Sen. Hendren Responds Cautiously To Private Option Report

The co-chairman of the Health Reform Legislative Task Force responded cautiously Tuesday to a report by a consultant showing the private option will have a cumulative positive impact of $438 million on the Arkansas budget through 2021.

Sen. Jim Hendren, R-Sulphur Springs, was responding to a preliminary report by The Stephen Group that was distributed to lawmakers Monday night. 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 federal government has been paying for virtually 100% of the cost in Arkansas since it started in 2014.

The private option’s net positive effect comes despite the state being responsible for 5% of the cost starting in 2017, a number that rises to 10% by 2020. The net impact is as high as $156 million in 2017 and as low as $25 million in 2021.

“While it is encouraging that the data indicates a positive impact on the state budget when the state’s full 10% match kicks in, it must be noted that this positive impact in 2021 of $25 million is only possible because of $124 million in additional taxes,” Hendren wrote in an email.

The task force was formed by legislation sponsored by Hendren this year as part of a deal between Gov. Asa Hutchinson and legislators to fund the private option through 2016 while a replacement is found in the context of overall health care reform. It will meet Wednesday and Thursday, with Hutchinson scheduled to address the Wednesday meeting.

The report found that about 10% of private option claims were for emergency room visits. It theorized that the private option population is inexperienced with health insurance and may not have primary care physicians or may wait until a medical condition has become critical before accessing the health care system. Hendren said that was disappointing.

“The report also highlights the fact that issuing insurance policies has done little to change overutilization of ER services,” he wrote. “Particularly disturbing was the statement that 26,000 people had utilized ER services more than twice in a month. That’s over 1 in 10. Driving down actual healthcare costs has to start with healthier behavior and lessening inefficient delivery of medical services.”

While the private option’s net fiscal impact is positive, the report notes that traditional Medicaid has grown by more than 2% this past fiscal year in Arkansas. The Centers for Medicare and Medicaid Services forecasts spending growth nationally of 5.9% per year on average from 2015 to 2024.

“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.”

Hendren said that added to the situation’s urgency.

“The report makes clear what Governor Hutchinson said from the beginning: Traditional Medicaid has a far greater impact on the state budget, and failing real reform will continue to engulf our budget and any potential state savings from Medicaid expansion,” he wrote.