Stephen Group Report: Keep But Change Private Option (UPDATED)

Editor’s note: This story has been corrected with respect to the percentage of out-of-state beneficiaries. The original report noted a 16% figure, when in fact the number is 7.8%.

A consultant hired by legislators says Arkansas’ Medicaid program is “on an unsustainable path” with higher costs than other states. Meanwhile, the state’s Medicaid and private option rolls include nearly 43,000 Medicaid and private option beneficiaries who may not live in Arkansas, and almost 500 who are no longer alive.

But The Stephen Group did not call for ending the private option. Instead it recommended options meant to make it a more transitional program. Meanwhile, Medicaid should be retooled to be less costly while providing better outcomes.

The recommendations were part of a 350-page report presented to the Health Reform Legislative Task Force Wednesday two days after it was made available to legislators.

The task force is considering changes to Medicaid and the private option. Medicaid serves poor, aged, and disabled individuals and is federally funded but state run. The private option serves individuals earning up to 138% of the federal poverty level.

The task force was created this year as part of a compromise that funded the controversial private option through 2016. It will make its recommendations by the end of the year.

The report said the private option is bringing to the state $1 billion a year in federal funds and will bring in $9 billion in federal match payments from 2017-21. It has helped Arkansas reduce its uninsured rate. Without it, hospitals would provide more than $1 billion more in uncompensated care for uninsured patients from 2017-21. Hypothetically ending the private option and returning Medicaid to its pre-private option status would have a $438 million effect on the state budget from 2017-21.

The Stephen Group did not recommend ending the private option. Instead, it offered two options meant to make it more transitional for recipients on their way to greater independence.

Under one model, which lead consultant John Stephen called the “transitional health independence program,” or T-HIP, the newly formed program would mandate work referrals for recipients and provide support for employers that hire beneficiaries. Beneficiaries with more assets would pay more, and those who don’t meet wellness and work search requirements would pay co-payments and premiums. Those who don’t meet program guidelines or pay their premiums would be locked out of the program.

Stephen said its more creative model, “WorkFirst,” may have to wait until the next presidential administration. It would include many of those same ideas but add a 20-hour work requirement modeled after the current Temporary Assistance for Needy Families program. Unlike the current arrangement, recipients earning between 50-74% of the federal poverty line would pay a $5 monthly premium while those earning 75-99% would pay $10 monthly. The state could consider a lifetime limit on benefits, as it has with TANF.

The Stephen Group reported that the Medicaid system is paying for benefits for 42,891 beneficiaries whose best address according to a LexisNexis search is out of state. That’s almost 8% of the 549,906 people in the possible pool.

According to the report, 22,781 traditional Medicaid recipients and 20,110 private option beneficiaries have best addresses that are out of state. Among traditional Medicaid recipients, 4,137 have best addresses in Texas, and 1,896 have best addresses in California. Among private option recipients, 3,750 have Texas addresses while 1,324 have California addresses.

Meanwhile, 3,543 traditional Medicaid recipients and 3,210 private option recipients have no record of living in Arkansas.

Stephen told legislators that it’s possible some enrollees whose addresses are out of state actually do live in Arkansas.

The Stephen Group found 367 traditional Medicaid recipients who were deceased prior to being authorized – 261 of them for more than two years. Moreover, 128 private option recipients were deceased prior to being authorized, including 82 who had been dead for more than two years.

A LexisNexis search found 12,622 participants with property values exceeding $100,000. One Medicaid recipient had purchased a $419,000 property in Florida, while another had purchased a $749,900 property in New Jersey.

Moreover, a LexisNexis search found 264,177 addresses that were newer than the ones in the state’s eligibility system.

Sen. Bryan King, R-Green Forest, a private option opponent, said Arkansans have been deceived about the program’s problems. “They put out statistics of every county’s enrollees in the private option. Have you seen one report that they’ve produced that shows 1,300 people in California?” he told reporters. He later added, “I mean, how innovative is it to sign dead people up on free health care?”

Amy Webb, spokesperson for DHS, said the department is prohibited by the federal Centers for Medicare and Medicaid Services from conducting an income verification more than once a year. Asked why the agency didn’t use LexisNexis like The Stephen Group, she said DHS had not done so because of budget constraints. DHS is in the middle of a problematic $200 million update of its eligibility system.

“We’ve been very forthright,” she said. “We’ve provided a great deal of information to both the Legislature and The Stephen Group. We want to make sure that people have all the information about this program. We want to make sure they have everything they need to make good and smart decisions about Medicaid. We want the program to be run well, to be run efficiently, to have strong program integrity. We want the right people to be getting the right services. We want only people who are eligible to be getting services.”

To better prevent abuse and fraud, The Stephen Group recommended the state create an Enterprise Benefit Integrity Hub, probably to be housed in the Department of Finance and Administration, that could monitor the eligibility of all individuals who are seeking state services.

Stephen said private option recipients as a rule are younger and healthier than other participants in the state’s health insurance marketplace, which serves individuals and small businesses. That makes them a cheaper population to insure. However, they utilize emergency room services at higher rates than traditional Medicaid recipients and lack an understanding of the system. The system does not provide incentives for beneficiaries to use more appropriate care.

Forty percent have no income at all, leading King to point out to a reporter that the system was originally supposed to serve the working poor.

Stephen said the state’s health independence accounts, which are designed to encourage private option beneficiaries to save money for their own health care needs, have not shown much success. So far, 45,839 cards have been issued but only 2,500 individuals are contributing monthly.

Medicaid itself is on an unsustainable path, Stephen said. Conservatively assuming growth of 5% over each of the next five years, Medicaid’s cost to the state budget will grow by $500 million by 2021 – from $1.548 billion in 2015 to $2.074 billion in 2021. Stephen said Arkansas has not implemented best practices that other states have used to reduce costs, such as better use of community care versus institutional care and nursing homes.

Stephen said DHS’ organization lacks integration and collaboration. The procurement timeline is lengthy, and so is the legislative review process. The state’s Office of Medicaid Inspector General does not have the tools it needs to investigate fraud and abuse.

Stephen recommended three options: one that expands the state’s current cost-saving initiatives; one where private insurance carriers develop programs for high-cost populations; and managed care, where a private company would manage Medicaid programs with the state setting profit margins and incentives. The managed care model spread across all populations would save the state $2.4 billion from 2017-21, he said.

Nearby states Tennessee, Mississippi, Texas and Kansas have all used managed care systems to save on costs. Texas has saved $3.8 billion since fiscal year 2010.

Stephen praised some of Arkansas’ efforts to reform its medical payment systems, such as its patient-centered medical home model where care is coordinated by a primary care physician, and its episodes of care model which sets a target for the costs of a certain medical event and then rewards providers who stay under that cost. However, he said the return on investment for the episodes of care model has been unclear.

He said the state needs to focus on improving value, which would include reducing cost while improving health outcomes. He recommended a cultural shift that would move from paying for claims to paying for performance. A worthy goal would be making Arkansas’ health care system the “best in the SEC,” he said.