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Gov. Mike Beebe met with about twenty lawmakers this afternoon to announce the results of his meeting with Sec. Kathleen Sebelius last Friday.

The feds have given Arkansas permission to pursue a plan that would provide private health insurance to anyone between 0-138 percent of the federal poverty level, giving coverage to more than 200,000 of the currently uninsured. The government would pay for the entirety of the premium, though consumers might be subject to some co-pays.

Beebe brought questions and ideas from legislators to his meeting with Sebelius and “basically they’ve agreed to give us about everything we’ve asked for,” he said. “What that really amounts to is take the Medicaid population that would be expanded…and use those federal Medicaid dollars and purchase insurance through the exchange. So they would buy private insurance through the exchange for the entire population, and [the feds have] given us permission to do that.”


Now this is an interesting idea that hasn’t been floated until this point. The Medicaid expansion from the Affordable Care Act would be handled through the health insurance exchanges rather than Medicaid. In the past managed care through Medicaid involved the state Medicaid program contracting to private insurance companies to provide service. Medicaid monitors and pays the insurance companies. But this plan would involve individuals going directly through the health insurance exchange without Medicaid in the middle. Also traditionally when Medicaid does has manage care the choice of plans is limited, Medicaid is required to have a minimum of two plans in any given area if they mandate Medicaid clients into managed care. Sometimes more options are available but usually it is only a few options at most. Whereas this new idea of using the health exchanges to provide for the Medicaid expansion should offer more options for people to chose. Though I have a few questions and concerns with this idea.

The health exchanges are supposed to offer a variety of plans and differing levels of coverage. There are supposed to be more economic plans as well as the ‘Cadillac’ plans. So are those participating the Medicaid expansion going to be allowed to chose any plan even the top level plans or will they be restricted to certain types of plans? I would have a problem with offering the top of the line coverage to somebody who is getting it 100% free of charge for two reasons; cost and fairness. If people can chose the top of the line plans then most likely will and the cost of coverage will be significantly higher than if they were covered through Medicaid directly. Also I don’t think it would be fair to give people top of the line health insurance if they are not paying for it. Many of us work hard for our health insurance which can be quite expensive and it would be unfair for somebody to receive better insurance for free than much of the public works to receive.

As for costs, buying private insurance for citizens is likely more expensive than providing Medicaid. That almost certainly means that this deal will have a higher price tag for the feds. And it could mean higher costs for Arkansas once the state has to start chipping in. Beebe acknowledged that possibility but said the sunset will allow lawmakers to analyze the question with hard data in three years time.

Though there is the other side of costs. It is well known that Medicaid underpays on many services which results in shifting costs onto private insurance. So if the Medicaid expansion in AR is done through private insurance then maybe it could help make costs more equitable. That is there would be less cost shifting from Medicaid to private insurance because private insurance would cover the expansion. At the same time it would help provide coverage to some uninsured which means that their costs would not be shifting on to private insurance. So in theory this could be good since it would result in less cost shifting to private insurance from Medicaid and uninsured individuals. Though we would have to wait and see how this plays out once implemented to determine exactly how it will effect cost shifting.

My final concern with costs is about federal spending. This has been my primary concern with the Medicaid expansion from day one. Yes the feds will pay for the expansion but they will be paying on credit not with actual money. The Medicaid expansion will drive up Medicaid expenditures by the federal government which in turn will drive up the deficit and debt. I don’t know AR health care costs but I do know TX health care intimately. If TX were to expand Medicaid we would estimate each of the new adults to cost somewhere around $500/mo. So if the costs are comparable then AR would spend $500/mo per person for 12mo a year for 200,000 people which comes out to about $1.2 billion dollars. That may not seem like a lot for the federal budget but AR is a small state so if a lot of other states join the Medicaid expansion then it could really rack up a bill.

Next I am sure some people will start talking about it being good to shift people from a government run program to the market because markets drive down costs and improve quality. Unfortunately that is not true for health care. There is no real free market for health insurance. Most people either accept the insurance their employer offers or go without. You can’t decide that you don’t like your insurance and just switch unless you want to bear the full burden of paying for it. And since many people’s insurance is supplemented significantly by their employer it is not a good choice for them to change insurance companies. So that entire realm of individual is function cut off from any influence they can have on the market. Furthermore it is difficult to say the least for an individual to evaluate the cost of health care or the quality of health care. There is much good information that would allow you to compare providers or insurance companies. This prevent individuals from being able to make rational choices about health care and thus prevents them from influencing the market. (for more on this see my post on health care transparency)

What we really need is to shift the focus of health care in general away from pay per service provided and towards pay based on health outcomes. Health care should be about making people healthier and the payment structure should reflect that to encourage that behavior. This shift could be accomplished by Medicaid and Medicare if they shifted their payment structure to focus on health outcomes. Medicaid and Medicaid make up 37% of national health care expenditures so any change they adopt will likely force the entire system to change. There are methods of evaluating unneeded services and potentially preventable events like complications and readmissions. In fact a pilot program in MD was able to reduce complication by 20% in 2yrs by shifting their incentives. A private program in MN was able to reduce readmissions to hospitals by approximately 20% with their program. Implementing national programs of this nature while leveraging the power of Medicaid and Medicare the government could literally transform our health care system. Though if Medicaid starts having people buy through the private market with little to no involvement from Medicaid then it would start to loose some of that leverage to reform the health care system as a whole. At this point we are only talking about one state and it won’t really make a difference. But if a lot of states do this it could make a difference. Especially if Medicaid programs start shifting existing caseload to the exchanges instead of just the Medicaid expansion caseload. (for more on this see my post on health care incentives)


PS Thank you Reasoning Politics for bringing this to my attention.