GAO: Expansion Dollars For Health Plans May Be Costly

By Christine Kern, contributing writer

Both the Arkansas and Iowa programs are costing more than anticipated.

A report from the Government Accountability Office has found allowing states to use federal Medicaid expansion dollars to buy low-income adults private health plans on the federal insurance exchange may cost the federal government significantly more than if those states simply expanded their traditional Medicaid programs. The GAO did the report at the request of Sen. Orrin Hatch (R-UT) and House Energy and Commerce Committee chairman Fred Upton(R-MI).

In September 2013, the U.S. Department of Health and Human Services (HHS) approved Arkansas’s demonstration proposal to expand its Medicaid program by allowing Medicaid funds to be used to provide premium assistance to enable newly eligible beneficiaries to purchase private insurance offered through the state’s health insurance exchange, based on the caveat that it would not cost more in the long run. HHS approved Iowa’s demonstration in December 2013, allowing them to use premium assistance to purchase private insurance on its exchange for a more limited group of newly eligible beneficiaries.

According to the GAO, over three years, CMS will lay out approximately $778 million more for Arkansas' Medicaid expansion program than they would have if the cap were based on the state's actual payment rates for services under traditional Medicaid. Also according to the report, “HHS policy requires that section 1115 demonstrations be budget-neutral to the federal government; that is, the federal government should spend no more under a state’s demonstration than it would have spent without the demonstration.”

The CMS authorized a nearly $4 billion spending limit for Arkansas' three-year demonstration program, which was the first state program approved to test the private-plan approach favored by conservatives for expanding Medicaid under the ACA. “In approving the demonstration, HHS did not ensure that the demonstration would be budget neutral – that is, that the federal government would spend no more under the state's demonstration than it would have spent without the demonstration,” the report said.

Iowa is using federal Medicaid dollars to buy private exchange plans only for low-income adults with incomes between 100 percent and 138 percent of the federal poverty level, whereas Arkansas is buying private coverage for adults below 100 percent of poverty as well. The report did not calculate how much more Iowa's program would cost the federal government.

The HHS response to the GAO report defended its actions, saying it continues to believe that the Medicaid expansion waivers it has approved featuring reliance on private plans are budget neutral.

The GAO's findings could potentially raise objections from budget hawks over future state adoptions of the private plan approach, which currently is being considered by a number of Republican-led states eyeing Medicaid expansion, such as Tennessee. The GAO report could provide solid fuel for those state GOP leaders who have argued there is no good way to expand Medicaid.

Arkansas officials criticized the report as inaccurate, stating that the state would have had to raise rates to convince providers to accept patients in an expanded Medicaid fee-for-service program. “Historically, clients across the country have had difficulties getting access to physicians willing to take Medicaid because of the low payment rates,” said Kate Luck, a spokeswoman for Arkansas' Department of Human Services. “It's unreasonable to assume we could add hundreds of thousands of clients to the traditional program and not have had to raise rates.”

With more than 200,000 Arkansans now enrolled in the state's Medicaid expansion program, the state is not getting complaints about lack of access, likely because providers are receiving commercial-market rates from exchange health plans, Luck said.