(Updates with comment from Salo in fourth paragraph.)
Sept. 27 (Bloomberg) -- The U.S. government agreed to a proposal by Arkansas in which the state will buy private health insurance for 200,000 low-income adults using Medicaid funds.
The Centers for Medicare and Medicaid Services announced the compromise in an e-mail four days before the debut of state insurance exchanges created under the Affordable Care Act. The plan may cost the federal government as much as $1.1 billion in its first year. The health law sought to have states expand existing government-managed Medicaid programs for the poor next year to cover everyone earning about one-third more than the U.S. poverty level.
While the federal government has pledged to pay the entire expense of the expansion until 2017, some Republican-led states balked. The Arkansas program, in which insurance companies will be given the Medicaid money to manage plans for new enrollees, may serve as a template for Iowa, Ohio, Michigan and other states that had been weighing options.
“It represents a way to do a Medicaid expansion without it looking like Medicaid,” said Matt Salo, the executive director of the National Association of Medicaid Directors. “That in and of itself makes it a very, very attractive option for states that are currently in the ‘no’, or ‘unsure’ or ‘leaning no’ columns.”
Democratic Arkansas Governor Mike Beebe, in an effort to appease his Republican-controlled legislature, had asked the Obama administration earlier this year for a waiver to pursue the state’s proposed version of Medicaid expansion. The legislature voted in April and has been waiting on federal approval since.
Beebe said Kathleen Sebelius, the U.S. health secretary, called him this morning to tell him the plan was approved.
“Our actions have drawn positive attention from across the country, and now we will focus on getting this insurance to to the Arkansans who need it to lead healthier, more productive lives,” he said in a statement.
Just more than half the U.S. states have agreed to expand their Medicaid programs under the health-law rules, with the rest either rejecting the idea or sitting on the fence. Iowa’s Republican governor, Terry Branstad, has submitted an application to the U.S. agency for an Arkansas-style expansion.
The Obama administration has said it will approve a limited number of expansions using private plans, without saying exactly how many. Under terms of the arrangement, the expansion can’t cost the federal government any more than it would to expand the traditional state-run Medicaid program.
The Arkansas plan “will include a strong evaluation component that will test whether this model yields improvements in care and costs,” Marilyn Tavenner, the administrator of the U.S. Medicare and Medicaid agency, said in a letter to Beebe.
The U.S. cost for the Arkansas plan will be capped at $5,736 per person in the first year, or about $1.1 billion for 200,000 people, Tavenner’s agency said in documents attached to her letter. The cap rises to $6,276 per person in 2016. There is no limit on the number of people Arkansas can enroll, as long as they meet eligibility requirements.
--Editors: Romaine Bostick, Andrew Pollack