GAO report says Arkansas’ Private Option plan $778 million over budget

A Congressional watchdog agency says Arkansas' private option won't be revenue neutral and could bring a price tag for state taxpayers of $778 million over the next three years.

On Monday, the Governmental Accountability Office released a 16-page report that outlined its contention that the 2013 U.S. Department of Health and Human Services (HHS) approval of a waiver for the private option – Arkansas' bipartisan-crafted Medicaid expansion plan – would have cost more than straight Medicaid expansion.

HHS allows states to experiment with innovative approaches to programs through waivers, which often leads to hypothetical scenarios or models in scenarios pitched for experimentation. The GAO report was critical of Arkansas' assumptions.

"Specifically, HHS approved a spending limit for the demonstration that was based, in part, on hypothetical costs — significantly higher payment amounts the state assumed it would have to make to providers if it expanded coverage under the traditional Medicaid program — without requesting any data from the state to support the state’s assumptions," the report stated.

"GAO estimated that, by including these costs, the 3-year, nearly $4.0 billion spending limit that HHS approved for the state’s demonstration was approximately $778 million more than what the spending limit would have been if it was based on the state’s actual payment rates for services under the traditional Medicaid program," the report said.

But state and federal officials countered the GAO criticism.

Matt DeCample, spokesman for Gov. Mike Beebe, said GAO never contacted Arkansas officials for additional details of the state's assumptions, which might have clarified aspects of the criticism. He also said GAO's reluctance to take into account program changes that Arkansas is implementing to lower costs makes the watchdog group's conclusions questionable.

For instance, Arkansas officials have maintained that the private option will result in savings from marketplace competition among insurance plans and from improved health care due to more access.

State leaders have also long contended that "churning" – which occurs when Medicaid recipients enter and exit the program due to income fluctuations – would be reduced with the exchange system, thus producing cost savings. And there has been substantial debate about the rising costs of Medicaid payments to providers, which led to Republican legislators' interest in experimenting with competition in the marketplace through the private option.

The GAO report admits these omissions, but justified them in its comments.

"As noted in this report, we reviewed Arkansas’s budget neutrality explanation as provided to HHS, and we found that the state’s assumptions that the state would pay Medicaid providers significantly higher rates in the absence of the demonstration were questionable and supporting documentation was limited," GAO said.

"[W]e based our estimate on the historical expenditure data provided by Arkansas, which we believe is the appropriate subset of data for developing such an estimate," the GAO report said. "In our view, if the state was not paying these costs before the demonstration, these costs should not be approved under demonstration spending limits without strong evidence supporting the deviation from HHS’s policy of relying on state historical spending for projecting future costs."

This latest report from the GAO highlights an on-going feud between the executive and legislative branches of the federal government. The GAO is the watchdog arm of Congress and conducts its analyses independent of federal agencies.

In the private option report, GAO officials conclude, "HHS’s approval of $778 million dollars of hypothetical costs in the Arkansas demonstration spending limit and the department’s waiver of its cost-effectiveness requirement is further evidence of our long-standing concerns that HHS is approving demonstrations that may not be budget-neutral."

This week, Arkansas officials disclosed that private option enrollment had reached 194,257.

“From our perspective, interest in the program continues to be strong and we think the private option is working as it was anticipated,” said Arkansas Department of Human Services Spokeswoman Amy Webb.

On Tuesday, a new coalition of hospital and health care groups announced an initiative to help Arkansans learn about their health care options and enroll in coverage using a $300,000 grant from the Fred Darragh Foundation.

Arkansans for Coverage was created in response to legislation passed this year by legislators prohibiting state agencies from publicizing the private option, the state program that uses Medicaid dollars to pay for private insurance for low-income residents. The law also prevents state agencies from publicizing the Arkansas Health Insurance Marketplace, the exchange where consumers can purchase subsidized health insurance. The group also will advocate for a smoother enrollment process.

The Darragh Foundation money will fund four “assister” positions at community organizations – one each at Mental Health Council and at Future Builders, Inc. in central Arkansas, one at Tri-County Rural Health Network in Jefferson County, and one at Legal Aid of Arkansas in Northwest Arkansas.

The coalition involves Arkansas Advocates for Children and Families, the Arkansas Hospital Association, Arkansas Interfaith Alliance, Arkansas Minority Health Consortium, Partners for Inclusive Communities, and Community Health Centers of Arkansas.