PO “Raises Cost Concerns” For Feds

Med Exp (Red Flags)One of the phrases you’ll often hear from pro-private option legislators is that the private option “isn’t Medicaid expansion.”
Well, it turns out a recent report from the Government Accountability Office agrees with them, but only because the private option will likely cost taxpayers far more than traditional Medicaid expansion.
From the report:

HHS’s approval of $778 million dollars of hypothetical costs in the Arkansas demonstration spending limit and the department’s waiver of its cost-effectiveness requirement is further evidence of our long-standing concerns that HHS is approving demonstrations that may not be budget-neutral. HHS’s approval of the Arkansas demonstration suggests that the Secretary may continue to approve section 1115 Medicaid demonstrations that raise federal costs, inconsistent with the Department’s policy of budget neutrality. Moreover, the additional flexibility granted to Arkansas and 11 other states to increase the spending limit if costs prove higher than expected sets another precedent, further eroding the integrity of HHS’s process. If, as it did with Arkansas, HHS allows states to use an approach to expanding Medicaid that is expected to cost more than expansion under the existing Medicaid program with fewer cost controls in place, there could be significant cost implications for the federal government. Efforts to ensure cost- effectiveness and budget neutrality in Medicaid expansion demonstrations have even greater fiscal implications given that states that choose to do so will receive enhanced federal funding for the newly eligible population.

In a nutshell, the report finds that HHS didn’t do enough to ensure that the private option would be “budget neutral” for federal taxpayers who currently foot the bill for the entire program, and who will foot the bill for 90 percent of the program in the coming years.
Private option proponents were quick to scoff at the report when it was released yesterday.
From Arkansas Online:

Sen. David Sanders, R-Little Rock, and a sponsor of the law creating the private option said the report used “flawed methodology and bad numbers.”
“One of the reasons why a large-scale premium assistance effort has never been attempted is because of quite frankly some of the logic and methodology that you’re seeing” in the Government Accountability Office report, Sanders said.

The article doesn’t specify what “flawed methodology and bad numbers” Sanders is talking about.
We asked Sanders for comment, but he never got back to us.
State Senator Bryan King told The Arkansas Project the report is “another example of why the Obamacare private option is bad policy for the state of Arkansas.”
King said:

States that have not expanded Medicaid have been proven right time and time again.
The first sign the Obamacare private option was wrong was when we learned the true cost of the program. In the first six months, the program has been over budget by 10 to 15 percent.
Now we have the GAO, an independent accounting agency, saying the Obamacare private option is drastically more expensive program than traditional Obamacare Medicaid expansion.
But what is equally disturbing is the attitude of DHS and Obamacare private option architects that say the GAO is wrong. If so how wrong are they? Can you prove it?
This past session, some conservatives offered a compromise that would have basically limited the number of people (enrolled in the program). Unfortunately, the Governor and other members of the Legislature said no to that compromise.
This will devastate the state budget in future years and will continue to place more debt on future generations.

If you’re having some difficulty understanding the nature of the disagreement, you’re not alone What’s really going on here? I asked the boss, Dan Greenberg, the president of the Advance Arkansas Institute (which is, of course, the parent organization for the Arkansas Project). He replied:

In a sense, this isn’t big news. We’ve known about this disagreement for a long time, and it was predictable that the GAO would take the side it did. However, I still think GAO’s basically right. Let me explain.
In order for the federal government to approve the private option originally, Arkansas had to show that the private option wouldn’t be any more expensive than traditional Medicaid expansion. Now, ordinarily, the way you’d show this would be to look at established Medicaid reimbursement rates and demonstrate that private-option rates would be equal to them. The private-option architects did something different. They decided that Medicaid expansion, on a per-person basis, would be a lot more expensive than Medicaid’s established per-person costs — and if you use that method, which creates a goal that’s much easier to meet (by saying that Medicaid expenses for the expansion population will be a lot higher than Medicaid expenses for the current population, an assumption that gives private-option advocates a lot more freedom to spend taxpayer money), you’ve basically succeeded by redefining success. Some people would call that sophistication with numbers, but other people would call that cheating. What it amounts to in my view is moving the goal lines. In any discussion like this, you’ve got to start with the historical data, and private-option advocates have had and will have a very difficult time explaining why they diverged so far from them.
Very few people who are not private option supporters think that the numbers games that GAO identified are proper. I appreciate that the Beebe administration, the Obama administration, and the architects of the private option think this is the right way to do the math. But most outside experts — the ones without a stake in the success of the private option — think these kinds of numbers games aren’t sound. Nobody but God really knows if Medicaid expansion clients would have been so very much more expensive than traditional Medicaid clients, but it is clear that GAO is in the mainstream, while its critics are at the extremes.

In conclusion, it looks to me like pro-private option legislators have figured out an “innovative” and “conservative” way to make a government program even more expensive than usual.

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