The economic benefits of the private option | Arkansas Blog

Monday, October 19, 2015

The economic benefits of the private option

Posted By on Mon, Oct 19, 2015 at 12:09 PM

Earlier this month, the Health Reform Legislative Task Force received the final report from its consultant, the Stephen Group (TSG), which included a number of findings and recommendations on the private option, the state's unique version of Medicaid expansion. Our coverage has mostly focused on TSG's ideas for possible changes to the private option (see here, here, here, and here), but it's also worth noting what TSG concluded about the existing policy's economic impact on the state. 

The big headline, of course, is the private option's enormous benefit to the state budget. The private option projects to save the state more than $400 million between 2017 and 2021, TSG projects. Unlike previous estimates, TSG was using real premium and claims data from 2014 and crucially, their projection looked at exclusively at years when Arkansas has to start chipping in a small amount of the costs, the period that private option opponents have said would harm the state budget (the savings to the state budget are even higher in 2015 and 2016, when the federal government pays for everything). Even when Arkansas has to start chipping in 10 percent of costs in 2020, TSG found, the net impact of the private option is revenue positive for the state budget because of additional tax revenues brought in by the private option, reductions in state spending on uncompensated care, and offsetting savings from covering certain people via the private option rather than other programs that are more expensive to the state. See here for a detailed breakdown.

This may actually be a conservative estimate — that revenue impact does not include any potential economic stimulus impact of pumping billions into the state economy. No multiplier was applied to the estimates on additional tax revenues. And as we see elsewhere in the report, the macroeconomic could be significant. 

In addition to the direct impact on the state budget, TSG also found other economic impacts from the policy, no surprise given that the private option brings in an estimated $9 billion in federal money into the state between 2017 and 2021, the years TSG focused on in its projections). Here are some highlights: 

* Savings on uncompensated care for hospitals: Between 2017 and 2021, hospitals are projected to save $1.1 billion because of the private option. 

* State GDP: Between 2017 and 2021, the private option is projected to contribute $3.2 billion to the state GDP

* Jobs: The private option is projected to support more than 6,000 jobs during the 2017-2021 time period (6,500 jobs in 2017, up to almost 8,000 by 2021). 


Keep in mind that TSG was the consultant of choice selected by the diehard opponents of the private option on the task force. The numbers above (not to mention the more than 200,000 people dependent upon the private option for health insurance) help clarify why Gov. Asa Hutchinson created this task force in the first place. A rump group of legislators in his own party may hate the policy, but the state can't afford to abandon it. 


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