While many states continue to mull whether to grow their Medicaid enrollments in exchange for extra federal funding made available through the Patient Protection and Affordable Care Act, healthcare provider advocacy groups that have favored expanding the program now have a third option to consider in their lobbying — the so-called Arkansas plan. The private alternative to publicly administered Medicaid could be a politically palatable boon for providers by increasing both the number of insured patients and perhaps the rate at which they are reimbursed.
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The PPACA includes a provision, made optional in a Supreme Court ruling last year, that encourages states to broaden Medicaid eligibility to include all individuals — including childless adults for the first time in some states — who earn 138 percent of the federal poverty line or less, or about $15,800 for individuals or $45,900 for a family of four. In exchange, HHS will pay 100 percent of the additional cost to insure the newly eligible beneficiaries for three years, tapering off to 90 percent beginning in 2020. If all states agreed to the option, the nation's roughly 30 million uninsured would drop 48 percent, and an additional $293.9 billion would flow into Medicaid programs over the next 10 years, a nearly 23 percent boost.
To date, 20 states and the District of Columbia have agreed to the measure, but not all states have been enthusiastic to add to their long-term Medicaid liability. Fifteen have publicly said no, and 15 are still weighing the decision. That could put excess pressure on safety-net hospitals in such states. Medicare fee-for-service rate increases will be $260 billion smaller over 10 years than original projections. And starting in October, Medicaid and Medicare disproportionate share hospital payments are also scheduled to be slashed 75 percent, in part to pay for the Medicaid expansion, amounting to 10-year total reductions of $22 billion and $34 billion, respectively, from the DSH programs. If safety-net hospitals, which are usually reliant on Medicaid DSH payments, happen to sit in a state that doesn't expand Medicaid, they will lose out on their normal funds — while still treating high levels of indigent-patients.
Enter Arkansas. With a Republican-controlled legislature vocally opposed to the PPACA, Democratic Gov. Mike Beebe devised a way to appease his opposition with a plan to insure about 200,000 more low-income residents by giving them vouchers to pay for private coverage with help from federal money, rather than adding more people to the public Medicaid plan. HHS Secretary Kathleen Sebelius gave the idea her initial approval, and the state passed legislation to allow it in April, pending HHS' final approval.
Details are still being worked out, but the skeleton of the plan would shift about 90 percent of new Medicaid enrollees onto the exchange where they can use Medicaid subsidies to buy the same private health plans as other consumers, said Arkansas Department of Health spokeswoman Amy Webb. The state predicts the other 10 percent of new enrollees will qualify as "medically frail" and remain on the traditional public Medicaid plan, along with most of the former Medicaid beneficiaries.
The model has garnered the attention of other once-skeptical states like Tennessee and Ohio, whose governors have expressed interest in replicating Arkansas' proposed "premium subsidy" model that limits states' liability while insuring more people. As a win for providers, private plans, including those paid for by Medicaid, reimburse providers at higher than traditional public Medicaid.
Arkansas' model has attracted market analysts' attention as well. Moody's Investors Service called the Arkansas bill credit positive for the state's hospitals in a brief, claiming the move will lower their exposure to uninsured and self-pay patients, thereby reducing uncompensated care levels.
Dan Steingart, assistant vice president and analyst at Moody's who authored the brief, says that is a large incentive for providers in non-expansion states to back legislation like Arkansas'. He cautions, however, that such a move is no panacea for hospitals with slowing revenue streams. The Arkansas model, although not yet finalized, intends to enroll its beneficiaries on the same private plans as other consumers. That may not be the case in all states, Mr. Steingart says, with some experts estimating subsidized- private plans will pay providers 15 to 20 percent below commercial rates, although still higher than publicly administered Medicaid. All the same, he says states that have not yet committed to expansion will strongly consider Arkansas' example.
The Arkansas plan potentially has merit and may be the only politically feasible way for conservative states to consider expanding, says Matthew Buettgens, PhD, senior research analyst at the Urban Institute. But, a private expansion is not inherently better than a public one, he says. There is concern that cost per Medicaid beneficiary in a private plan may be higher than on a government plan, which could require Medicaid plans to be administered in very narrow networks in order to keep costs down to make them profitable for insurers. Plus, with an influx of Medicaid customers into private plans already swelling from newcomers thanks to the health law's insurance mandates, payors with more customers may have even greater power to negotiate lower reimbursement rates with providers.
Whether expanded through private or public plans, Medicaid expansion will yield more revenue to hospitals that care for low-income populations, Dr. Buettgens says. He authored a report that found that even in cases where residents earning between 100 and 138 percent of the federal poverty line in states that expand traditional public Medicaid would forgo private insurance in favor of cheaper Medicaid, hospitals would still see an average of $2.59 gained from more total Medicaid reimbursements for each dollar of private insurance lost.
Here is a breakdown of states' three major options regarding Medicaid under the PPACA:
Traditional Medicaid expansion
• More low-income patients will qualify for Medicaid, reducing levels of uncompensated care.
• Some patients previously covered by private insurance may now qualify for Medicaid instead, which reimburses at a lower rate than private payors. The Urban Institute found, on average, hospitals would gain $2.59 in additional Medicaid revenue for every private insurance dollar lost due to an expansion.
• New CMS regulations allow for "presumptive eligibility" in states that expand, allowing hospitals to collect some Medicaid payments for uncompensated care even if a patient did not demonstrate Medicaid enrollment at the time.
No Medicaid expansion
• Over 10 years, CMS is expected to cut Medicare fee-for-service payment increases by $260 billion, Medicaid disproportionate share payments by $22 billion and Medicare disproportionate share payments by $34 billion. Safety-net hospitals would then miss out on additional Medicaid revenue and lose some fee-for-service and DSH payments to offset the cost of uncompensated care.
• The uninsured population is likely to drop even without Medicaid changes, thanks to the law's individual and employer mandates to buy and provide health insurance in most cases.
• Those with private or employer-sponsored coverage will meet enhanced minimum benefits levels, assuring coverage for more types and levels of care. Estimates of how many more Americans will be insured vary widely.
Private expansion
• Arkansas was the first state to propose and gain HHS' initial approval on a "premium support" plan that would essentially privatize Medicaid, offering vouchers for newly eligible enrollees to help them pay for the same private coverage as other consumers on the online health insurance exchanges.
• Some industry experts and academics predict private Medicaid plans would reimburse providers at 15 to 20 percent less than other commercial plans, although still higher than traditional Medicaid. However, no finished plans have been released that could confirm this.
• To be profitable to payors, these plans may have narrow networks, similar to an HMO, forcing health systems to compete for tighter payor contracts.
• With more policyholders, payors may gain leverage to negotiate lower reimbursement rates.
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