Opinion: Arkansas deal with HHS on Medicaid expansion a model for Colorado

By Linda Gorman

New results from Arkansas suggest that Colorado officials who favor Medicaid expansion may be able to negotiate a better deal for both low-income people and state taxpayers. Arkansas Gov. Mike Beebe has negotiated an alternative to the standard Medicaid expansion offered by the U.S. Department of Health and Human Services under Obamacare.

Health and Human Services has agreed that Arkansas can pay premiums for commercial insurance purchased through the states health insurance exchange using the federal funding that would have gone to expand Medicaid. The program will extend commercial coverage to adults earning up to 138 percent of the federal poverty level. New reports say Arkansas can opt out and return to regular Medicaid at any time.

Federal law prohibits offering subsidies for commercial insurance to people who are qualified for Medicaid. The program is weighed down by exorbitant costs and the fact that it encourages almost one-third of people with private insurance to switch to a public program. Further, Medicaid expansion would unfairly deny people with incomes between 100 and 138 percent of the federal poverty level the chance to enroll in the heavily subsidized commercial insurance policies offered by the Obamacare health insurance exchanges.

For those who are not disabled, commercial insurance is more flexible than Medicaid and offers better access to health care. Medicaid reimbursement for specialist care lies far below commercial reimbursement amounts. People with Medicaid coverage often also have a difficult time accessing specialists.

Arkansas was one of the states in the Robert Wood Johnson Cash & Counseling experiment. Where Medicaid reimbursement rules were below prevailing wages, it was impossible for clients to receive promised services. Other work has reinforced the Cash & Counseling results by showing that coverage expansions without payment reform may improve access to coverage without improving access to actual medical care.

Even though Medicaid reimbursements are lower, studies suggest commercial insurers do a better job of controlling costs. They have more flexibility and less regulatory overhead than Medicaid. They also have more incentive to minimize charges and to work with patients to promote faster recovery.

Studies of pediatric surgery suggest that Medicaid patients are more likely to die, stay longer in hospitals and pay larger bills even after controlling for differences in patients, hospitals and operations. In cardiac valve operations and bypass surgery, Medicaid patients had higher risk-adjusted in-hospital mortality, accrued longer hospital stays and posted higher total costs than either the commercially insured or the uninsured. For adolescent ACL injuries, time to diagnosis averaged 14 days for people with private coverage and 56 days for people with Medicaid coverage. There were no differences in delays due to patients not seeking care.

Rapid diagnosis and treatment is especially important for low-income people. The time and price of care matter when missing work results in lost wages and showing up late can get one fired.

Substituting commercial insurance for the Medicaid expansion also may be better for hospitals, physicians and the people who pay for their own care along with everyone elses. The Colorado Hospital Association says that low reimbursements make its members lose money on Medicaid patients. To make up for those losses, hospitals charge more to people who pay for their own care.

Since commercial reimbursement generates less uncompensated care, it presumably reduces the cost shift and therefore the cost to private payers. The losses are substantial and growing. In Washington State in 2006, hospitals lost 15.4 percent on Medicare and 15.6 percent on Medicaid. They made 16.4 percent on commercial business.

The possibility of a deal with Health and Human Services gives Colorado officials a rare chance to improve the medical care available to low-income people by shaking off the shackles of Medicaid.

We can only hope they care enough to follow Gov. Beebes example.

Linda Gorman is director of the Health Care Policy Center at the Independence Institute, a free market think tank in Denver.

Opinions communicated in Solutions represent the view of individual authors, and may not reflect the position of the University of Colorado Denver or the University of Colorado system.