GAO slams HHS over Arkansas’s Medicaid expansion budget

On Monday, the Government Accountability Office issued a report taking HHS to task for failing to assure budget neutrality in Arkansas’s Medicaid expansion, which uses Medicaid dollars to fund enrollment in private plans through the state exchange.

Excerpted from the report (emphasis added):

In approving the demonstration, HHS did not ensure budget neutrality. 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 3-year, nearly $4.0 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.

Though $778 million may be an eye-popping sum, this isn’t really news. People who have tracked the Arkansas expansion closely have long been skeptical (see Austin’s post from last year) that any state could expand through private coverage at or below the cost of expanding through the traditional program. There’s just no getting around the fact that private insurers offer higher reimbursements—and that means higher costs.

If you do the math, that $778 million represents a 24 percent increase over the traditional-expansion hypothetical—the precise difference between Medicaid that David Ramsey wrote about in the Arkansas Times last year:

[T]he feds are implicitly accepting the controversial theory from DHS that [Medicaid rates would need to be increased to match private rates in order for expansion to work]. The actuaries hired by DHS projected the per-person, per-month cost of a beneficiary under a traditional Medicaid expansion, then automatically raised the cost by 24 percent in order to make it the same as the actuarial projection for the per-person, per-month cost of a private plan. That’s an approach, and a theory, that some health care experts find less than convincing.

What the GAO report does do is raise important questions about what HHS could have done—should have done?—to probe the legitimacy of Arkansas’s claim than they need to raise Medicaid rates to private levels. What evidence would politicians and scholars accept as fair corroboration?

I don’t think there are any easy answers to that question. The GAO is clear that they would have liked to see more data, but they don’t expand much on the nature or depth of information required.

And the politics are hard to discount here. In Arkansas, the debate wasn’t about whether the state would expand through private coverage or through their established FFS program. It was “private option” or bust. This holds true for the various other states pursuing “alternative” Medicaid expansions: Iowa, Michigan, Pennsylvania, Indiana.

There’s also an argument to be made that extra spending could prove worthwhile. This reflects the empirical debate we see in Medicare Advantage: plans may be spending more, but if they’re getting better care for their money, that added expense could be justified.

Arkansas is idiosyncratic in ways that make it well-suited to trying on the “private option.” The state has no managed-care infrastructure to speak of, which could have complicated attempts to scale up the existing program (nationally, about three-quarters of Medicaid enrollees are enrolled in managed-care plans). The existing individual market wasn’t competitive—BCBS dominated—and the state argued that they needed a bigger exchange population to attract new carriers. The state has a small population, meaning that this is small-ball for the federal government; cost overruns in Arkansas are less consequential than they would be in, say, Texas or Florida. And Arkansas’s newly-eligible population skews young and healthy; indeed, the “private option” has been credited for the net decrease in premiums that Arkansas expects on the exchange next year—though this is surely muddied by Arkansas holding back the sickest (that is to say, most expensive) 10% of Medicaid enrollees in the FFS program.

These idiosyncrasies have consequences, though: they’ll make the outcomes in Arkansas hard to reconcile against other states. The research, when it’s conducted, won’t be easy. But it sure will be interesting.

Adrianna (@onceuponA)

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