Report: Private Option nets Arkansas budget $438 million by 2021
A consulting group hired by a legislative task force says the Private Option will have a net positive fiscal impact for the state of Arkansas budget of $438 million through 2021.
A 63-page preliminary report by The Stephen Group, hired by the Health Reform Task Force of the Arkansas Legislature, distributed its findings to lawmakers late Monday night. A final report will be issued on October 1, 2015.
The private option uses Medicaid funds through the Affordable Care Act to cover Arkansas adults with incomes at 138% of the federal poverty level or below. The population eligible for the Private Option has eclipsed 250,000 this summer, while the number enrolled has cleared 218,000. However, as the state has engaged in a system of “redetermination” to verify income levels, more than 48,000 Arkansans may have lost their insurance benefits under the plan. Some were verified as income ineligible, while some failed to provide verification.
Gov. Asa Hutchinson is expected to make an announcement on the status of redetermination on Tuesday ahead of a Wednesday appearance he will make before the Health Reform Task Force, the legislative panel that is studying the Private Option and broader Medicaid program reforms.
Some of the key Private Option takeaways from Monday’s Stephen Group report include the following.
The federal government has been paying for 100% of the Medicaid expansion in Arkansas since it started in 2014. Beginning in 2017, the state must begin sharing some of those costs starting with 5% in 2017 and up to 10% by 2020.
Still, The Stephen Group concludes that the total fiscal impact for the state will be a net positive of $438 million between 2017 and 2021.
“With those projections and assumptions, the total impact of the private option on state funds is projected to be positive for all years between 2017 and 2021, with an aggregate positive impact on state funds of $438 million over those five years,” the report said.
“It is important to note that the assumptions above consider the fact that the current federal match will remain unchanged. Some congressional leaders have called the high federal rate ‘unsustainable.’ If the federal match rate were to drop, it would significantly reconfigure the state budgetary impact. Managing this risk, and developing a prospective risk tolerance for this possibility, should be a consideration for state legislatures in the nation,” it said.
The net impact is as high as $156 million in 2017 and as low as $25 million in 2021.
When the Medicaid expansion was first contemplated by state officials in 2012, then-Arkansas Medicaid Director Andy Allison projected the state would benefit by about $372 million over a seven-year period.
HIGHEST USE COUNTIES
The Stephen Group report breaks out Private Option users by county and notes that the 5 counties with the highest number of Private Option recipients are:
Pulaski – 25,000+
Benton – 15,000+
Faulkner – 10,000+
Craighead – 10,000+
Garland – 10,000+
The remaining 70 counties in Arkansas are below the 10,000 threshold. The report also provides a breakout of insurance carrier membership by county and insurance carrier membership as a percentage of county population.
MEDICAL LOSS RATIO
A provision of the Affordable Care Act known as the “medical loss ratio” (MLR) requires insurance companies to spend at least 80% of their premium income on health care claims and quality improvement versus administrative costs and profits.
According to The Stephen Group, the MLR threshold is higher for large group plans, which must spend at least 85% of premium dollars on health care and quality improvement.
“It appears that the current ratio of claims to premiums is 79%, thus lower than the amount allowed under ACA. Thus it would appear that the carriers will need to make a refund payment to its customer, being the State of Arkansas. Of course, 100% of that would accrue to CMS [Centers for Medicaid Services] since the premiums are 100% matched,” The Stephen Group report said.
HOSPITAL, ER USAGE HIGH
The report analyzed different touchpoints within the health care ecosystem where carrier claims are paid. About 25% of claims paid for Private Option members were inpatient hospitals with 19% being at outpatient hospitals, and 10% in emergency rooms.
“That is, 54% of Private Option claims are paid to hospitals. Physician offices received 20% of claims paid. This raises a question about Private Option’s effectiveness in moving patients from hospital and ER into the physician’s office. Pharmacy costs are 16% of carrier claims,” the report noted.
The data regarding emergency room utilization has been a longstanding concern from critics of the Private Option, while supporters contend that it is correctable behavior over the long run.
The Stephen Group concluded, “Initial observation is that the carriers have taken on members that are largely inexperienced with private health insurance — even with paid health insurance at all. Thus, they may not have PCPs [primary care physicians], and not know how to find one. They may wait for a medical condition to become critical before seeking medical assistance—and need to go to the ED [emergency department]. They may simply not know where else to go to get help, owing to their inexperience with the system.”
A TRADITIONAL MEDICAID WARNING
While the Private Option net fiscal impact is positive, The Stephen Group warns the Health Reform Task Force that traditional Medicaid must also be reviewed for financial savings or else the state could find itself in significant financial straits.
The report notes that traditional Medicaid has grown by a little more than 2% this past fiscal year in Arkansas. It highlights a national Medicaid growth projection from the Centers for Medicare and Medicaid Services (CMS), which forecasts spending growth of 5.9% per year on average from 2015 to 2024. The Stephen Group said the growth prediction reflects “more gradual growth in enrollment as well as increased spending per beneficiary due to aging of the population.”
“Note that the amount of additional general funds needed to sustain the traditional Medicaid program beginning in calendar year 2016 to 2021, will be approximately $1.75 billion of general funds, or greater if the higher range estimates for growth become a reality,” the report said. “Without change, this could put the state in the situation of looking to find $75 million to $100 million in new revenue each year simply to sustain the program, and that is by using low range estimates.
“It is important to keep in mind that impact of growth in traditional Medicaid will vastly outstrip any state fiscal impact of the Private Option. In reviewing the future of the program, state leaders should put equal or greater focus on traditional Medicaid as on the expanded population,” the report concludes.