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U.S. forecasts higher cost for private option

State defends rate estimates by Andy Davis | September 9, 2014 at 4:05 a.m.

Arkansas officials used "questionable" assumptions when they estimated that expanding Medicaid through the so-called private option wouldn't cost more than expanding the traditional Medicaid program, a report by the U.S. Government Accountability Office found.

The report, released Monday, said it is likely that the private option would cost more than expanding traditional Medicaid.

The GAO report also faulted the U.S. Department of Health and Human Services for failing to include adequate cost controls in the terms of the waiver authorizing the program.

"In approving the demonstration, HHS did not ensure budget neutrality," auditors with the office, the nonpartisan investigative arm of Congress, wrote.

"Specifically, HHS approved a spending limit for the demonstration that was based, in part, on hypothetical costs -- significantly higher payment amounts the state assumed it would have to make to providers if it expanded coverage under the traditional Medicaid program -- without requesting any data to support the state's assumptions."

The Health and Human Services Department disputed the findings.

"The state used assumptions and projected costs that [the federal department's Centers for Medicare and Medicaid Services] determined were comparable to other states' estimates," Health and Services Department officials wrote in a response that was included as part of the report.

"These estimates were based on analysis of the impact of a dramatic and unique increase in adult Medicaid enrollment."

Arkansas Department of Human Services spokesman Amy Webb also defended the state's cost estimates.

"It's clear that the GAO and HHS have a disagreement over this process that dates back years, and that really has little to do with Arkansas," Webb said in an email. "We just seem to be the latest vehicle to raise that complaint.

Authorized under the 2010 health care overhaul law and approved by the state Legislature last year, Arkansas' Medicaid expansion extended eligibility to adults with incomes of up to 138 percent of the poverty level: $16,105 for an individual, for instance, or $32,913 for a family of four.

Under the private option, most newly eligible adults receive coverage through plans on the state's insurance exchange, with the Medicaid program paying the premium and providing subsidies that reduce or eliminate the enrollee's out-of-pocket spending for medical care.

Enrollees who are determined to have exceptional health needs are covered under the traditional fee for service program.

The state Human Services Department reported Monday that 12,887 Arkansans were approved for coverage under the program in August, bringing the total approved to 205,097.

About 250,000 Arkansans are estimated to be eligible for coverage.

Those enrolled as of Aug. 31 included 172,671 in the private option and 21,496 assigned to traditional Medicaid because of their health needs.

Enrollment began in October for coverage that started Jan. 1.

Under the terms of the waiver, the federal government will pay the full cost of the private option through 2016 as long as the cost stays below a limit based on an estimate of the cost of expanding the traditional Medicaid program.

The total cost over three years of expanding the traditional Medicaid program was estimated at about $4 billion, according to the report.

But Government Accountability Office auditors noted that Arkansas officials assumed that, to expand traditional Medicaid, the program's payment rates to doctors and other health care providers would have to be raised to the level of commercial insurance.

For instance, state officials assumed that payments to primary care providers would have to be increased 67 percent, and the rate for higher-cost services, such as hospital care, would have to be increased 10 percent.

The Centers for Medicare and Medicaid Services Office of the Actuary questioned that assumption, according to the GAO report.

An official with the actuary office "told us they would have needed additional information from the state beyond what was provided in order to assess the validity of the assumptions," auditors wrote.

"We estimate that by including the costs associated with hypothetical provider payment rate increases, the $4 billion spending limit approved by HHS was about $778 million more than what it would have been if based on the rates Arkansas was actually paying providers for services provided to adult beneficiaries under the traditional [fee-for-service] Medicaid program," the auditors added.

In their response, Health and Human Services officials said the Government Accountability Office's conclusion about the cost estimate was "inaccurate" and that the investigative agency "used only a subset of the data that CMS uses to assess and determine the appropriate estimates used in developing a budget neutrality model that corresponds with the state's proposed program intervention."

Webb said Medicaid recipients across the country have historically had trouble finding a doctor willing to accept them as patients.

"It's unreasonable to assume we could add hundreds of thousands of clients to the traditional program and not have had to raise rates," Webb said.

She added that private option enrollees have not complained about a lack of access to health care providers.

The report also noted that waivers granted to Arkansas and other states for aspects of their Medicaid expansions allow the spending limits to be adjusted without formally amending the waiver's terms.

"Officials confirmed that HHS has no documented criteria for approving such an adjustment, but told us that approval for such an adjustment would factor in a review of actual expenditure data and that such adjustments would be documented and made public," auditors wrote.

The auditors also noted that the Health and Human Services Department could end up concluding that the private option is cost-effective even if it costs more than expanding the traditional Medicaid program.

The test of cost effectiveness will weigh factors such as whether the program helps reduce disruptions in coverage by allowing an enrollee to stay on the same plan if his income becomes too high for him to qualify for Medicaid. In that case, the enrollee could begin paying some or all of the premium.

Federal tax credits to help pay premiums are available to many people who don't qualify for Medicaid but have incomes of less than 400 percent of the poverty level: for example, $45,960 for an individual or $94,200 for a family of four.

A year ago, Arkansas became the first state in the country to receive approval to cover Medicaid recipients with coverage purchased on the exchange. The report released Monday noted that Iowa received approval in December 2013 for a similar program available to some of its newly eligible adults.

State Rep. David Meeks, R-Conway, who opposed Medicaid expansion, said the report is "further proof, in my opinion that if we're going to continue the program at all, there are going to have to be major changes."

He said he would like to see a scaled-back program offering catastrophic coverage and preventative care to adults with incomes of up to the poverty level.

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."

He said the program will prove to be less expensive than expanding traditional Medicaid and has already helped increase competition in the state's insurance market.

Under preliminary premiums approved by the state Insurance Department, the cost of insurance on the state's exchange is expected to drop an average of more than 2 percent starting Jan. 1. About 80 percent of the state's exchange enrollees are in the private option.

"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.

A Section on 09/09/2014

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