The economic impact of the private option | Arkansas Blog

Tuesday, March 24, 2015

The economic impact of the private option

Posted By on Tue, Mar 24, 2015 at 8:26 AM

The Arkansas private option projects to have an economic impact on the state's gross domestic product of $9.25 billion over ten years and job growth of 8,500 according to a report put out yesterday by the federal Department of Health and Human Services

Gov. Asa Hutchinson, in his speech backing the continuation of the private option earlier this year, focused heavily on the fact that implementing the state's unique version of Medicaid has produced significant savings to the state budget (and while he didn't say this explicitly, that meant more wiggle room for tax cuts): 

In 2015, the state is going to save roughly $88 million, which is a combination of shifting traditional Medicaid in some categories to the Private Option, which is 100 percent paid for at the present time. It is also a savings because the reduction of uncompensated care payments to several agencies — from UAMS to the Department of Correction, the Department of Health, Community Health Centers — have saved the state about $33 million.

These savings pile up in the early years of the private option because the feds fully pay for the policy through 2016. They chip in 97 percent in 2017, which then slowly falls to 90 percent in 2020 and beyond. That's still a very good deal for the state, with the feds covering much more of the bill than traditional Medicaid (and remember, the private option has already cut the state's uninsurance rate in half and is saving hospitals tens of millions in uncompensated care costs—$69 million in the first half of 2014 alone). 

Keep in mind, that's just on the savings side. The private option also creates additional revenues which will help to offset the costs once the state has to start chipping in 10 percent in 2020 and beyond. The state imposes a premium tax on every insurance plan sold in the state, including those via the private option, which produces tens of millions in annual revenue. The state is also collecting state tax revenues on the billions of federal dollars being spent in the state. This last point shouldn't be controversial—regardless of whether the flood of federal dollars produces economic growth, there is no question that some of it will end up being subject to state taxes (to pick an easy example, income taxes on additional hospital staff as hospitals see more paying patients). That's a hard question to measure precisely but it's impossible for the feds to put well over $20 billion into the state's health care system without a significant amount of additional state taxes being collected.    

Finally, there's the more controversial part: what kind of impact all that federal money will have on economic growth. The HHS report, which was based on various independent state studies compiled by the Kaiser Foundation, is unlikely to convince skeptical Republicans who can't imagine that federal spending on social safety net programs could possibly produce economic growth on the state level. It's worth noting, however, that even Obamacare-hating chambers of commerce have pushed for states to say yes, including to the private option in Arkansas. Perhaps the notion that billions of money coming in to the state economy is a good thing for the state's economy isn't so controversial after all. 

Whatever one thinks of the particular studies that produced the forecast of more than $9 billion in economic growth and more than 8,000 jobs, Hutchinson's task force on the private option should look at the overall impact of the policy, not just the gross costs in a vacuum once the state has to start pitching in. Costs are a real concern, of course: the Hutchinson administration estimates that the ten percent portion the state will be on the hook for in 2020 amounts to $200 million. But that figure will be partially offset by savings to the state budget and additional revenues. And the impact on the state's budget must be evaluated in the context of the benefits of the private option: on the state's economy, on hospitals, and on the hundreds of thousands of Arkansans who depend on the private option for health insurance.   

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