Sunday, April 14, 2013

The costs of rejecting the "private option" and doing nothing

Posted By on Sun, Apr 14, 2013 at 6:37 PM

MELISSA FARRELL: This mother of two will be one of the 170,000 who go without insurance without the private option image
  • Brian Chilson
  • MELISSA FARRELL: This mother of two will be one of the 170,000 who go without insurance without the 'private option.'
When Arkansas Republicans pushed forward a new policy framework, now known as the "private option," it appeared to represent a third way in the healthcare expansion question. But with the vote looming, it's anyone's guess whether it will pass. What happens if a minority of legislators manage to block the path to a super-majority for the "private option"? What happens if the state instead goes with Rep. Bruce Westerman’s “do nothing option”?

After the jump, some of what's coming for the state and its people if "do nothing" wins the day:

• Around 170,000 low-income adults will continue to go without insurance. People like Melissa Farrell, a hard-working mother of two trying to better her situation. She doesn’t make enough money to buy health insurance or qualify for the coming exchange, but she makes too much to qualify for the state’s stingy Medicaid program. A serious medical problem could ruin their family financially. And of course she will avoid getting care because she can’t afford it, only using the emergency room as a last resort.

• And who pays for that, when someone like Melissa inevitably needs care? Hospitals take a hit from uncompensated care and cross-subsidizing leads to a "hidden tax" as private insurance premiums go up.

• According to a study by the Rand Corporation, doing nothing would lead to more than 1,000 deaths that could have been avoided with increased healthcare coverage.

• There will be a “hole” in coverage — hundreds of thousands of people above 100 percent of the federal poverty level ($11,490 for an individual, $23,550 for a family of four) will get government subsidies to purchase health insurance. But those below the poverty line (like Melissa Farrell) will be left out in the cold, creating what lawmakers from both sides of the aisle have acknowledged is an ethical disaster.

• One result of this coverage hole will be massive “churn” as people’s income changes, moving them between Medicaid, no coverage, and the exchange. This will increase administrative costs and lead to disruptions in care and worse health outcomes.

• Arkansas will have turned down an option that would, based on third-party actuarial estimates, add around $670 million to the state coffers over ten years. Just what to do with that additional budget wiggle room would be a political debate, of course, but there is no doubt that expansion would help the state’s bottom line.

• Arkansas will continue to pour hundreds of millions of dollars into direct state spending on uncompensated care. Hospitals and municipalities will lose hundreds of millions more.

• Struggling hospitals will absorb cuts in Medicare reimbursements and without the impact of expansion, the situation will become dire — particularly for those in rural areas. Some may close, with the attendant harm to both local economies and access to care in rural areas.

• The state Medicaid budget would have to enact rate freezes for providers to deal with the shortfall in FY 2014 and 2015 (the program would instead have a significant surplus under the "private option").

• The long-term outlook under Westerman’s “do nothing option” is even worse for the state Medicaid program. The program is expected to grow no matter what due to the “woodwork effect” — people currently eligible but not signed up will likely “come out of the woodwork” because of publicity around Medicaid. That means hundreds of millions of dollars in additional spending that’s coming no matter what, but without the revenue/savings offsets from the “private option.” The state would be setting itself up for severe Medicaid shortfalls well into the future. That would force hard choices about provider rate cuts or painful cuts to beneficiary benefits that nobody wants.

• The “cliff” at 17 percent will remain in place, so that low-income parents trying to better themselves will be in danger of losing their health insurance if they make more than $3,320 per year (for a family of three). Read that last sentence again. It’s hard to imagine a more pernicious policy in terms of discincentivizing work at the low end of the income scale than the status quo. Without expansion, that remains in place.

• Businesses will face tens of millions in employer mandate penalties every year that could have been avoided under the "private option."

• The state will take a hit of more than one billion dollars a year in new federal taxes and reductions in Medicare reimbursement rates. This is the money the feds are using to pay for Obamacare, and Arkansas will be paying in no matter what. The "do nothing" option just means the state passes on the federal money that offsets those costs, resulting in economic pain for Arkansas.

• The state will be saying thanks but no thanks to billions in federal stimulus, with a net annual gain in state GDP of hundreds of millions of dollars and the creation of thousands of jobs. While it's understandable that conservatives might be wary of benefits accrued from federal spending, the fact of the matter is that the impact on the national debt is less than a rounding error. The future of the debt will be determined by policy decisions in Washington, D.C — the "private option" decision has no meaningful impact on the debt one way or the other. Like it or not, the Affordable Care Act will in practice be a massive transfer of money to states that say YES to some form of expansion. Saying no won't save Arkansans from paying federal taxes or hospitals from feeling the bite. It will just mean that the dollars flow to other states, states that are of course much richer than Arkansas.

There’s often a status-quo bias in politics, but legislators should consider all that will happen in the state if they follow Bruce “Do Nothing” Westerman’s plan. It's not a pretty picture. On the plus side, doing nothing would make a 0.0008% impact on the national debt, and Westerman can re-hash some Obamacare commercials when he runs for Congress in a year with Tea Party backing.

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