Arkansas “private option” experiment full speed ahead after releases from feds | Arkansas Blog

Tuesday, April 2, 2013

Arkansas “private option” experiment full speed ahead after releases from feds

Posted By on Tue, Apr 2, 2013 at 4:28 PM

*UPDATE: The Arkansas legislation took shape today with this extensive amendment, including some new Republican sponsors.

While lawmakers will clamor for further assurances and details from the feds, the information released in recent days has affirmed the basic framework of the Arkansas “private option” (although you might not have known it reading some responses in the national media).

The most substantive release from the feds came Friday, a short FAQ pertaining to “private option”-style premium assistance, released last Friday by the Centers for Medicaid and Medicare Services (CMS). Rep. John Burris stated on Twitter that “the document helps” but questions remain. “No bad news,” he tweeted. “Just reminded me of how I want our questions answered.” That was followed up today by a letter directly to the state from Kathleen Sebelius, Secretary of Health and Human Services, which gave broad approval to the Arkansas framework (a little too broad for Republicans, and negotiations on that front will continue).

But in terms of the policy, the CMS memo reasserts what we already knew about the “private option” approach. Arkansas would use Medicaid dollars to cover the full premiums of private health insurance on the exchange for the expansion pool. Recipients would have the same cost-sharing, benefits, and “wraparound” coverage protections that they would under traditional expansion (under 100 percent of the federal poverty level would be governed by the updated ACA Medicaid rules; for the 100-138 group, protections would be equivalent to the same group on the exchange). These protections of coverage and cost-sharing were always part of the “private option” deal — as we have reported numerous times and is confirmed by emails from administration officials when the announcement was first made — though there was apparently some confusion about this outside of the state.

The other point in the CMS memo that attracted notice was that the “private option” needs to be “cost effective.” Of course as we know, DHS and their actuaries already believe that the private option will be not just revenue neutral versus traditional Medicaid but will save the feds money. The need for a waiver does create another step in the process, though based on their communications with CMS, DHS officials told me this would not be a significant hurdle.

Here’s an important point to clarify: the waiver requirement led some to believe there might be a hard cap on the federal expenditures, which of course would make the deal much less enticing. I asked DHS Director John Selig and he said there is NOT a hard cap. Instead, Arkansas will make their pitch to CMS that they have a reasonable plan to achieve cost comparability. If approved, CMS will “carefully monitor and evaluate” the cost-effectiveness question going forward. In other words, it’s an experiment from a state to try something new (exactly what demonstration waivers are for!). Here’s Selig:

[We] say here’s our rationale for doing it. And they say, ‘that seems reasonable and we’ll watch it over the next few years. We’ll see what happens with Medicaid over the next few years in other states.’ At some point, 3 to 5 years down the road, they’ll say, ‘you know what, it actually was comparable or it’s better or worse’ but usually with these demonstration waivers, you’re saying we’ve got something that we think is really worth testing and there’s reason to believe that it will work. And they’ll say yes there’s enough reason to believe that it will work that it’s worth doing.

HHS grants Arkansas permission to give a different approach a shot. The states as “laboratories of democracy.”

Which was why I was initially surprised to read an about-face yesterday from former Romney healthcare advisor Avik Roy, generally an advocate of just that kind of pragmatic federalism. Roy’s post was called “The Arkansas-Obamacare Medicaid Deal: Far Less Than It First Appeared.” Roy was generous enough to have a long chat with me and it turns out that a better headline might have been: “CMS clears up confusion that outside media had about the Arkansas Deal”!

Both the exchanges and Medicaid will have cost-sharing protections, but they are stronger for Medicaid. Roy explained that he had been under the impression that the "private option" would have exchange rules for people under 100 percent of FPL; in fact they'll be under Medicaid rules regarding allowable cost-sharing. For Roy, this makes the “private option” not sufficiently different from managed care to represent a real experiment — he believes that the private market’s ability to deliver more cost effective insurance is dependent on more cost-sharing than would be allowed (as well as more flexibility in network design that Roy says is dependent on cost-sharing).

So that issue leaves Roy cold on the Arkansas framework. A few clarifications or quibbles with the rest of Roy's post that I shared with him in our chat:

• Roy’s post asked whether the “cost effectiveness” requirement would lead to skimpy reimbursement rates for providers. The answer is no. The state will have no control over the rates under the “private option,” other than the competitive bidding rules that will be the same as the rest of the exchange. The market will determine private rates. (Roy simply doesn’t believe the study from DHS’s actuaries that the plan will be cost comparable, but if he's right, it will simply cost more, as there's no hard cap in place.)

• Medicaid will pick up the 10 percent most medically needy of the expansion pool, creating a separate high-risk pool to protect the exchange. The pool going to the exchange will be a very large, stable, healthy pool with almost no adverse selection thanks to free premiums. It’s hard to believe that good, cost-effective plans are impossible for this pool.

• While the allowable cost-sharing is less than Roy would like, DHS argues that private insurance companies will be much more nimble and effective at using this cost-sharing along with plan management than Medicaid ever could. (Roy of course believes that the rules are nonetheless too restrictive.)

• The post asks whether HHS will "allow for reformed payment structures, of the kind that reward positive health outcomes instead of the ancient fee-for-service model that incentivizes wasteful health spending?" The answer is yes, Arkansas is in the midst of a major reform effort along just those lines involving both Medicaid and private insurers. Plans on the exchange will also participate, so this dovetails well with the "private option." Early returns look good and suggest a fair amount of low-hanging fruit in terms of waste on the provider side.

My argument to Roy was that despite this not being his ideal approach, this was an experiment worth trying, that maybe DHS is right about cost (let's find out!), and that even an incremental step towards a market-based approach positioned folks like Roy — and Arkansas Republicans — in a better spot for the further changes they would like to see. For him, however, the cost-sharing protections represented an absolute line in the sand.

Ultimately, it will be up to Republican legislators to decide whether the “private option” represents enough of a step in the direction they want to take, factoring in the inherent costs of doing nothing at all. Of course unlike Roy, they are also charged with considering the interests of Arkansans. If we simply focus on the best deal for the state and its people, I would argue that the case becomes overwhelming.

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