How might HHS handle the Arkansas option?

by Adrianna McIntyre and Karan Chhabra

There’s really not much more that can we can say about Arkansas (or other states considering a similar “private option”) until HHS releases their final regulations, including further detail about what “comparable” cost means. The agency can drop those whenever they please—and according to Secretary Sebelius, it’ll be “in the very near future.”

A quick refresher if you’ve forgotten: there’s a regulation (rule 435.1015) that HHS proposed relating to the use of Medicaid dollars to buy insurance plans on state exchanges. This rule provides the agency’s interpretation of the Medicaid statute, which doesn’t provide explicit guidance on spending constraints when using Medicaid funds in the individual market. Feasibility of the private option hangs entirely on the definition of the bolded text below.

“… the cost of purchasing coverage under an individual health plan for a Medicaid-eligible individual in the private market, including coverage in a [qualified health plan] in the Exchange, must be comparable to the cost of providing direct coverage under the state plan (or waiver of the state plan).”

So, what could HHS do? We’re laying out three options—and the more we think about the third, the more plausible it seems.

  1. Define “comparable” cost just like “cost-effective.” The ACA (and CHIPRA) created a uniform definition for cost-effectiveness in premium assistance, requiring costs to be “the same or less than covering the individual in the direct Medicaid or CHIP program.” HHS could choose to interpret “comparative” cost as consistent with this—but is it perhaps telling that the rule in question doesn’t use the term “cost-effective?”  
  2. Define “comparable” cost very specifically, like ≤115%. Arkansas has a report with calculations suggesting that their private expansion comes at a 15% premium for the feds—or maybe even less. Skepticism aside for a moment, HHS could pick a maximum cost as a percentage of “conventional expansion” projections; however, this leaves unanswered questions about who picks up the tab if reality exceeds the numbers on paper.
  3. Define “comparable” cost very narrowly but carve out exceptions. Maybe—this is entirely speculative, but maybe—HHS will use a really narrow interpretation (akin to the first option) defining comparative cost, but create a waiver process or use another mechanism to create latitude for state-directed “pilot programs” in Medicaid premium assistance.

We know. We specifically said that this isn’t a waiver proposal in our first post. That’s because it doesn’t work with the current waiver processes—1115 demonstration waivers and the newer 1332 state innovation waivers are subject to “budget neutrality” requirements that a private expansion is unlikely to meet. Even the waiver used in Massachusetts during their reform efforts was subject to that provision—which is why Adrianna has been perplexed since February by Ohio Gov. John Kasich’s comment that HHS appeared willing to waive budget neutrality in his state. We glossed over this a few weeks ago, but we know from emails obtained under FOIA (but behind a paywall) that Ohio has been in similar private-option negotiations with HHS. Coincidence?

Structuring the private option this way would be a shrewd move on HHS’s part. The agency recognizes that not all forms of health care innovation will be budget neutral [1]. By treating private expansions as pilot programs, the agency could limit support if a state’s efforts failed to perform as promised—but if successful, other states could follow suit. It might give the agency a bit more discretion, too, for things like establishing federal contribution caps (where states would be responsible for excess costs) and perhaps requiring certain Medicaid services that aren’t covered under exchange plans [2].

We can quibble over degree, but—relatively speaking—the third option could prove politically viable, fiscally responsible [3], and effective at extending health coverage in a state where hundreds of thousands would otherwise be denied. It kind of hits the policy trifecta.

Footnotes (we’re running out of parenthetical quips)

1.  The Affordable Care Act also created the Centers for Medicare and Medicaid Innovation, which is charged with testing new models of health care delivery and payment. CMMI projects don’t need to be budget-neutral, but it also has a limited budget—$10 billion over 10 years—that would probably struggle to sustain multiple state-level Medicaid pilots in addition to current obligations. 

2.  Transportation services are what comes immediately to mind; Medicaid currently provides this for beneficiaries and would for those newly eligible in 2014, too. That’s not a requirement of exchange plans, but among the lowest-income beneficiaries, it can mean the difference between seeking or forgoing care. If HHS provides for a private expansion, this service should be protected.

3.  Here’s a selection argument that serves as an economic defense for the private option, but a fair amount of skepticism remains. By “fiscally responsible,” we mean that HHS would reserve the authority, whether through a waiver or otherwise, to step in if efforts prove economically untenable.


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Adrianna works in clinical research and is a graduate student in public policy & public health at the University of Michigan. Follow her on Twitter @onceuponA.

Karan is a first-year student at Robert Wood Johnson Medical School and Duke graduate who previously worked in strategic research for hospital executives. Follow him on Twitter @KRChhabra.

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