“In approving the demonstration, HHS did not ensure that the demonstration would be budget neutral—that is, that the federal government would spend no more under the state's demonstration than it would have spent without the demonstration,” the report said.
The report raised similar concerns about Iowa's Medicaid expansion demonstration. Iowa is using federal Medicaid dollars to buy private exchange plans only for low-income adults with incomes between 100% and 138% of the federal poverty level, whereas Arkansas is buying private coverage for adults below 100% of poverty as well. But the GAO did not estimate how much more Iowa's program would cost the federal government.
HHS responded to the GAO report by saying it continues to believe that the Medicaid expansion waivers it has approved featuring reliance on private plans are budget neutral.
But the GAO's findings could raise objections from budget hawks to having more states adopt the private plan approach, which currently is being considered by a number of Republican-led states eyeing Medicaid expansion, such as Tennessee. For state GOP leaders who have argued there is no good way to expand Medicaid, the GAO report may provide ammunition to back their case, said Marsha Simon, president of Simon and Co., a health consulting firm in Washington.
The GAO analysis rejected Arkansas officials' argument that if the state had expanded the traditional Medicaid program, it would have had to pay healthcare providers 67% more than what it had been paying to get them to serve the expansion population. The GAO said federal officials didn't receive adequate data to support that assumption.
Arkansas officials slammed the report and repeated the argument that the state would have had to raise rates to convince providers to accept patients in an expanded Medicaid fee-for-service program. “Historically, clients across the country have had difficulties getting access to physicians willing to take Medicaid because of the low payment rates,” said Kate Luck, a spokeswoman for Arkansas' Department of Human Services. “It's unreasonable to assume we could add hundreds of thousands of clients to the traditional program and not have had to raise rates.”
With more than 200,000 Arkansans now enrolled in the state's Medicaid expansion program, the state is not getting complaints about lack of access, likely because providers are receiving commercial-market rates from exchange health plans, Luck said.
Deborah Bachrach, a partner in the law firm of Manatt, Phelps & Phillips and a Medicaid expert, backed Arkansas' claim that new Medicaid enrollees would have faced healthcare access issues if the state had simply expanded traditional Medicaid and paid the traditionally low rates.
Joan Alker, executive director of the Georgetown Center for Children and Families, said the GAO report is consistent with previous reports from the watchdog agency questioning how HHS determines budget neutrality in granting state waivers. Under HHS' statutory waiver authority for Medicare and Medicaid, it cannot OK demonstrations that increase federal spending.
“GAO has been saying for decades HHS is too fuzzy with their math in waiver negotiations,” Alker said.
But Alker said the Obama administration is unlikely to be deterred in approving similar Medicaid expansion waiver proposals from other states because it wants to convince GOP-led states to agree to the expansion.
Bachrach agreed. “CMS will work with states to find a pathway forward for expansion,” she said.
The GAO did the report at the request of Sen. Orrin Hatch (R-Utah) and House Energy and Commerce Committee chairman Fred Upton (R-Mich). Neither lawmaker immediately responded to request for comment on the report. Hatch's Republican-led state currently is considering a Medicaid expansion.
A spokeswoman for Upton’s committee said the “GAO’s latest report raises serious questions about the administration’s willingness to expand Medicaid before doing its due diligence.”