Is Arkansas' "Private Option" A Block Grant? Insurance Expert Bob Laszewski Thinks So, But He Is Wrong

Apr 17 2014, 3:22am CDT | by

During the past few months, insurance industry insider Bob Laszewski has chronicled many of the failures of ObamaCare’s launch. He has raised some very important questions and concerns from the insurance industry about future policy and premium bumps that lay ahead under the ACA. Unfortunately, his recent attack on Republican governors and state lawmakers who have rejected ObamaCare’s misguided Medicaid expansion completely misses the mark. He contends that Arkansas’ “Private Option” is really just a block grant for Medicaid. But the truth lies in the fine print, and while there is no question the Private Option puts state taxpayers at risk, it also creates a new entitlement and ceded most of the control for the program to the federal government. It’s like putting the fox in charge of the hen house.

Laszewski praises the Obama administration for being “very cooperative and flexible” on Medicaid expansion, by allowing states to increase Medicaid eligibility through programs such Arkansas’ “Private Option.” There’s just one problem: the promised “flexibility” never materialized.

We recently talked to Arkansas State Senator Bryan King, chairman of the Legislative Joint Auditing Committee, who has been monitoring Private Option implementation. Here’s what he had to say about that promised flexibility:

Arkansas’ negotiations with the Obama Administration made one thing clear: the bureaucrats in Washington hold all the cards and their main concern is implementing ObamaCare, not providing states with any real flexibility. They may relent on tweaks that amount to nothing more than window dressing, but their intent is for states to expand Medicaid and enroll more Americans into government-run health care. Arkansas made a grave mistake in trusting the Obama Administration’s false promise of flexibility and our state’s sense of buyer’s remorse grows worse by the month. I only hope that leaders in other states are not fooled by these empty promises.

Senator King is right: Arkansas was given no meaningful flexibility at all.

The Federal Government Didn’t Grant Arkansas A Medicaid Block Grant

The Private Option Medicaid expansion creates a new entitlement for able-bodied, working-age adults.  It is not a Medicaid block grant. By definition, a block grant requires a state to receive a fixed amount of funding in exchange for meeting certain policy objectives. While the federal government placed a per-person cap on Private Option spending—though kept an open-ended funding scheme for an unlimited number of eligible individuals—it didn’t accompany that cap with true flexibility. It’s the worst of both worlds for Arkansas: capped per-person funding from the federal government and no meaningful flexibility to control costs.

The Federal Government Didn’t Grant Arkansas Flexibility On Who To Cover

The Private Option Medicaid expansion covers all of the able-bodied adults that ObamaCare envisioned. The vast majority of these able-bodied adults are working age, have no dependent children and are ineligible for most other types of welfare, including cash assistance and long-term food stamps.

In order to secure its waiver, Arkansas was forced to promise to cover individuals who were already purchasing private insurance – either through an employer or in the individual market – as well as individuals who would otherwise qualify for federal subsidies on the ObamaCare exchange.

Other states that have explored partial expansions or different plan designs, like South Dakota and Indiana, have been smacked down by the Centers for Medicare and Medicaid Services—the decision-making arm of the U.S. Department of Health and Human Services when it comes to Medicaid-related negotiations with the states.

Is this the cooperation and flexibility that Mr. Laszewski praised the Obama Administration for?

The Federal Government Didn’t Grant Arkansas Flexibility On What To Cover

Private Option enrollees are guaranteed the same Medicaid benefits they would receive under a traditional expansion. All benefits not typically covered by private insurance, including non-emergency medical transportation (NEMT) and early and periodic screening, diagnosis and treatment (EPSDT) benefits, are simply delivered through the traditional fee-for-service Medicaid program.

The Federal Government Didn’t Grant Arkansas Flexibility On What To Charge

Under the terms of the waiver, the vast majority of enrollees in Arkansas’ Private Option have no cost-sharing whatsoever. Even among those who must pay nominal copays, cost-sharing is lower than what current Medicaid rules allow.

The Federal Government Didn’t Grant Arkansas Flexibility To End The Expansion Whenever It Wishes

Nothing in the Private Option waiver gives the state new authority to roll back its ObamaCare Medicaid expansion. Federal law and regulation still classifies the expansion population as a new “mandatory population” for states that opt into the expansion, which authorizes the federal government to take away all federal Medicaid funds if a state were to roll back eligibility for that group.

In June 2012, the U.S. Supreme Court held that states could forego Medicaid expansion without placing their existing Medicaid funding at risk. It did not hold that separate federal requirements on maintaining eligibility for mandatory populations would not apply after a state agrees to expand Medicaid./>/>

The Court’s decision rests in a large part on the fact that when states opted into Medicaid when the program was created in the 1960s, it was unforeseeable that the federal government would attempt to expand it in this way. But it is not unforeseeable that the federal government may ultimately reduce its promised funding. In fact, this issue came up during Supreme Court oral arguments and was acknowledged by the Supreme Court in the majority and minority opinions.

While HHS has said in non-binding letters that states may enter or exit the expansion as they please, this non-binding promise has never been codified into law, regulation or waiver agreements and Medicaid beneficiaries are likely to have standing to litigate the matter in federal court.

Ultimately, the state will be held to the requirements of the law and court decisions, not to opinions and views expressed in non-binding letters. Even the forms states are required to fill out in order to implement the ObamaCare expansion make clear that the new coverage group is a mandatory population.

Arkansas Is Not Alone, Iowa Was Not Granted Flexibility Either

The same pattern of inflexibility has played out in other states seeking to expand Medicaid in similar ways. A forthcoming report from the Foundation for Government Accountability, for example, highlights these same issues regarding Iowa’s ObamaCare expansion.

As that report will explain, nearly every request Iowa made was rejected by the Obama administration.

  • Iowa’s request to exclude benefits not covered by the ObamaCare exchange plans was denied.
  • Iowa’s request to limit reimbursement to Federally Qualified Health Centers (FHQCs) to the rates contracted by the ObamaCare exchange plans was denied.
  • Iowa’s request to limit family planning services to providers who had contracted with ObamaCare exchange plans was denied.
  • Iowa’s request to limit retroactive eligibility for Medicaid was denied.
  • Even the request to increase the nominal copay for unnecessary ER use by a paltry $2 – which is the only cost-sharing allowed at all in 2014 – was denied.

Even Iowa’s plan to charge premiums was rendered mostly meaningless by the waiver’s special terms and conditions. The small monthly premiums were ultimately limited to $5 to $10 per month, far below Iowa’s original request, and only approved in exchange for eliminating all other point-of-service cost-sharing (except nominal copays for unnecessary ER use).

In reality, these premiums operate more as suggestions than real requirements. The premiums do not apply to anyone in 2014 or those below 50% FPL in 2015 and beyond. These premiums are waived in future years for performing small tasks, such as getting an annual checkup, or by self-attesting to a financial hardship. The state must give enrollees at least a 90-day grace period to pay their premiums and, in most cases, cannot disenroll individuals for refusal to pay.

So What Flexibility Are We Talking About Again?

Given all this, it’s hard to see what “flexibility” Mr. Laszewski thinks was given to the states that have bought into ObamaCare’s Medicaid expansion. But even if this promised flexibility were real, states are wise to think twice about expanding Medicaid under ObamaCare.

State policymakers are right to carefully weigh their options before extending Medicaid benefits to an entirely new class of individuals who don’t typically qualify for other types of welfare. This careful consideration is especially important, given the fact that states have no reliable estimates of the true cost of expansion.

After all, lawmakers should not expect taxpayers to sign a blank check, nor jeopardize funding for other state priorities, in order to put further strain on an incredibly expensive program already struggling to provide quality care to the most vulnerable.

Many of these lawmakers are familiar with the budget nightmares that played out with waitlists for disabled kids and cuts in organ transplants under previous expansions in Maine and Arizona, respectively. And also the current push in Rhode Island, by the Republican-turned Independent-turned Democrat Governor Lincoln Chafee, to further cut payment rates to hospitals, nursing homes and health plans, while also instituting new premiums for disabled children amounting to roughly $3,000 per year, due to the cost of the newly expanded program. This is the gray area that most supporters of Medicaid expansion want to ignore.

Mr. Laszewski appears to support state officials gambling that the federal government will keep its funding promise for Medicaid expansion. This is despite a long history of broken funding promises and unfunded mandates under other federal programs. These states may be left with the tab for ObamaCare expansion with no way to legally and politically undo that decision.

Despite his prior observations and insight on the complexity of ObamaCare, Mr. Laszewski has completely missed the mark when it comes to Medicaid expansion.

As Chief Justice John Roberts wrote, “[t]he States are separate and independent sovereigns. Sometimes they have to act like it.” Roughly half of the states have acted like it – by not expanding Medicaid. They should be commended for thinking hard about the deal they are being asked to strike with the feds, not criticized.

This post is co-authored with FGA’s Director of Research, Jonathan Ingram./>/>

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