Private option loss would have $757 million impact on state budget, consultant says

The loss of the private option would have a $757 million impact on the state budget from 2017-21, legislators were told Monday morning.

Stephen Palmer with The Stephen Group, the consulting firm hired by the Health Reform Legislative Task Force, told legislators that ending the private option would result in an increase of $213 million in state expenditures over that five-year period. Meanwhile, ending it would reduce tax revenues by $544 million.

Under the private option, the state uses federal Medicaid dollars to purchase private health insurance for adults with incomes up to 138% of the federal poverty level. The program was created in 2013 and now covers 273,246 Arkansans, Palmer said.

The latest numbers released by the Department of Human Services showed that 262,987 were determined eligible as of Dec. 31, including those who had been shifted to traditional Medicaid because they were considered “medically frail.” At that point, the state was paying premiums on 200,703 policies.

Palmer said the number of enrollees is higher than expected, but costs per enrollee are lower.

The program has been controversial since it was created and is slated to end at the conclusion of this year. Gov. Asa Hutchinson is asking legislators to approve an alternative, Arkansas Works, that requires more personal and financial responsibilities on the part of beneficiaries.

The task force is scheduled to vote on approving a legislative package, including Arkansas Works, Monday afternoon. A health care special session is scheduled to begin April 6 for the full Legislature to consider the legislation. It will be followed by the regular fiscal session, where funding will be determined.

The private option as it currently exists will cost the state and federal government $1.63 billion in 2017 and $9 billion over the five-year period. The state, which has paid little for the program to this point, begins paying 5% of the cost in 2017, a number that increases to 10% in 2020.

Ending the private option would save the state $598 million over that five years in state expenditures. But the state would incur greater costs. For example, it would cost the state $504 million over that five-year period as some recipients would be shifted from the private option to Medicaid. Recipients would be moving from the private option, where the state pays a maximum of 10% of the match, to traditional Medicaid, where the state would pay 30%.

The $757 million is a higher number than previously released. In arriving at those numbers, The Stephen Group made several assumptions, including that certain groups such as the medically needy that have cost less under the private option would cost more without it, and that uncompensated care funding provided by the state to hospitals would rise to pre-private option levels.

Using more conservative assumptions, the five-year impact could be as low as $363 million, Palmer said.