We finally have tentative numbers to go with Arkansas plan! Hurray, right? Okay, so maybe you weren’t among the wonks who were sitting around waiting for these, but we were. The Arkansas Department of Human Services released a summary report yesterday, which suggests that the Arkansas expansion will only cost the feds 15% more than a typical expansion would—much less than the 50% premium that’s been hypothetically attached in the past (per a CBO report).
Why is it such a deal? The report attributes it to Arkansas-specific factors and a number of assertions about the ability of insurer competition to drive down exchange rates. Adrianna has quibbles with some of those assertions. Like, the notion that competitive plans—subject to limits on cost-sharing—will encourage “sharper” health care consumption. The RAND health insurance experiment taught us that increased cost-sharing led to decreased utilization—but not more efficient utilization. What evidence do we have to suggest that competitive plans will lead to better care decisions? We don’t mean that rhetorically. If you can find it, link us to the literature!
There’s also an interesting (but solvable!) legal wrinkle: as of now, there does not appear to be a statutory basis for limiting the choices of individuals <100%FPL. This gets back to our original queries about the legal foundations of the deal. Under a “conventional” expansion, people who receive insurance through the exchanges have their federal subsidies pegged to the second-cheapest “silver” plan. If they want something more lavish, they can pay out of pocket.
All of those rules are written into the Affordable Care Act. But funding for the Arkansas beneficiaries who would have been in Medicaid isn’t authorized by the Affordable Care Act; it’s authorized by the Social Security Act. As of now, the law doesn’t create a similar system for “pegging” federal contributions to a certain price point. Individuals theoretically could select any plan, including the most expensive, without facing any price sensitivity; this would undermine assumptions about competition. But! HHS could—and likely will, if this moves forward—issue regulations making subsidies for a “private expansion” consistent with ACA subsidies. It should just be noted that no such regulation exists at present.
But back to the report. The important conclusion here isn’t that Arkansas is expected to be cheap, but that Medicaid and exchange plans are expected to be very similar in cost. If that’s true, then the federal government doesn’t need to invest a significant amount of additional money to fund a “private expansion.” This report suggests a per-person-per-year difference of $1030, with Medicaid running $5,200 per person and individual exchange premiums averaging
$5,975 $6,230. [see update]
So, is that reasonable? The actuarial data hasn’t been made available yet. Absent that, we turned to information about Massachusetts, which has had an exchange in place since 2006 and enjoys near-universal coverage. This table breaking down average US costs, Massachusetts, Arkansas at present, and Arkansas as projected . Pay special attention to the different Medicaid costs.
|US (Average)||Massachusetts (Current)||Arkansas (Current)||Arkansas (Projected)|
Medicaid costs probably will increase with the expansion. Generally, these increases can be attributed to three factors; we’re not familiar enough with current Arkansas adult coverage to know exactly how much each will influence price increases, but here they are.
- Increased coverage. Adults on Medicaid under the ACA are likely to receive more comprehensive coverage than they currently receive.
- Increased payment rates to providers. Under the Affordable Care Act, primary care providers will see increased reimbursement for evaluation and management and immunization services over 2013 and 2014. If we see these increases sustained beyond that point (though that’s not current-policy baseline) it would also add to costs.
- Adding higher-risk individuals to the pool. This seems to be the factor that Arkansas DHS Director Andy Allison is weighing most heavily. Per David Ramsey on the Arkansas Times, “Allison said that there were a small but significant number of high-cost outliers in the pool (‘near disabled’) that would drive up the average cost dramatically.” 
So, it’s not that we’re disputing an increase in Medicaid costs. But… increase more than four-fold? Increase to a point that’s almost double the Massachusetts costs? There would have to be a reason for Arkansas Medicaid recipients to systematically cost more than those in Massachusetts and the rest of the nation . If Arkansas’s anticipated Medicaid costs are overestimated, that changes the dynamic, because it artificially narrows the gap between between Medicaid costs and exchange costs. It’s possible, of course, but the two-page report doesn’t show the math that takes us from $1,237 to $5,200. It seems, well, important.
Where does that leave us? Basically, it leaves the two of us asking more questions than have been answered (to be fair, a number are for HHS). Numbers are great, but we’d like to see more. The DHS report is two pages of assertions, without any underlying calculations. How did these numbers come about? We still don’t know how HHS is planning to define “comparative cost.” They could reasonably decide to define it as “115% or less of traditional expansion costs,” making the Arkansas plan viable on paper—but right now we don’t know. Once we have a finalized regulation, what kind of analysis HHS will require to get this off the ground? And we still don’t know what happens if Arkansas’s plan ends up costing more than projected. There are a few more at the bottom of this post that we remain curious about, too.
UPDATE: There’s some haziness about whether DHS released accurate numbers in their summary report. I already updated the estimate for expansion through the exchanges (as noted above with the strikethrough text). For more details, see this from the Arkansas Times. The only thing we have is the price of the healthy, not-near-disabled adults that make up the 90 percent of the expansion pool. Those numbers are $4,392 for Medicaid expansion in FY 2014; via “private option” in FY 2014 would be $5,256. We’re keeping an eye out for further findings, and will update this post as necessary.
Footnotes (because this wouldn’t be an Arkansas post without footnotes)
1. The numbers readily available for the table were from 2011 for employer-sponsored insurance and 2009 for Medicaid costs/Massachusetts exchange premiums.
2. Here’s my quibble with that: earlier in the piece, Allison is reported as saying, “Understand that low income is very highly correlated with age … Many of these individuals will be young, many will have health benefits of being young, which are likely going to be far more powerful than the negative impacts of being poor.” So… will they or won’t they be an attractive addition to insurance plans on the exchange? Those companies can’t pick the young and healthy, leaving the near-disabled behind—it’s the aggregate health costs that matter.
3. Due diligence: their figures are below the estimated $6,000 from the CBO report. I don’t entirely understand what the underlying assumptions are for the CBO framework either, though—they’re suggesting that average adult Medicaid costs would roughly double from current expenditures. But double, not quadruple, as would hypothetically be observed within Arkansas.
Adrianna works in clinical research and is a graduate student in public policy & public health at the University of Michigan. Follow her on Twitter @onceuponA.
Karan is a first-year student at Robert Wood Johnson Medical School and Duke graduate who previously worked in strategic research for hospital executives.Follow him on Twitter @KRChhabra.