BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

Arkansas Private Option's Latest Boondoggle: "Health Independence Accounts" Increase Dependence and Increase Costs

Following
This article is more than 9 years old.

By Jonathan IngramNic Horton and Josh ArchambaultMr. Ingram is Research Director, Mr. Archambault is a Senior Fellow, and Mr. Horton is Policy Impact Specialist, at the Foundation for Government Accountability.

Arkansas’ “Private Option” ObamaCare Medicaid expansion has been “bumpy.” Costs have run over budget every single month. Arkansas officials have signaled that they now are seeking a bailout from federal taxpayers. The Medicaid director who spearheaded the program abruptly resigned to “pursue other opportunities.” The program’s chief architect, a three-term Republican state legislator, lost his primary election to a political newcomer. And the Private Option is already prioritizing coverage for able-bodied adults over care for truly needy patients like Chloe Jones. News is so bad that the Governor is secretly trying to silence negative press about his failed ObamaCare experiment.

Could things really get worse for the Private Option and its supporters?  You bet.

A False Promise of Personal Responsibility

The program’s biggest cheerleaders have long promised that their ObamaCare expansion plan would give patients “skin in the game” and “encourage personal responsibility.”

Like so many of the promises ObamaCare expansion advocates have made, however, this promise turned out to be false.

Not only did the Private Option lack any kind of meaningful “skin in the game” requirements, it actually reduced cost-sharing to below what Medicaid allows.

It’s these cost-sharing provisions, which have enrollees pay a portion of their own health care costs, which can incentivize enrollees to be more responsible health care consumers. Yet more than 80 percent of Private Option enrollees currently have no cost sharing whatsoever.

The program barely squeaked through the Arkansas Legislature –after four failed votes – earlier this year in the battle for funding reauthorization. But one of the many promises to continue this ObamaCare Medicaid expansion for another year was that the state would be adding Health Savings Accounts (HSA) to the mix, which one architect of the plan called the “heart and soul” of the Private Option. He promised that these new provisions would incentivize the ObamaCare expansion population to “make wise choices about their health care spending.”

But new details of how these provisions will work make clear that the Private Option will do the exact opposite of what its advocates promised.

How Arkansas’ “Health Independence Accounts” Work (If the Feds Approve Them)

Under this new ObamaCare expansion tweak, enrollees above 50 percent FPL will be “required” to make monthly contributions to “Health Independence Accounts,” or HIAs. The truth is this “requirement” is more like a mere suggestion.  Even if an ObamaCare expansion enrollee fails to make a single contribution, he or she won’t be removed from the program.

These suggested contributions will start at just $5 per month. In exchange for that nominal contribution, the state will contribute a “matching” $15 monthly deposit to enrollees’ HIAs. The state will also waive all other cost-sharing requirements. If an enrollee misses a contribution, he or she could be responsible for nominal copayments that month.

But Private Option enrollees will not use the funds in their HIAs to pay for their own medical care. That money, largely funded by the taxpayers, will instead simply sit in the accounts until enrollees leave the program. At that point, enrollees can take the money with them and use it towards other health care costs.

HIAs Encourage Overutilization and Unnecessary Care

Traditional HSAs are designed to make individuals better health care consumers. Individuals save money in their HSAs and then pay for doctor visits and other care received under their high-deductible plans with the funds they saved.

Because they’re paying for care with their own money, they have a strong incentive to avoid unnecessary treatment and shop for value to ensure they receive the highest quality care at the lowest cost. This is precisely why HSAs are expected to make individuals better health care consumers.

But Arkansas’ “Health Independence Accounts” are nothing like HSAs . In fact, their design will undermine the very values their advocates espouse. If individuals make their monthly contribution under Arkansas’ plan, all copayments and other charges are waived at the point of service. This means individuals will have absolutely no financial incentive to use care wisely, leading to increased overutilization and unnecessary treatment. Even the federal government acknowledges that reducing and eliminating cost-sharing requirements significantly increases health care consumption.

The cost to enrollees is the same whether they go to the most-expensive facility or the least-expensive, or whether they go to the doctor once per year or once per day. Regardless of their behavior, taxpayers are going to pick up the full tab.

Too Easy to Game the System

Because individuals are not disenrolled for refusing to make monthly contributions, it is likely that many Private Option enrollees will figure out how best to maximize their benefits and minimize their costs.

Enrollees who choose not to make the “required” monthly contribution are responsible for nominal copayments at the point of service, subject to Medicaid cost-sharing limits. Individuals above the poverty line, for example, have their out-of-pocket costs capped at $604 per year (5 percent of the federal poverty line, which is actually lower than Medicaid rules allow). On the other hand, if they make their monthly contributions, their out-of-pocket costs will be capped at as little as $120 per year. (Those between 50 and 100 percent FPL will have their out-of-pocket costs capped at as little as $60 per year if they make monthly contributions.)

Those who consume enough health care that their nominal copayments would exceed the monthly contributions are likely to make them, while those that rarely use health care services may not. Enrollees may even game the system so that they pay their monthly contribution in months that they know they have several appointments or extra prescriptions to fill and not in months they expect to use fewer services.

Of course, many of the low-users may participate because of the very generous “matching” funds added to their accounts. Those between 50 and 100 percent FPL, for example, receive a 3-to-1 match for every dollar they contribute, to be taken with them when they leave the program. Those at the poverty line receive a slightly less generous 1.5-to-1 match. This means that, not only will these individuals have to make no copayments or other cost-sharing, but also that the state will actually pay them back everything they contribute and more.

In the end, these new accounts are designed in such a way that will encourage enrollees to game the system, with taxpayers left holding the bag.

HIAs Foster Dependency

Rather than foster independence, as Private Option advocates claim, these HIAs are designed in a way that actually traps more people in government dependence.

In order to keep the funds in their HIAs, including the state’s matching funds, Private Option enrollees must make contributions for at least six months, although they do not have to be in consecutive months. (The six month payment requirement is important, because nearly half of people in poverty move out of poverty within 4 months.)

Medicaid expansions already create a profound disincentive to work and Arkansas’ Private Option had already created a massive new tax cliff for those moving off the program. The proposed structure for these HIAs will only make these problems worse. Ultimately, the state will be paying able-bodied, working-age adults to stay dependent on government.

HIAs Will Cost Taxpayers Even More

Private Option advocates promised these HIAs would “bring costs back in line.” Can we really expect the cost curve to bend down if cost-sharing is eliminated and utilization spikes?

In reality, HIAs are sure to cost taxpayers more. In the short-term, the state’s costs will increase by having to cover nominal copayments previous paid by enrollees and by also making the matching contributions to enrollees’ HIAs. The matching contributions alone could add $30 million to the yearly cost of the program, based on the number of potential HIA-eligible enrollees.

Over the long term, costs will further rise because the HIAs increase utilization and trap enrollees in the program. Higher utilization means higher medical costs for the insurers covering Private Option enrollees, which translates into higher premiums and cost-sharing subsidies to be funded by taxpayers. And because the program is designed in a way that traps able-bodied adults in government dependency, enrollment will likely climb above projections, putting further strain on taxpayers’ limited resources.

Arkansas politicians hopeful that HIAs will help turn around their ObamaCare expansion’s image and finances are sure to be disappointed. These accounts are likely to increase costs for taxpayers in both the immediate future and long-term.

Just Another Broken Promise

This latest wrinkle in the Arkansas ObamaCare expansion plan represents simply the latest in a long line of empty promises from its advocates. So while state bureaucrats and Republican legislatorscrisscross the country to tout their failed ObamaCare expansion plan to other states, lawmakers and taxpayers everywhere should be wary.

UPDATE: A recent article from the Arkansas Democrat Gazette indicates that the state may not ultimately seek additional federal assistance for the Private Option. However, program costs are still running over the cap every month, as we have previously highlighted. In its last quarterly report to the federal government, the state wrote that it intended to "submit an adjustment" to its budget neutrality cap. The state has until Oct 1 to decide if it will apply for a spending cap increase. If it does not apply by that date, Arkansas taxpayers will be on the hook any cost overruns.

TWITTER: @JoshArchambault@nhhorton, and @ingramlaw , and follow The Apothecary on Facebook. Or, sign up to receive a weekly e-mail digest of articles from The Apothecary.

INVESTORS’ NOTE: The biggest publicly-traded players in Obamacare’s health insurance exchanges are Aetna AET -0.81%(NYSE:AET), Humana HUM -0.42% (NYSE:HUM), Cigna CI -0.11%(NYSE:CI), Molina (NYSE:MOH), WellPoint WLP -0.27% (NYSE:WLP), and Centene (NYSE:CNC), in order of the number of uninsured exchange-eligible Americans for whom their plans are available.