A smart question was asked on Twitter last night:
Which begs the question: why didn't GOP just propose a bill that moves Medicaid patients onto individual market? That would have been doablr
— Matthew Martin (@hyperplanes) June 28, 2017
I agree that this proposal looks seemingly attractive. It would not receive much or any opposition from Democrats as long as evidenced by the national level of not complaining about Arkansas’s private option expansion and the continual votes of Arkansas Democrats for that plan. And it would put Medicaid onto the private market where magic works. I am having a hard time seeing how moving the P&L responsibility of care for an individual on Medicaid in Pittsburgh from the 9th floor of the UPMC complex where I used to sit to the 10th Floor where the Individual market team sits leads to magic but maybe there is something in the elevator shaft that makes Medicaid Managed Care run by competing insurers far less effective than individual market policies that they sell as well.
And then we look at reality. Doing this is expensive because private plans pay significantly more than Medicaid plans in most instances. Arkansas needed to make absurd assumptions to achieve budget neutrality on their waiver application. HHS stretched discretion to the utmost to accept those assumptions. Adrianna McIntyre at The Incidental Economist has been bird-dogging this for years. Here is a post from September 2014:
On Monday, the Government Accountability Office issued a report taking HHS to task for failing to assure budget neutrality in Arkansas’s Medicaid expansion, which uses Medicaid dollars to fund enrollment in private plans through the state exchange.
Excerpted from the report (emphasis added):
In approving the demonstration, HHS did not ensure budget neutrality. 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. We estimated that, by including these costs, the 3-year, nearly $4.0 billion spending limit that HHS approved for the state’s demonstration was approximately $778 million more than what the spending limit would have been if it was based on the state’s actual payment rates for services provided to adult beneficiaries under the traditional Medicaid program.
Though $778 million may be an eye-popping sum, this isn’t really news. People who have tracked the Arkansas expansion closely have long been skeptical (see Austin’s post from last year) that any state could expand through private coverage at or below the cost of expanding through the traditional program. There’s just no getting around the fact that private insurers offer higher reimbursements—and that means higher costs.
If you do the math, that $778 million represents a 24 percent increase over the traditional-expansion hypothetical—the precise difference between Medicaid that David Ramsey wrote about in the Arkansas Times last year:
Arkansas’s traditional Medicaid program actually pays their doctors comparatively well. Kaiser Family Foundation shows that nationally, Medicaid tends to pay 66% of Medicare on a state by state basis. Arkansas in 2014 paid their providers 80% of Medicare. This data also implies that the on-Exchange policies that Arkansas used for their private option are paying their providers somewhere between 102% and 110% of Medicare fee for service.
Moving payments from an average of 66% of Medicare to an extremely optimistic 110% of Medicare would by a 67% pay bump for providers. Paying providers is the biggest cost of claims. There are utilization management tools that private insurers can use such as narrower networks and tiered networks to more discretely control costs as well as the black box of pharmacy pricing that I don’t understand. But an estimated incremental cost to receive the same actuarial value from private insurance instead of Medicaid fee schedule based services will be extraordinarily expensive.
And for what gain?
The appropriate song is under the fold: