The Foundation for Government Accountability (FGA), a Florida-based conservative think tank, is using scare tactics in its campaign against Medicaid expansion. It claims that Arkansas taxpayers will have to pay tens of millions of dollars to the federal government in 2014 cost overruns in the state’s “private option” Medicaid expansion. But that claim doesn’t hold up, and it shouldn’t keep other states from pursuing the private option to expand Medicaid.
The federal government approved Arkansas’ Medicaid expansion through a demonstration project, under which the state will use Medicaid funds to buy private health insurance plans for newly eligible adults through its Marketplace. The per-person cost of covering these new Medicaid beneficiaries for the first four months of the demonstration project was slightly above projections incorporated in the terms and conditions to which the state agreed with the federal government, prompting FGA’s claim.
Demonstration projects (which are usually called “waivers”), like Arkansas’ private option, must not cost the federal government more than it would have otherwise spent. If the project is not budget neutral over its entire duration, a state could have to repay excess federal spending. This is extremely unlikely to happen in Arkansas, for several reasons:
Budget neutrality is determined over the entire term of the demonstration project —three years in this case — not what happens in 2014, as FGA claims. Arkansas would only have to repay the federal government if total three-year spending on the private option exceeds the three-year limit.
The terms of the waiver recognize that the budget neutrality limit is a forecast, and like all estimates, it could be off in either direction. Arkansas can ask for an upward adjustment if the limits underestimate the actual costs of covering the new beneficiaries. At the same time, the state won’t share in any federal “savings” if costs are lower than projected.
Arkansas is taking steps that will likely keep spending within the three-year limit. In 2014, some health plans offered extra benefits that increased premiums and hence per-beneficiary costs under the waiver. Starting in 2015, insurers will have to offer plans without these extra benefits to private option participants, which should bring down premiums and per-person costs to stay below the budget neutrality limits. Other states that pursue the private option model can prevent health plans from offering these more expensive plans to begin with, thus avoiding this problem altogether.
More than 150,000 low-income adults have gained Medicaid coverage in Arkansas in 2014, and enrollment continues to grow. That’s the lesson that the 24 states that have not expanded — where 4.8 million uninsured adults fall into the coverage gap that results from not taking the Medicaid expansion — should take away from Arkansas.