Monday, March 11, 2013
"Private option" is good fiscal deal for state — just like Medicaid expansion was
Posted by David Ramsey on Mon, Mar 11, 2013 at 9:33 AM
The new “private option” approach is going to cost a lot more money. I’ve explained at length why it’s still going to be a good deal for the state.
But here’s a very simple look, one that circles back to why expansion was a no-brainer deal for the state to begin with (was before, is now, but it takes the word "private" to sharpen some brains).
I estimate that using 2012 dollars, the gross cost of providing coverage via the “private option” will cost an additional $300-400 million per year than Medicaid expansion would have. That’s a lot! But remember, Arkansas gets a 100 percent match rate from the feds for the first three years, which gradually falls to a 90 percent match in 2021. So even years down the road, the extra hit to Arkansas is more like $30-40 million.
Still not chump change. But that federal spending is going to generate tax revenue. If the feds pour an extra $365 million into the state, we can conservatively estimate that might generate $14.6 million. That’s using a 4% rate that DHS used in their original cost study, which is probably too low but hey, we want to be conservative. (Yes, Republicans used to call this "funny money," but times change, people evolve.) Adding that to the new revenue stream from fees on insurance companies selling additional premiums on the exchange, and the switch from the old plan to the new could possibly be a wash for the state.
When you include everything—the various costs of expansion offset by the savings, not just from tax revenue but from state spending on uncompensated care and transfer populations moving to higher match rates—expansion is a money-saver for the state’s bottom line. Again, that was true before and it’s true under the new plan.
The main moral of the story is that if the feds offer 90-100 percent match rates on useful spending in your state, you should probably say yes. For whatever reason, it took the “private option” for Republicans to see the light.
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