Why aren’t more red states following Arkansas’s lead on Medicaid?

One of this weekend’s worthwhile reads was Tyler Cowen’s NYT op-ed on the Affordable Care Act and the future of health reform.  On Medicaid, he offers this:

One way forward would look like this: Federalize Medicaid, remove its obligations from state budgets altogether and gradually shift people from Medicaid into the health care exchanges and the network of federal insurance subsidies. One benefit would be that private insurance coverage brings better care access than Medicaid, which many doctors are reluctant to accept.

Putting Medicaid beneficiaries into the exchanges? That sounds familiar. HHS recently green-lit a waiver proposal for Arkansas to do just that. For those of you unfamiliar with the “private option”, most newly-eligible Medicaid beneficiaries won’t receive Medicaid at all; they’ll be enrolled in silver plans on Arkansas’s exchange, with their premiums and cost-sharing subsidized by Medicaid funds (pre-expansion enrollees will stay in the public program).

This was highly contentious when it emerged last spring, with concerns regarding the legal authority for CMS to funnel Medicaid funds into the exchanges (it’s there) and thorny questions about how Arkansas could possibly pull this off in a “budget neutral” fashion, conventionally understood as not exceeding the cost of traditional expansion.  This baffled observers—including me—because private reimbursement rates exceed Medicaid. That’s hard math to escape.

CMS handled this by setting a cap on federal expenditures; overall, the cost of Arkansas’s Medicaid expansion can’t exceed about $6,000/year per new beneficiary.  If that seems a little generous, well, it probably is. As David Ramsey reported (emphasis added):

Arkansas will probably not have much trouble staying under the caps and passing the budget neutrality test. That’s unlikely to quiet those who are skeptical of the state’s claim that this won’t cost more than traditional Medicaid expansion would have. That’s what a budget neutrality test is supposed to determine, but the 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. But given how closely the caps from the feds track the projections from DHS, CMS is apparently on board.

Bracketing feelings about fudgy math for a moment, this could easily be a model for states that have been intransigent about expanding their public programs. If conservatives really embrace the idea of shifting the Medicaid population into subsidized coverage on the exchanges, as Cowen seems to, this is a realistic step—albeit an incremental one—in that direction. 

Obviously, the expansion model only fits part of Cowen’s recommendations. State-level efforts can’t federalize Medicaid—Arkansas limited the private option to their expansion population, because the state remains responsible for a greater share of costs with current beneficiaries, and the expense of also shifting that group into the exchanges is daunting. It also doesn’t address other reforms that Cowen proposes, which would need to be handled at the federal level (with all attendant politicking).

But expanding Medicaid through the exchanges is achievable in the near term for the 26 states still opposed to expanding the public program (Iowa and Pennsylvania are exploring the option.).  As Ross Douthat points out, conservatives find fault in the new marketplaces, but they’re “closer to the right-of-center vision for health care reform than the Obamacare Medicaid expansion”.

If red states see merit in expanding coverage through the private market—if this is truly the direction they would like to take the Medicaid program in the future—they should take a cue from Arkansas instead of denying coverage to millions of Americans.

Adrianna (@onceuponA)

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