Don’t build a market with plans to tear it down

Resistance to the Affordable Care Act remains strong in 12 holdout states, where policymakers have declined to expand Medicaid coverage to low-income residents, despite the availability of lucrative incentives included in the American Rescue Plan.

If any holdout state had taken the bait, it would have been a surprise, since neither the fact that most voters in those states favor Medicaid expansion nor the devastation from the pandemic appears to have changed any minds.  

In an end-run around officials in holdout states, proposed provisions in the “Build Back Better” legislation under consideration by Congress would allow residents in holdout states to directly enroll in coverage through a new federal pathway. In an initial draft, the legislation would have required the Department of Health and Human Services to establish a new federal Medicaid program that would operate in states without Medicaid expansion beginning in 2025. From 2022 through 2025, the legislation proposed to provide premium tax credits for Medicaid expansion-eligible residents in holdout states to purchase health plans through the health insurance marketplace. Congressional negotiations appear to have resulted in the abandonment of the federal Medicaid program in 2025, but the plan to offer premium subsidies over the first three years still remains in the bill.

This approach should be familiar for Arkansans. It is similar to the premium assistance approach we have used since 2014, originally called the “private option.” As the first Southern state to adopt Medicaid expansion, Arkansas now has almost eight years of experience using expansion dollars to purchase marketplace plans for income-eligible individuals through a federal demonstration waiver. 

Our experience in Arkansas offers lessons about why Congressional negotiations might have resulted in a more optimal path and why the transition to a federal Medicaid program as originally proposed might have been more challenging and disruptive than anticipated. First, Medicaid enrollees in marketplace plans experience better access and higher-quality care than enrollees managed directly through Medicaid. This is not surprising: It follows the mantra, “You get what you pay for.”

This leads to the second lesson: Providers get paid more. An evaluation of Arkansas’ program found that physician payment rates for outpatient services were 95% higher for marketplace plans compared to Medicaid and 53% higher for hospital stays. 

Third, the marketplace plan approach introduces a guaranteed purchaser of premiums into the insurance market in each holdout state. In Arkansas, this has meant enhanced competition and stable individual-market insurance premiums over time. In 2014 — the first year of the “private option” — 37 states had individual-plan premiums lower than Arkansas. By 2020, that number was down to six.

A transition to a federal Medicaid program in 2025 would have segmented coverage for privately and publicly insured Americans and destabilized markets. A stated plan to dismantle the market in 2025 could have given insurers cold feet about participating in the first place.

The United States has a patchwork strategy for providing financial coverage for health and health care services to its citizens — Medicare for seniors, Medicaid for those who are disabled or low-income, commercial coverage through employer-sponsored or individual plans for those with means. Efforts like Arkansas’ to integrate coverage strategies to strengthen the marketplace, minimize cost-shifting and achieve quality care should be the goal. Failure to do so as part of the “Build Back Better” plan threatens to continue to fragment the delivery system, alienate providers and place low-income communities and communities of color at further risk.

Editor’s note: Craig Wilson, JD, MPA, is the director of health policy for the Arkansas Center for Health Improvement, an independent, nonpartisan health policy center in Little Rock. The opinions expressed are those of the author.