The end of the private option

Arkansas has a strange Medicaid expansion. Instead of expanding Medicaid or tweaking their Medicaid program for newly eligible people, they sent everyone to the Exchange to buy special Silver plans with cost sharing assistance. This was needed to get the plan out of the conservative legislature as there was no way a government program could ever do anyone any good, good only comes from the Free Market ™.

The Arkansas model works.  It does provide health insurance to 220,000 to 250,000 people.  It is also the most expensive way to do Medicaid expansion as the private carriers (mainly Blue Cross/Blue Shield) are paying their providers full commercial rates.  Medicaid pays significantly less than commercial rates.  Medicare pays more than Medicaid but less than commercial.

Arkansas has been able to get away with this as the Federal Government is picking up the entire tab.  However, starting on 1/1/17, the state of Arkansas will need to kick in some money to cover Expansion.  Once the state has to kick in money, the private option looks far less attractive.

Arkansas Times has details:

 As federal contributions decline, the state will need to find $50 to $60 million in general revenue to continue the program. But that’s nothing compared to the hit Arkansas would take if it opted out of expansion. “If you end Medicaid expansion, you’re going to be taking $1.4 to $1.7 billion out of our state’s economy,” Hutchinson said.

Arkansas is looking for cost savings, and there were seven groups of proposals. The fifth one is the most interesting:

5. Limit access to private plans to working people. This might be the most significant suggestion and also the weirdest. Hutchinson suggested establishing a certain income line as a cutoff for the private option (that is, Medicaid-funded private insurance); below that income line, we’d put people on traditional Medicaid. He said this would result in significant cost savings. (In that case, might it not be be better to go with traditional Medicaid for everyone below 138 percent of the poverty line, as originally envisioned by the ACA?)

The grifting way is to shift the sick(er) people who are high utilizers of medical services from the private option/Exchange risk pools to the far cheaper Medicaid payment pool.  This improves the health of the Exchange risk pool, and makes using the Exchange far cheaper as the high cost utilizers are out of the picture.  This still shovels some money to Holy Private Enterprise while reducing state expenditures.

The better way is to shift everyone back to Medicaid, and pay Medicare rates for Medicaid if there is a concern that paying Medicaid rates will lead to a super-narrow network that is not legally or morally defensible.

Right now the conservative state modifications to Medicaid have been paid for entirely by the Federal government.  The Obama Administration has been very flexible on waivers for two reasons.  The first is a moral reason — Medicaid expansion, even bastardized expansion is far better for the more vulnerable than nothing.  Secondly, kicking people off of benefits who are currently receiving benefits is tough, it is an entrenching tool.  However, in the next sixteen months, the states will have to start paying a little bit, and the expensive experiments to create Medicaid expansion without calling it Obamacare will start to bite.  $10, $20, $30 million dollar state tabs for performance art will start getting expensive when a cheaper and just as effective option of traditional Medicaid expansion is available.


17 replies
  1. 1
    rikyrah says:

    50-60 million?

    that’s all?

    thanks for the info, Mayhew

  2. 2
    Benw says:

    Having people buy more expensive private insurance that is paid for by Medicaid and saying it’s still the free market is so dumb it makes my teeth hurt.

  3. 3
    Baud says:

    I wish someone would calculate the dollar amount that hating Obama has cost this country. I’m starting to think it rivals the Iraq war.

  4. 4
    Tommy says:

    I am so sick of all the folks that say and think government can’t do anything. I live near a huge Air Force base. Many military people around me. Both retired and active service.

    Now I know the VA has some high-profile problems, but talk to anybody I know that uses the VA and they are ravings fans. They LOVE their health care.

    I have a good buddy that is retired. He had sleep apnea. He went in, didn’t wait for weeks or months, and they gave him options. He decided on surgery and it was in and out almost overnight.

    Oh and they did a really good job and of course corrected his sleep apnea.

  5. 5
    gene108 says:


    The military is not part of the the government the part that’s run by “worthless government bureaucrats.”

  6. 6
    Benw says:

    @rikyrah: if I’m understanding Richard right, that $50m is the stupid, expensive way of expanding Medicaid. If Arkansas just expanded actual Medicaid like a normal person, they’d be on the hook for much less in 2017. The number we don’t have is what the state would pay under normal expansion: if that number is, say, $20m, then that $50m number is effectively a $30m giveaway to BC/BS.

    How could the state pay for such a thing? I’m thinking a big hike in sales tax on food items could make up the difference!

  7. 7
    TheMightyTrowel says:

    Richard, if you get a chance will you conmment on the mess at u missouri where thousands of great students have lost coverage with almost no warning and the uni is blaming obamacare. Wtf is going on?

  8. 8
    Fair Economist says:

    It’s nice to see market forces pushing *back* against the privatization nonsense.

  9. 9

    This. The people who rail about how the government can’t do anything right are talking only about the mommy state; they appear to think the daddy state is far more competent than it really is.

  10. 10
    Fake Irishman says:

    On the Missouri issue:

    The IRS ruled that Student Health Plans are individual plans. Since the IRS treats grad student income as employees, Mizzou’s policy of subsidizing that individual plan runs afoul of another rule that suggests that plans can’t receive double tax benefits — taxfree subsidies from an employer and tax subsidies on the exchange. (even though student health plans aren’t available for purchase on the exchange).

    Note that this would be a complete non-issue if the state of Missouri had expanded Medicaid — with their income level most grad students would have qualified for comprehensive no-premium low-out of pocket coverage on Medicaid.

    Also note that many of these students are eligible for heavily subsidized plans on the exchanges, as well as cost sharing. (A few probably fall into the MEdicaid gap) OF course, Mizzou has made more efforts to cover its behind and blame the situation on the IRS and few efforts to inform students of the exchange options.

    Also notice that this would not be a problem if Mizzou insured grad students instructors through an employer group plan.

    Of course, you generally haven’t seen any of those three points mentioned in any media coverage of the subject, which tends to be focusing on the seeming contradiction of Obamacare kicking graduate students off of health care. (The Kansas City Star, NPR station KBIA and the Chronicle of Higher Ed are examples)

    One thing sitting in the background is whether grad students are “employees” in any capacity. Universities hate, hate hate the idea of students also being able to be employees because that opens up rhetorical (and possibly legal) space for grad students/employees to think about forming a union so they are pushing back hard on the IRS here.


  11. 11
    Fake Irishman says:

    And great post on the Arkansas situation, Richard, I was going to draw to your attention to it, but you are all over it per usual. It’s odd, isn’t it, how a good way to save money on expanding Medicaid is by shifting people from private plans onto…. Medicaid? There are a few other fig leaves in the proposal to help conservatives claim victory, but overall this whole Arkansas experience seems to point tentatively toward the idea that the Medicaid expansion is durable.

  12. 12
    Richard Mayhew says:

    @Benw: Not quite.

    The 50 million will be the 10% cost of expanding Medicaid using the private option model. Going to straight Medicaid financing at normal Medicaid rates, the 10% cost of explanding Medicaid would probably be in the $25 to $35 million dollar range, so the cost of FU is $15 to $25 million per year for the Arkansas state government.

  13. 13
    Richard Mayhew says:

    @TheMightyTrowel: I know nothing about this, give me some time to do research before I have an opinion or an explainer.

    Update or what the Fake Irishman said

  14. 14
    Ryan says:

    What I don’t understand is why they chose to go forward, knowing that it’d end up costing more than Medicaid. They did know this right? Or are we dealing with a lot of true believers that truly see government as more wasteful?

  15. 15
    Eric U. says:

    I wish we could just fold Medicaid into Medicare and be done with it. As it is, it’s too easy for providers to exclude those patients and the states have to come up with the money, so the rules are screwed up. I’m fighting Medicaid for my brother right now, and it’s a pain

    @Ryan: three strikes against a rational solution coming out of these people. First, they are true believers. Second, they are lazy, so they wouldn’t even check to see if they were right. Third, the true believer part makes them not want to believe the proof that their beliefs are wrong

  16. 16
    Richard Mayhew says:


    All of the above?

    Or a 3 year grift can still be worth running and if the Teabaggers could gain a functional majority on this issue (they don’t even have a 25% blocking minority), they could discontinue the program to fuck over those lazy shiftless working poor bastards.

  17. 17
    Chris T. says:

    Hutchinson suggested establishing a certain income line as a cutoff for the private option

    Sure. How about doing that first, then later, actually choose the line … perhaps “138% of the poverty line”?

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