Election results 2014: All eyes on Arkansas’ Medicaid private option

Election results in Maine, Wisconsin, Kansas, and Florida indicate that Medicaid expansion in the states will likely remain unchanged, i.e., no ‘expanders’ have replaced ‘non-expanders’ and vice versa.

However, if we can agree on one result, it’s that all eyes are on Arkansas. The state has demonstrated the power of a creative approach to bridging a seemingly intractable political divide, combined with federal flexibility. The Governor-elect Asa Hutchinson, has opposed the Affordable Care Act (ACA) and views the private option “as a pilot project; a pilot project that can be ended if needed.”

The Arkansas Compromise
The ACA sought to expand Medicaid to every resident earning below a certain income, but a 2012 Supreme Court decision made the expansion optional—sparking one of the law’s most politically divisive issues in certain state houses. Many states continue to squabble over the future of their Medicaid programs, while just 27 states and D.C. have officially expanded. However, Arkansas has emerged as a national leader with a more creative and diplomatic approach.

Much of the credit goes to outgoing Democratic Gov. Mike Beebe (and the state’s Medicaid leadership and key members of the state legislature) for insisting on leveraging the flexibility of a federal waiver and working around traditional ACA Medicaid expansion. The waiver creates a “private option,” allowing the state to use Medicaid funds to purchase private health coverage from Qualified Health Plans in the health insurance marketplaces. Both substantively and politically, the program is brilliant, and has become a template for many Republican governors as a grand compromise.

In recent months, Arkansas has been broadly lauded for its innovative approach, and it’s certainly warranted. The program has resulted in improvement across a range of key indicators, including:

Uninsured rates: A recent Gallup poll indicates that Arkansas has seen the country’s steepest reduction in uninsured this year—from 22.5 percent to 12.4 percent—and has covered 205,000 Arkansans. The other good news is that these enrollees make up 77 percent of individuals in the state’s ACA health insurance marketplace and skew younger and healthier than the rest of the marketplace, which can be helpful in diversifying risk. Preliminary results demonstrate that after adjusting for the actual age of the population, Arkansas’s costs were lower than the target (see our earlier analysis of the program in a Health Affairs Blog).

Premium rates and market competition: In October, the Arkansas Insurance Commissioner announced that average premium rates across the state would decrease by 2.2 percent. This was expected because of the enrollee demographics mentioned earlier, particularly as younger, healthier individuals entered the pool.  Market competition is also increasing with five carriers competing on the exchange in all areas of the state in 2015– up from four in 2014.

Uncompensated care: In a recent survey conducted by the Arkansas Hospital Foundation covering the first six months of 2014, they found that hospitals across the state saw a 46.5 percent decrease in patients admitted without insurance, which led to a decrease of $69.2 million in uncompensated care costs.

Disability benefits: Some state officials and researchers also believe that expansion of the private option contributed to a 19 percent decrease in Supplemental Security Income (SSI) enrollment as people no longer need to use SSI as a gateway to health care. This could also have a positive impact on the state budget because beneficiaries who qualify automatically for Medicaid through SSI are covered under the previous 70 percent federal matching rate (as opposed to the new 100 percent rate under the ACA).

The Future of the Private Option
The Arkansas program requires reauthorization annually in the state budget process and requires approval from three-quarters of members of the state legislature. Earlier this year, the House voted down reauthorization four times before finally passing it. The private-option plan cleared the Senate without a single vote to spare.

Although Arkansas’ “private option” will be somewhat vulnerable in future years, it will be difficult to reverse course. Any reversal could cause hospitals to lose revenue, premiums to increase and thousands of individuals to lose coverage.  Moreover, the Arkansas model has already proved incredibly valuable to likewise politically embroiled states, such as Pennsylvania, Utah, Indiana and Missouri.

Governor-elect Hutchinson has promised to “assess the benefit for the Private Option and measure the long-term costs to the state taxpayers. As Governor, I will weigh the cost and benefits of the program and determine whether the program should be terminated or continued.” That position is in line with the basic federal authority under which Arkansas was given flexibility, which is a basic research and demonstration provision of the Social Security Act. The results are promising so far, and the program needs to continue to fully understand the results. Moreover, because quality and access to health care is so contingent on the local market, and because each state is unique, having a few more states test this approach would be highly valuable for federal policy making purposes.