March | April 2017

‘If We Don’t Do It, We Don’t Change Obamacare’

by Mary Branham, CSG Managing Editor
Arkansas Gov. Mike Beebe worked with a bipartisan group of legislators, as well as staff at the state’s Department of Health Services and staff in his office, to develop what has come to be called the private option in expanding Medicaid. Beebe believes it just makes sense, since not doing so would only hurt people, businesses and hospitals in Arkansas.

How does the private option work in Arkansas?

“Taking the same federal money that would otherwise be available for Medicaid expansion, utilizing basically the same eligibility pool—we couldn’t change the eligibility pool at all—and instead of going on traditional Medicaid, we’re purchasing private health insurance with those funds so the individuals who are covered by private health insurance rather than traditional Medicaid, even though it’s the same population.”

What are some advantages to this?

“There are a number of advantages to this. First of all, as you know, in 2017 and going forward, incrementally the states will pick up a portion of this obligation, starting at 2 and a half percent and rising to cap at 10 percent. So you’re going to end up after 2020 with a 90/10 split on obligation to pay for this service. In Arkansas, as many states do, we have a premium tax on health care policies. So this creates a flow of money through additional health care policies that will help offset the state’s responsibility going forward, for the state’s share. That’s one advantage.
“Another advantage is you really do affect that churning problem. One of the problems that was pointed out with the Medicaid expansion is if somebody gravitated between 138 or 139 or 137 percent of poverty, you’d have this churning, where they’d be knocked off a certain thing and would have to go to a different kind of thing and the confusion and the costs and all that. You really do attack that problem this way, because you don’t have to necessarily change policies; you just go to a different way of subsidized insurance rather than the straight Medicaid.
“And then, of course, there’s the psychological idea of having insurance rather than having Medicaid. Then, what we saw by doing it this way, we actually increased the pool of insurance companies in the state, so it helped competition and helped drive costs down because you brought in more insurance companies since there was now a larger pool of folks for them to compete for in the private sector.”

Where did the idea come from?

“It was a combination. We had some bright young Republican legislators; we had our staff at (Department of Health Services) including (the) Medicaid director; we had good bright young people here in my office. Through the churning of good ideas and bouncing different options and different things off different people’s heads, ultimately, it resulted in what we’ve got. And then we obviously got approval from (Health and Human Services Secretary) Kathleen Sebelius and the folks in the federal government to approve this and it’s been attractive in a number of states.”

How does the cost compare to the cost of traditional Medicaid and what the
cost for expansion would have been for the state?

“We think they’ll be relatively comparable. We’ve done some preliminary analysis. That’s one of the things the feds wanted to ensure, … that we were in a parameter of it not being overly expensive this way vis-a-vis traditional Medicaid, so the costs are relatively comparable.”

What were some challenges you faced in getting this approved and funded?

“Arkansas is unique, and the issue for us is unique, because of a constitutional requirement on a supermajority on appropriations. We didn’t have another debate about whether to continue the private option. That’s a 51 percent vote, … a simple majority vote in the House and simple majority debate in the Senate. We’ve got way more than sufficient majorities on both sides of the aisle to ensure there’s never going to be a problem there.
“The issue is appropriations bills, according to an antiquated constitution, require a three-fourths—that’s 75 percent—majority vote. The issue is how in the heck do you get three-fourths, how do you get 75 percent on any issue that has any degree of controversy?
“So what happened was, even though the private option in and of itself required majority votes, the money to spend from the federal government in an appropriation to fund the private option, just like every other appropriation, requires 75 percent approval. You’re always going to have on something controversial at least the potential to have at least 25 percent that don’t like something. That’s the story in Arkansas. Other states won’t have to worry about that.”

Do you see challenges down the road for maintaining funding?

“I think there will always be those challenges, but there are a number of things that obviate for continuation and make it easier going forward. It’s working, first of all. There are over 115,000 people that are now in the private option. (Then there is) the money that was saved by the private option, which really comprised two major areas. One, we were able to reduce some actual general revenue we were sending either to hospitals or to various health care providers for uncompensated care. Total uncompensated care obviously doesn’t go away overnight, so we didn’t take all the money away from them, but we were able to conservatively reduce dollars for those entities that we were paying out in uncompensated care … because some of that population is going to now be covered.
“In addition to that, a small portion of the existing Medicaid population can be moved over, not a big portion, but there are certain categories that can be moved over from a 30 percent state payment to a zero percent state payment under the private option.
“As a result of all that, we anticipated a $90 million savings and the legislature wanted to give that savings back to the people. I wouldn’t go along with it until we passed the private option, but we actually reduced taxes by roughly $90 million so the actual savings was given back to the taxpayers in the form of tax relief. They weren’t going to repeal those tax cuts. Politically, … once they gave the tax cuts they weren’t going to take them back. They would then have a huge hole in the budget if they didn’t continue the private option.
“In addition to the fact that you have so many people signed up, in addition to the fact that it was working, in addition to the fact that we wanted to take care of Arkansans instead of sending our tax dollars and our payment methodology to New York or California. In addition to all those savings and arguments, we also had the additional argument that you’ve already spent that money that’s saved from the private option in the form of tax relief, what are you going to do if you don’t continue the private option.
"Going forward, it exacerbates even more because they’ve granted even more tax relief a year from now. In fact, I think they’ve granted more than they can afford based on what I warned them, so going forward the hole would be even bigger if they don’t continue the private option. There’s a lot of reasons over and above the obvious reasons for the continuation of the private option that would cause significant disruption in the state’s budget if they didn’t continue it.”

Because you’ve been saving money and giving it back to the people,
there’s political ramifications?

“Part of how all this stuff is being paid for is under the federal health care act, the Affordable Care Act, Medicare payments to hospitals are reduced. Medicare is not reduced. Nobody is getting cut in their Medicare. But (what) Medicare pays to hospitals is reduced under the federal law and states can’t do anything about this.
"Our hospitals are going to pay for this and, theoretically, they are going to get some money from Medicaid patients that they were having to treat free before—that uncompensated care population. Theoretically, that helps offset their reduction in their Medicare payments. If they don’t take the expansion, their hospitals are paying for this and getting nothing in return.
“None of this is free lunch. It all costs money, so your state taxpayers are paying it in the form of their federal taxes. Your hospitals are paying it in the form of reduction in Medicare reimbursements. And if you don’t take it, what you’re saying is we want to pay for New York and California and Oregon and Washington, but we don’t care about our own people. We don’t care about our own hospitals. We don’t care about our own taxpayers. Just because we’re ideologically opposed to something in Washington, D.C., we’re just going to not take anything for our own people.
“In effect, right now, some of these states are helping to pay for us, or helping to pay for New York, or helping to pay for California. If you don’t like federal health care, fine. go change it in Washington. Don’t punish your own people, your own businesses and your own hospitals just because you’re mad at Washington. And that’s how you get three-fourths with a Republican majority.”

So how did you get three-fourths?

“Pragmatism. It’s what (former President Bill) Clinton calls arithmetic, too. You have a coalition of Democrats and traditional business Republicans who can add and subtract. The opposition is the ideological tea party opposition. Those people that voted against it just couldn’t get over the idea that they hate Obamacare and Obama and the federal government and this whole thing so much that they couldn’t overcome that hatred with looking at the ramifications of arithmetic, but that’s just obviously less than 25 percent.
“The opposition was purely ideological. Every legitimate, substantive argument, including future costs, had a reasonable answer. For example, when the state starts picking up those costs, we set aside that money that would be generated through these additional policies through the private option from that premium tax that already existed—it’s not a new tax, we didn’t raise anybody’s taxes. But you’ve got a whole new clientele, you’ve got a whole new pot of money that there’s a premium tax coming in for that you wouldn’t have if they were straight Medicaid. … We’re banking that to help offset future costs to the state, so that argument really paled.”

What plans do you have to ensure the program remains viable?

“Just tell the truth. Just tell the truth and show the facts. The facts speak for themselves. Rational thought and objective analysis should be enough for anybody that’s willing to look at the facts. Doesn’t need to be any smoke and mirrors. Doesn’t need to be any tricks or games or political threats. It’s just the facts, the objective criteria, and … common sense. Anybody that’s going to use common sense is going to be able to see it.”

So basically let the program speak for itself?

“Absolutely! If we don’t do it, we don’t change Obamacare. We just leave our people, our hospitals, our taxpayers, our businessmen, … we just leave them out. If we don’t do it, and any state doesn’t do, it hasn’t changed anything in Washington, D.C., except to hurt their own businesses, their own hospitals, their own people. If somebody in an elected office can’t see the logic in that, then we’ve got a lot of problems in this country. I’m not trying to convince anybody to be for Obamacare. That’s not the issue. What we’re seeing is all these … friends of mine, colleagues of mine, Republican governors, Republican legislators across the country that can’t stand Obamacare … that run against it, that don’t want it, that would repeal it tomorrow. They’re doing what we did because it’s logical, because it’s common sense, because it’s stupid to hurt your own people because you’re mad at them (the federal government), when hurting your own people doesn’t change them.”

What will you measure to see if it is a success?

“We’ll look at the costs and see that they’re in the parameters of what we thought. … We’ve already seen, for example, in one month compared to the same month a year ago, a significant percentage decrease in uncompensated care. There are a lot of objective measures that you can use. You’ve already seen the advantage of the people getting their money back. How big of a success is that? They’ve already got the tax relief. That’s something that’s measureable that’s real easy to see.”

What advice would you give to other states when considering the private option?

“I think you just look at what we’ve talked about. They’re going to pay for it whether they take it or not. Do they want to hurt their own hospitals, their own businesses and their own people and pay for everybody else?
“As this whole approach was being developed, there were some Democratic legislative leaders and some young Republican legislative leaders that really tried to work hard to do what was best for our people without regard for their feelings on Washington, D.C. They deserve a ton of credit. Legislative leadership deserves a lot of credit.”