1) EMPTY PROMISE: THE PRIVATE OPTION IS NOT PART OF OBAMACARE.

FACT: THE PRIVATE OPTION IMPLEMENTS KEY ASPECT OF OBAMACARE.

Medicaid expansion is perhaps the single most important aspect of ObamaCare. Once fully implemented, most of the individuals the U.S. Department of Health and Human Services (HHS) expects to gain coverage under ObamaCare will do so through Medicaid expansion. The agreement Arkansas made with the Obama administration explicitly states that the Private Option expands Medicaid coverage to all groups made eligible through Title II of ObamaCare.

2) EMPTY PROMISE: THE PRIVATE OPTION DOES NOT EXPAND MEDICAID.

FACT: THE PRIVATE OPTION IS A TRADITIONAL MEDICAID EXPANSION BY ANOTHER NAME, USING MEDICAID FUNDING TO PROVIDE MEDICAID BENEFITS.

Private Option enrollees receive all Medicaid benefits and those benefits are delivered through the Medicaid program and are paid for with Medicaid funding. Using Private Option supporters’ view, Medicaid patients receiving benefits through managed care organizations are also not actually enrolled in Medicaid since their Medicaid benefits are delivered through private health plans. Nationally, this characterization would dismiss three-quarters of all Medicaid enrollees, or 42 million people, who receive benefits through managed care. When Private Option enrollees are properly viewed as Medicaid enrollees—as the federal government does—the Private Option actually increases Medicaid enrollment in Arkansas by 40 percent or more.

3) EMPTY PROMISE: THE PRIVATE OPTION ENCOURAGES WORK AND PERSONAL RESPONSIBILITY.

FACT: THE PRIVATE OPTION DOES NOT PROMOTE PERSONAL RESPONSIBILITY OR “SKIN IN THE GAME.”

Private Option enrollees will pay no part of their premiums or deductibles, while any copayments must comply with minimal cost sharing that Medicaid allows. In fact, the Private Option provides even less “skin in the game” than traditional Medicaid or the ObamaCare exchanges, as enrollees below the poverty line will pay no cost sharing at all in at least the first full year. For everyone else, cost sharing will be capped at five percent of the federal poverty line. Traditional Medicaid, on the other hand, caps cost sharing at five percent of family income.

4) EMPTY PROMISE: THE PRIVATE OPTION ELIMINATES THE DISINCENTIVE TO WORK.

FACT: THE PRIVATE OPTION CREATES A POWERFUL DISINCENTIVE TO WORK.

Supporters argue that different cost-sharing requirements allow individuals to move up the income ladder and out of poverty. But instead of the sliding scale of cost sharing its architects envisioned, there are two major tax cliffs within the Private Option. The first occurs when individuals move from just below the poverty line to above it, where they could pay $604 per year in cost sharing. The second, larger cliff occurs at the top of Private Option eligibility, when individuals no longer qualify for Medicaid but want to keep their private plan—where they could pay up to $2,035 more. Researchers at Emory University and the University of Colorado found that in other states that expanded Medicaid to able-bodied, childless adults, full-time employment decreased by eight percent and the share who didn’t work at all grew by 11 percent.

5) EMPTY PROMISE: THE PRIVATE OPTION IS CHEAPER THAN TRADITIONAL MEDICAID EXPANSION OR NO EXPANSION.

FACT: THE PRIVATE OPTION’S ALLEGED “SAVINGS” ARE BUILT ON FAULTY ASSUMPTIONS.

A FLAWED WOODWORK EFFECT

According to the state’s consultants, if Arkansas did not expand Medicaid more currently-eligible people would sign up for the program and that the Private Option would discourage these people from signing up. (Historically, expanding eligibility for government insurance programs brings more people out of the woodwork, not less.) The estimates further assume that if Arkansas did not expand Medicaid, these “woodwork” individuals would be far more expensive to cover than they would be under the Private Option. These claims represent approximately three-quarters of the Private Option’s alleged “savings.”

IT’S NOT REALLY “BUDGET NEUTRAL”

Arkansas’ own estimates show that the Private Option would be more costly than expanding traditional Medicaid. So how did the state win federal approval? It assumed that traditional Medicaid expansion would require it to increase reimbursement rates by roughly 24 percent, the difference between current Medicaid rates and reimbursement rates paid by plans in the Private Option. This clever accounting allowed the state to appear to meet budget neutrality requirements.

THE PRIVATE OPTION IS UNLIKELY TO REDUCE OBAMACARE EXCHANGE SUBSIDIES OR LOWER PREMIUMS

The Private Option covers a portion of the population (between 100-138% FPL) slated to receive ObamaCare exchange subsidies. Since Arkansas will pick up some of the tab, they count this as “savings” for the ObamaCare exchanges, even though Private Option plans will likely be more expansive because of generous Medicaid benefits and nominal Medicaid cost-sharing. Arkansas also estimated that the Private Option would lower exchange premiums by making the insurance pool bigger. But Private Option enrollees are likely to be sicker and more expensive to cover, so premiums will go up, not down.

6) EMPTY PROMISE: THE PRIVATE OPTION MAKES ARKANSAS’ HEALTH CARE COSTS MORE STABLE AND PREDICTABLE.

FACT: PRIVATE OPTION COSTS WILL BE UNPREDICTABLE.

PRIVATE OPTION ENROLLEES CAN CHOOSE ANY SILVER PLAN AT NO COST

The number of participating insurers in each region ranges from a high of three to a low of just one. Approximately half of individuals with incomes below 138 percent of the federal poverty level will be able to select plans from just one or two insurers. Fewer competing insurers inevitably lead to higher prices. In some regions, the price difference between the cheapest and most expensive plans is nearly 90 percent. Enrollees picking plans with absolutely no price sensitivity will contribute to higher, unpredictable costs.

PRIVATE OPTION COST-SHARING SUBSIDIES WILL BE UNPREDICTABLE

Under the Private Option, enrollees can pick any ObamaCare exchange Silver plan, which will pay an average of 70 percent of health care costs. In addition to paying 100 percent of Silver plan premiums, Arkansas must also pay the bulk of the other 30 percent of health care costs in the form of deductibles, coinsurance, copays and other cost sharing.

7) EMPTY PROMISE: THE PRIVATE OPTION PROTECTS PATIENTS.

FACT: THE PRIVATE OPTION WILL HURT THE MOST VULNERABLE.

Supporters argue the Private Option will extend coverage to the most vulnerable. But the Private Option simply expands Medicaid to able-bodied, working-age adults. Nearly three-fourths of potential Private Option enrollees have no children. Nearly half of potential Private Option enrollees do not work at all and less than one-fourth of them are full-time, year-round workers. Rather than protecting the most vulnerable, the Private Option prioritizes able-bodied adults over the truly vulnerable patients relying on the traditional Medicaid safety net.

8) EMPTY PROMISE: THE PRIVATE OPTION IS THE MEDICAID BLOCK GRANT REPUBLICANS ALWAYS WANTED.

FACT: THE PRIVATE OPTION IS A NEW ENTITLEMENT, NOT A BLOCK GRANT.

A block grant is a fixed amount of federal funds accompanied by flexibility to use those funds to meet the broad goals of the program. But as with other entitlements, the Private Option operates under an open-ended funding scheme. Because Private Option benefits are available to an unlimited number of eligible individuals, each new enrollee will result in additional Medicaid funding. Equating a block grant to creating a new entitlement demonstrates a fundamental misunderstanding of the flexibility a block grant creates, as well as the immense burden that creating a new entitlement will ultimately place on Arkansas.

Eight Empty Promises of the Arkansas Private Option
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