAO also noted that HHS has given Arkansas the flexibility to adjust the spending limit if actual costs prove higher than expected because of the demographics of enrollees.

"HHS in effect waived its cost-effectiveness requirement that providing premium assistance to purchase individual coverage on the private market prove comparable to the cost of providing direct coverage under the state’s Medicaid plan— further increasing the risk that the demonstration will not be budget-neutral," the report states.

HHS reviewed a draft of the report and submitted comments disagreeing with the GAO’s conclusions.

"GAO used only a subset of the data that (the Centers for Medicare and Medicaid Services) uses to assess and determine the appropriate estimates used in developing a budget neutrality model that corresponds with the state’s proposed program intervention," HHS said in its comments. "GAO also relied on a very narrow reading of HHA budget neutrality policy that does not account for major program changes as a result of the expansion of Medicaid created by the Affordable Care Act."

HHS said the GAO did not consider a number of factors that could end up saving money.

"Arkansas may quantify savings from reduced churning (people moving between Medicaid and exchanges as a result of fluctuating incomes), improvement in care and in health from reduced fragmentation and access to different providers, and increased competition in the marketplace given the additional enrollees due to premium assistance," HHS said.

Matt DeCample, spokesman for Gov. Mike Beebe, also criticized the report in an interview Monday.

"There doesn’t appear to be any information in this report that was based on anything on the ground in Arkansas. It’s some assumptions, some of which are fair and some of which, as described in HHS’ response, aren’t a good reflection of what’s actually going on in Arkansas," DeCample said.

Enrollment in the private option began last October. By the end of August, 205,097 Arkansas had been found eligible for the program and 194,257 had completed enrollment, according to the state Department of Human Services.

Appropriating federal funds to continue the program will require a three-fourths vote of both chambers of the state Legislature in the session that starts Jan. 12.