GAO report points to low Medicaid reimbursements as impetus for “Arkansas plan”

A recent critical assessment of Arkansas’s use of federal Medicaid dollars to subsidize the purchase of commercial individual health plans by low income people through the state’s health benefit exchange indicates a lack of health care providers willing to accept standard Medicaid reimbursement played a key role in the move. The repurposing of the Medicaid funding was authorized under a 3-year-long demonstration project waiver issued in the U.S. Department of Health and Human Services (HHS) in 2013.

The U.S. Government Accountability Office (GAO) issued a report earlier this month criticizing the waiver as contrary to HHS’s policy of requiring such waivers not incur costs beyond existing state Medicaid program expenditures. The report concluded that $4 billion HHS approved for the demonstration project was approximately $778 million more than the state would have spent for adult beneficiaries under its then-existent Medicaid program. HHS disagrees with the report’s conclusion, contending GAO too narrowly analyzed HHS’s budget neutrality policy governing Medicaid demonstration programs and Arkansas’s Medicaid cost data and failed to take into account the effect of Medicaid program expansions.

The stated policy intent of the demonstration is to ensure access to care and continuity of coverage since individuals could stay enrolled in the same health plan regardless of whether their coverage is financed through Medicaid or federal subsidies. The GAO report noted that according to Arkansas’s waiver application, the state’s network of Medicaid providers was at capacity. “By purchasing [exchange qualified health plan] coverage for newly eligible [Medicaid] beneficiaries, the state suggested it could improve access to care because beneficiaries would have access to expanded provider networks” through commercial plans sold on the exchange.

The GAO report takes issue with “questionable assumptions about provider payment rates,” noting the demonstration program projected the cost of expanding Medicaid without the demonstration assumed Arkansas would have had to pay its Medicaid providers rates comparable to private insurance payment rates—significantly higher rates than the rates the state was paying its [Medicaid] fee for service (FFS) providers—to ensure access for newly eligible beneficiaries.

For example, the report noted, the state assumed that it would have to pay 67 percent above its Medicaid reimbursement rate for primary care services and 10 percent above Medicaid reimbursement rates for higher-cost services such as inpatient and long-term care. “HHS approving officials told us that they thought the state’s underlying concern about the insufficient capacity of the state’s Medicaid provider network was valid given a projected 25 percent increase in the number of individuals covered under the state’s Medicaid program,” the GAO report states.

HHS has approved similar demonstration waivers for Iowa and Pennsylvania, allowing those who would otherwise be eligible for Medicaid coverage to purchase coverage through those state’s health benefit exchanges. Interest has also been shown by New Hampshire and active negotiations underway between HHS and Utah.

“Arkansas’s demonstration may prove an important test of whether using Medicaid funds to finance coverage offered through exchanges will improve access to care and continuity of coverage for the adult population that the demonstration aims to cover,” the GAO report concludes. “However, the increasing use of demonstrations has shifted a significant portion of federal Medicaid funds into financing care that is not subject to all of the federal Medicaid requirements. While HHS policy requires that demonstrations be budget-neutral and therefore not increase the costs to the federal government, we have had long-standing concerns about the Department’s ability to ensure budget neutrality given HHS’s flexible approach towards approving spending for new demonstrations.”


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email or call 530-295-1473. 

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Frederick Pilot

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