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Five Things We Learned About The Obamacare “Private” Option Last Week

Updated: Apr 13

Last Thursday afternoon, I attended the Joint Public Health Committee meeting. At that meeting, lawmakers had the opportunity to question Medicaid Director Andy Allison, DHS Director John Selig, and Optumas founder Steve Schramm. Optumas is the consulting firm that released the original cost estimates for the state’s Obamacare experiment, known as the “private” option. Based on their initial projections in March of 2013, the majority of lawmakers determined that expanding Medicaid coverage through Obamacare, using the “private” option, would have a net positive impact on the state budget. Unfortunately, now that the program is live and lawmakers have had time to actually examine the numbers, new concerns are arising almost daily. As a result, state bureaucrats have been working overtime to explain these concerns away. Their budgetary magic tricks were on full display at Thursday’s hearing. Here’s a quick overview of five things they asked us to believe. I will admit that they are not all impossible — some are just ridiculously embarrassing. 1. Asked at what point we should say the “private” option is costing too much and won’t work, state officials had no answer. Rep. Joe Farrer asked Allison, “With all the price increases and things changing, at what point do you say the private option is not going to work? Is there a number? A symbol, a sign? What is that?” Allison responded:

That’s a good question. It certainly would not be a number that I would point to in April of 2014. As Mr. Schramm pointed out, we actually have as of today no more information about the underlying health expenditures for this newly covered population in the private option — those in the commercial insurance market — than we did last March. So we’re still in the predictive period.

Allison added that it will be later this year before we have “hard-core numbers to truly review the experience even of this first year.” He failed to provide an answer to Farrer’s question. If you’re an Arkansas taxpayer, this should probably concern you: is there really no point at which we can tell whether the program is too expensive and has failed to live up to its promises? 2. Cost is really not that big a deal. Reducing ‘stigma’ is a top priority! Following Allison’s dodge of Rep. Farrer’s question, Director John Selig chimed in:

I’d just also note, in response to that, that the success of the private option was never just on the numbers. The legislature had a lot of discussion..about the fact that…we obviously want to look at the numbers, but we also want to reduce the churn of people going onto private insurance and off if you just expanded Medicaid…that there’s less stigma of having people in the private market, I think that’s worthwhile…So there are benefits that this body will need to take into account beyond just the cost…We will also want to take into account, are people better off being in the private market? I think we want to take all of that into account when deciding whether or not to continue the private option.

That answer is stunning. Reducing stigma? That’s a new one. I didn’t realize we’re spending $20 billion over the next ten years to add people to new entitlement programs so we can reduce the “stigma” attached to entitlement programs. Although I guess Medicaid expansion proponents have to say something — because we know Medicaid enrollment won’t have a meaningful impact on physical health outcomes, and their “cost control” arguments are slipping further and further away by the day. I suspect the lack of cost concerns would come as a big surprise to private-option cheerleader Senator David Sanders. According to the Democrat-Gazette, Sanders recently cited cost control as a key feature of the plan:

The focus on keeping the cost below a target is part of the value of the program, [Sanders] added. States that expanded the traditional Medicaid program “don’t have price considerations — it’s spend, spend, spend, spend,” Sanders said.

Apparently states that have cosmetically altered Medicaid expansions don’t have very much price consideration either. As he was winding down his testimony, Allison remarked that we don’t even know what the costs of the “private” option are going to be. Again, this should be of great concern to Arkansas taxpayers (and, indeed, taxpayers across the country) who are footing the bill. 3. According to state bureaucrats, the federal cap place on “private” option spending is really just a moving “target.” Senator Jim Hendren asked Allison if the federal spending caps could be adjusted without federal approval. Allison responded:

Correct, it wouldn’t rise for example to the level of a waiver amendment…They really have no discretion to reject the adjustment. It’s simply…the demographics are different than we predicted.

Allison’s comments misrepresent how the federal cap can be adjusted. The terms of the waiver are explicit and clear: federal approval must be granted in order for a cap increase to occur. Forgive me for sounding like the annoying nerd in the back of the class who corrects the teacher, but here’s what the terms and conditions of the “private” option actually say about cap overruns, on page 21:

If the State’s experience of the take up rate for the new adult group and other factors that affect the costs of this population indicates that the PMPM limit described above in paragraph (a) may underestimate the actual costs of medical assistance for the new adult group, the State may submit an adjustment to paragraph (a), along with detailed expenditure data to justify this, for CMS review without submitting an amendment pursuant to STC 7. Adjustments to the PMPM limit for a demonstration year must be submitted to CMS by no later than October 1 of the demonstration year for which the adjustment would take effect.

In addition, on page 22, the terms say:

However, if the State’s expenditures exceed the calculated cumulative budget neutrality expenditure cap by the percentage identified below for any of the demonstration years, the State must submit a corrective action plan to CMS for approval.

Allison is correct that a cap increase does not require as many hoops to jump through as a waiver request, but it is certainly still within the purview of the federal government to accept or reject a cap increase. When Allison says the state can adjust the cap without federal approval, he’s wrong. Hendren also asked Allison if the federal spending cap was really a cap or more like a target that could be moved up or down. Allison explained,

I would amend that by saying it’s a cap; it’s the first year in the calculation of a three-year cap. Target is a good description for the first year, which can be adjusted as appropriate. It’s part of the rules of the game that the federal government has established as a referee…and it’s a way to keep the question and the answer fairly determined. And in this case, that fairness is determined by whether the calculation of the cap and the calculation of expenditures under that cap are a fair apples-to-apples comparison. Right now, they’re not.

This answer demonstrates a serious misunderstanding of the purpose of the federal cap. In fact, the federal cap is supposed to ensure that the Obamacare “private” option expansion doesn’t cost more than regular Medicaid expansion would have. This concept is referred to as “budget neutrality.” If the cap can be unilaterally adjusted in whatever way the PO architects want, it’s not really a cap at all, because it completely disregards the original intent of budget neutrality. Rep. John Burris recently told the Arkansas Times that the budget neutrality requirement “is something that conservatives should celebrate…We set a bar for success in terms of government spending, and we hold ourselves accountable.” Can that statement be taken seriously when the state can increase the cap without any consequences, thus throwing budget neutrality out the window? When can taxpayers expect a denunciation of the cap increase? 4. The “private” option is already moving able-bodied clients ahead of the disabled. According to state bureaucrats, this is great news! After Allison, Selig, and Schramm were finished testifying, lawmakers heard from Insurance Commissioner Jay Bradford and Deputy Commissioner Cynthia Crone. They spoke mostly about the workings of the Obamacare insurance exchange, but did touch briefly on one aspect of the PO that has given opponents of the plan heartburn from the beginning: according to Bradford and Crone, PO enrollees are moving to the front of the line and gaining access to medical care that traditional Medicaid enrollees have been denied. This is due in large part to the higher reimbursements that come with the private-option plans. I suppose if your goal is to overload the state’s health care system with able-bodied people and further exacerbate the care-access problems facing the truly needy, this news is good. But if you’re concerned about expanding a program that already under-serves the needy — the very people it was designed to help — this news should really concern you. It’s a problem that likely to worsen; as Louisiana Governor Bobby Jindal recently said, “That’s a case of skewed priorities if I ever heard of one.” 5. Obamacare advertising will continue in Arkansas. Despite promises from certain lawmakers that they had “stopped” the advertising of Obamacare in Arkansas — and would therefore drastically slow enrollment in the program — Commissioner Bradford revealed on Thursday that there are efforts underway by nonprofits to advertise and encourage enrollment in the Obamacare exchange. As I wrote last week, enrollments are already 40% above projections. With advertising continuing, there seems to be little reason to believe enrollment will slow down anytime soon. In conclusion, it seems we are reaching a dangerous point where “success” of the private option can never really be determined: whatever the results of the private option are, bureaucrats and pro-PO legislators will simply continue to invent new metrics with which they’ll measure PO performance. For example, if costs increase above the new cap, they’ll simply adjust the cap again, claiming “It’s a moving target, not really a cap. There’s nothing to see here.” And when the moving target fails to keep up with the ever-increasing costs, bureaucrats and legislative supporters will claim, “Well, cost isn’t really that important anyway. The important thing is that we’re reducing stigma.” I realize these predictions aren’t particularly bold — because these things are already happening. (Update, 5/13/14: It should also be noted that, the day before this Public Health Committee meeting, Director Allison told the media that the state will ask the federal government to raise the cap, though he was unsure when DHS would make the request.)

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