Still no numbers behind DHS “private option” study, plus another clarification | Arkansas Blog

Friday, March 22, 2013

Still no numbers behind DHS “private option” study, plus another clarification

Posted By on Fri, Mar 22, 2013 at 4:07 PM

The Department of Human Services this week sent me another clarification about the new “private option” study. The mechanics behind their conclusion are a bit different than what they told reporters earlier this week, so we need to post a correction here — although the specifics are likely of interest only to those wanting to get deep into the wonky weeds. If that’s you, see below.

Before we get to that….Like their earlier correction, none of this impacts the broad conclusions of their Monday release. But obviously vetting those conclusions requires knowing precisely how DHS arrived at them. This is the issue right now with their findings: we simply do not have the complete data or methodology behind them. Given that DHS is, in their own words, “directly challenging” the consensus that the “private option” will cost the feds a lot more, people are going to be skeptical until they show their work.

DHS Communications Director Amy Webb told me that many of the findings from their consultants were explained verbally or via documents shared during web conferences. DHS does not currently have copies that they can share. “We have no report from the actuaries, who have not transmitted their working model to us,” Webb explained by email.

Webb said that DHS was confident in their conclusions based on their communications with the consultants. She said that DHS wishes to be transparent and hopes to get the complete data and methodology behind the study's findings next week and provide it to the public.

Clearly, part of the issue is that DHS has been under time pressure to offer broad impact statements as quickly as possible. In fairness, most legislators are probably more interested in the conclusion than the nitty gritty of the methods, and the Beebe administration's priority is convincing legislators, not pesky journalists. All that said, until we know just how DHS arrived at their conclusions, healthy skepticism is probably the way to go. (Pause for obligatory note that the lawmakers that vigorously doubted the findings of previous DHS studies on Medicaid expansion — studies that explained the numbers behind the conclusions — have been silent this go-round.)

On to the latest clarification: What DHS told reporters and explained in their Monday release was that the differential between Medicaid and private insurance in the state was 25 percent and that increased competition and plan management would knock off 5 percent each, bringing it down to 15. In fact, the competition effect is built in to the 25 percent baseline number (so presumably the current difference between Medicaid and private insurance costs is a bit higher than 25 percent). Health plan management brings it down to 20 percent. That 20 percent is the per-person differential for healthy adults between Medicaid expansion and the "private option." But because some people, such as the medically needy, in the expansion pool will stay in Medicaid anyways, the differential for the entire pool is 13 to 14 percent (down from 20 percent, rather than down from 15 as the DHS release said Monday).

You can see the full DHS explanation of this clarification after the jump, much of which re-hashes the information from their Monday release.

Additional explanation of the actuarial cost comparison between traditional Medicaid and private coverage in the state exchange

DHS’ March 18 estimates of the incremental costs (or savings) of the emerging low-income premium assistance QHP buy-in option concluded that the net increase in federal Medicaid costs could be as much as 13-14%, but taking all considerations into account, the overall net impact on federal spending could be negligible or even zero.

The analysis supporting the March 18 estimates began with an actuarial projection of the costs of the existing Medicaid program in 2014. Using complete and recent claims information from the Arkansas Medicaid program, actuaries projected 2014 Medicaid costs at a monthly total of approximately $366 ($4,392 per year) for adults with demographic and health characteristics similar to the adults who would enroll in QHPs under the emerging premium assistance option. That monthly cost excludes high-risk, high-cost individuals, which make up an estimated 10% of the new population. “Medically frail” individuals with exceptional health service needs who gain coverage in 2014 are not expected to participate in the QHP buy-in program, but are instead likely to receive services in the traditional Medicaid program.

The $366 per-member-per-month (PMPM) amount is the starting point for an estimate of likely costs for the QHP buy-in option. To the 2014 Medicaid-equivalent cost estimate of approximately $366 PMPM, actuarial conversion factors are applied to arrive at an expected PMPM cost for private QHP coverage in the exchange. Those factors are described in the earlier press release and briefly reproduced here:

• An actuarial review reveals that the provider rate differential between Arkansas’ private market and its Medicaid program is expected to be less than 25%. This estimate incorporates the likelihood that introducing 250,000 low-income adults into the private market in the state exchange will lead to enhanced competition among carriers and some price pressure on providers who will now be compensated at competitive rates for all participants. This price pressure is estimated to result in a 5% reduction in private reimbursement rates in the exchange as compared to current rate differentials in Arkansas.

• The competitive nature of health-plan management within the exchange in combination with allowable cost sharing and sharper consumer health care decision making is expected to further reduce the cost differential to approximately 20%.

Therefore, health plan PMPM costs for the QHP buy-in population are expected to be no more than 20% higher than the (unadjusted) costs for a similar population served in the Medicaid population — before adjusting Medicaid comparison costs to reflect reimbursement rate increases that would likely be needed to secure access for the new population. In dollar terms, this 20% differential in health plan costs results in an expected monthly cost of approximately $438 in the exchange ($5,260 per year).

Because the 20% health plan cost differential does not apply to all spending associated with the new population, the net difference in Medicaid costs for the federal government is expected to be approximately 13-14%.

• Excluding the most costly 10% of the new population from the QHP buy-in reduces the total amount of coverage that could potentially be purchased through QHPs on their behalf by 20% or more, since average costs for high-risk individuals are more than twice the costs of low-risk individuals.

• Excluding other high-risk groups also lowers the base against which any QHP cost differential would be applied. High risk adults in Medicaid transition populations as well as some of the woodwork population of current eligibles who newly enroll would be affected by the extension of coverage to adults below 138% of poverty, but would not be affected by the QHP buy-in. For those individuals, the federal costs of extending coverage to low-income adults would be the same with and without the QHP buy-in.

• Finally, total administrative costs associated with extending coverage to adults below 138% of poverty would be lower with the QHP option, saving both the state and federal government money in comparison to a traditional Medicaid expansion.

As described in the March 18 press release, the potential federal Medicaid costs of 13-14% are further reduced — potentially to zero — by two significant factors:

1. Appropriately adjusting the comparison costs of a traditional Medicaid expansion to account for likely provider rate increases needed to secure access to health services. Accounting for the likely increase in projected federal Medicaid costs associated with a new population reduces the differential costs associated with the private QHP buy-in; and

2. Taking into account the favorable rate relief that the premium assistance option would provide to the federal government. That rate relief would reduce the amount of U.S. Treasury-financed subsidies for 80% or more of exchange participants with incomes above 138% of the poverty level. Because the Federal treasury is potentially liable for the full marginal costs of premiums above fixed, income-related subsidies, the Federal government should gain the full benefit of this rate relief for the vast majority of exchange participants. It is also worth noting that the Federal government will be responsible for less than 100% of any added Medicaid costs associated with the QHP buy-in after 2017 (when the federal match rate begins its slide to 90%), so that in the out-years any rate relief inside the exchange pays even greater dividends to the Federal treasury.

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