When Arkansas expanded Medicaid through its private option earlier this year, the Department of Health and Human Services estimated that the first-of-its-kind program would be budget-neutral. But now federal auditors are blaming HHS for flawed estimates and say it will actually cost taxpayers an extra $778 million over the next three years.
In a new report from the Government Accountability Office, auditors say HHS did not ensure budget neutrality.
From the report:
“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 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.”
Related: The Battle to Expand Medicaid in Arkansas
Under the president’s health care law, states were allowed to expand their Medicaid programs to adults with incomes of up to 133 percent of the federal poverty level. While some states decided to opt out of Medicaid expansion completely, others approved alternative plans to expand their programs. Arkansas was the first to seek permission to do a private option—which meant that it would use federal money to buy private health coverage for residents who would be covered under traditional Medicaid expansion.
Under the state’s plan, which was approved in 2013, low-income people (earning up to 138 percent of the federal poverty level—or $15,600 for an individual) are given money to purchase policies available to any other consumer on the marketplace. Iowa is on a similar plan, and Pennsylvania has been sought approval from the government, while New Hampshire, Utah and Tennessee are contemplating similar plans.
HHS disputed GAO’s findings. The agency responded to the report saying that it let Arkansas use market prices for a population similar to those who will be covered, instead of using historic data to demonstrate costs under the traditional Medicaid program.
Arkansas officials also took issue with the report—saying the GAO didn’t contact them for the state’s input.
State Spokesman Matt DeCample told the Associated Press that some extra costs are expected, but overall costs will be lower as the population becomes healthier.
Related: The New Double Standard in Obamacare’s Medicaid Expansion
"This was a report developed without contact with anyone on the ground in Arkansas. That $778 million is very abstract," DeCample said. "If you're going to build the infrastructure to serve 200,000 more people, you're going to have increased costs. ... Not all costs are continuing costs."
As Adrianna McIntyre points out in the Incidental Economist, most people closely watching the Arkansas expansion expected the cost to be higher than expanding through the traditional program. “Though $778 million may be an eye-popping sum, this isn’t really news,” she writes. “There’s just no getting around the fact that private insurers offer higher reimbursements—and that means higher costs.”
Arkansas Gov. Mike Beebe pushed the private option last year, saying that it didn’t make sense not to—since the federal government pays for it through 2016.
If Arkansas had completely opted out of expanding its Medicaid program, around 200,000 low-income people would be without health coverage.
So far some 25 states have not expanded Medicaid since the Supreme Court ruled in 2012 that they had an option to decide whether to expand their programs.
Critics of the plan have warned that it could potentially result in a financial burden for the states. After 2016, states that expanded their programs or used the private option like Arkansas will have to cover up to 10 percent of the cost.
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