Private Medicaid option

The Obama administration's recent approval of Arkansas' alternative plan to expand healthcare coverage for low-income residents under the federal healthcare reform law bodes well for several Republican-led states looking to implement their own alternative models for expanding Medicaid.

Last month, the CMS granted Arkansas a Medicaid Section 1115 waiver that allows the state to move forward on its plan to use federal funding available under the Patient Protection and Affordable Care Act to buy private healthcare plan coverage through the state's new insurance exchange in 2014 for adults with incomes up to 138% of the federal poverty level. About 250,000 residents are expected to get coverage through Arkansas' private insurance plan demonstration. The federal government will pay 100% of the cost for the first three years, then 90% after that.

Currently, adults without children in Arkansas do not qualify for Medicaid.

Arkansas Gov. Mike Beebe, a Democrat, proposed the private plan model as an alternative way to expand coverage for low-income residents because the Republican-controlled Legislature opposed the reform law's expansion of Medicaid. Similarly, Republican governors and lawmakers in other states such as Iowa, Michigan and Pennsylvania are asking the CMS to allow alternative models for expanding coverage, which hospital leaders badly want to provide a payment source for uninsured patients. But some of those state proposals include cost-sharing, benefit reductions, job requirements and other features that could make it difficult for the Obama administration to approve them.

The Arkansas plan marks the first time the CMS has granted a waiver for a state to buy private coverage as an alternative to the Medicaid expansion authorized by the ACA. Advocates of the private plan approach say it gives beneficiaries access to a broader provider network and allows a more seamless transition between Medicaid and coverage.

“With the Arkansas Private Option, Arkansas set an example that is still garnering national attention,” Beebe said last week during a radio address. “Instead of railing against the federal government, we found a way to work within the system.”

Approval of Arkansas' Medicaid alternative has potentially opened the door for other states that were on the fence about expanding Medicaid or refused to do so. Rejecting the Medicaid expansion means those states will lose billions of dollars over 10 years.

“If we get to the round two states—states that didn't immediately move ahead to accept the federal money—I think it's certainly going to be a topic of discussion,” said Joan Alker, executive director at the Center for Children and Families at Georgetown University's Health Policy Institute. “But how many states will actually go this route is hard to say.”

The CMS is reviewing a similar model proposed by Iowa. Alker thinks Iowa's proposal will receive federal approval.

Under the Arkansas model, new recipients earning between 100% and 138% of the federal poverty level would be required in the private plans to pay up to 5% of their income for cost- sharing. That could total nearly $800 a year for a person earning a Medicaid-eligible annual income of $15,000, raising questions among providers and advocates for low-income people whether this would be affordable.

Arkansas residents earning less than 100% of the poverty level would be exempt from cost-sharing requirements during the first year of the demonstration. But the state plans to amend the waiver to include cost-sharing requirements for those making between 50% and 100% of the poverty level in 2015 and 2016.

Research has shown that states imposing greater cost-sharing on Medicaid beneficiaries saw lower participation in the program.

In Iowa, the state is proposing to buy private coverage on the state exchange for new enrollees with incomes between 100% and 138% of poverty, while those making less than 100% of poverty would receive coverage under traditional Medicaid. Participants in the private plans would have to pay a premium of $20 a month plus $10 copayments for all nonemergency use of the hospital emergency department.

Judith Solomon, vice president for health policy at the liberal-leaning Center on Budget and Policy Priorities, said an important difference between the Iowa and Arkansas plans involves Medicaid's generous wraparound benefits. Arkansas would maintain those benefits for people earning 100% to 138% of poverty, but Iowa would not.

Another state that may propose a private plan expansion option is Pennsylvania, where Republican Gov. Tom Corbett recently proposed such an expansion despite opposition from the GOP-led Legislature. Corbett can bypass the Legislature but hasn't yet submitted the proposal to the CMS. One provision in his proposal that could jeopardize its approval by the CMS is a requirement that unemployed adults get a job or participate in a job training program to qualify for the new coverage.

Other states such as Utah, Tennessee, New Hampshire, Ohio and Florida also may develop private plan options for expanding Medicaid, Solomon said.