Governor Hutchinson told reporters Tuesday that Arkansas Works, the state’s privatized approach to Medicaid expansion, would be able to fully offset the cost of a sharp rise in private health insurance premiums in the coming year by decreasing another type of payment the state makes to insurance carriers.
President Trump announced last week he was ending federal subsidies known as cost-sharing reductions, one of several funding streams created by the Affordable Care Act to increase the availability of comprehensive health insurance to Americans. Cost-sharing reductions are paid to insurance companies that sell policies on the individual marketplace, thus reducing out-of-pocket expenses for low-to-moderate income consumers in the marketplace while allowing participating insurance carriers to keep rates lower than they would otherwise. The subsidies are distinct from premium assistance tax credits, a second type of federal subsidy that helps consumers afford the cost of plans in the first place.
To compensate for the loss of the subsidies following Trump's executive order ending cost-sharing reductions, the three insurance carriers that participate in Arkansas’s marketplace — Arkansas Blue Cross and Blue Shield, Centene and QualChoice — all sought major premium hikes that were approved by Arkansas Insurance Commissioner Allen Kerr on Friday.
That prompted fears that Arkansas Works could face a major cost increase of its own because of the state’s unusual approach to implementing the ACA. Unlike states that simply expanded Medicaid to cover their lowest-income residents, Arkansas uses Medicaid money to buy private marketplace plans for those beneficiaries, who today number some 300,000 adults. An increase in the premiums on marketplace plans could leave the state on the hook for the rate hike. The governor’s announcement Tuesday was intended to allay those concerns.
“It’s really important to emphasize that Arkansas Works is not in jeopardy because of this latest decision,” Hutchinson said. “It will cause the premiums to go up, because Arkansas Works is acquiring, through Medicaid funds, the insurance offered on the marketplace, and those premiums are impacted. But the increased cost to the state for higher premium payments could be balanced out by decreasing the state’s equivalent of cost-sharing reductions, the governor said.
In purchasing marketplace plans for Arkansas Works beneficiaries, the state’s payments to insurers mirror the federal government’s two types of subsidies — cost-sharing reductions and premium assistance tax credits — that help defray the expense of individual policies. Catherine Kelley, a senior health policy advisor in the governor’s office, later clarified that the state makes two separate payments each month to insurance carriers for the cost of Arkansas Works plans.
“We pay the premium payment, which is the larger chunk, and then we pay the cost-sharing reduction payment. But there is nothing in federal law that dictates how much of each we have to pay, because it is all funded through the Medicaid budget,” she said.
Medicaid is administered by the states but paid for by a federal-state match. For Arkansas Works, the federal government pays 95 percent of the cost of the program, while Arkansas pays 5 percent. That amount will rise to 6 percent next year and continue rising until it plateaus at 10 percent. The total cost of the program is now around $1.8 billion.
Hutchinson said his staff had determined over the weekend that the state has the authority to dial down its cost-sharing payments to compensate for the uptick in premiums. Insurance carriers have been notified of the change, he added. "That will equalize the cost for Arkansas Works so there’s not any adverse cost impact ... Now, nobody knows the future five and 10 years from now, but it is very important to give confidence to all of those who are dependent upon Arkansas Works and the stability of that program that, at this point, the decision does not impact us.”
Arkansas Works must be reauthorized by the legislature every year. In the 2018 fiscal session, which begins in February, the governor will face an uphill battle in getting conservatives within his own party to continue the program. “That’s part of the reason for this discussion today,” he said on Tuesday.
Trump’s decision to end federal cost-sharing reductions may not spell disaster for Arkansas Works, but Hutchinson also acknowledged that thousands of other Arkansans will feel the pain of the premium increase triggered by the president’s order.
“In Arkansas, we have about 4,000 individuals that are acquiring their insurance on the marketplace that make over 400 percent of [the federal] poverty level. Therefore, they have no [premium assistance] subsidy. … Because of that reduction in payments, their rates are going to go up,” he said. Two U.S. senators, Lamar Alexander (R-Tennessee) and Patty Murray (D-Washington), announced late Tuesday afternoon they had reached an agreement on legislation to restore funding to cost-sharing reductions. However, it’s not clear that the measure has the votes to pass a bitterly divided Congress.
Hutchinson said he supported the bipartisan effort by Alexander and Murray: “Until there is a replacement to the ACA, we have to make what is presently the law … work for Arkansas.”
Kelley, the health policy advisor, said that the 4,000 individuals who buy marketplace insurance and make more than the 400 percent threshold will “feel the entire impact of the premium increase” announced last Friday. The federal government only gives premium assistance tax credits to those who make less than 400 percent of the poverty line (about $47,500 for an individual or $97,200 for a family of four). However, Kelley clarified that other individuals in the marketplace will likely be affected as well. Some of those who earn less than 400 percent of the poverty line will still face additional out-of-pocket cost due to the premium increase. About 70,000 people now buy individual insurance on Arkansas’s marketplace, most of whom receive some assistance in the form of a federal tax credit. The size of that subsidy is itself based on household income and the cost of premiums.
“There’s some protection from the increase for folks that have some premium tax credit, because it will reflect the higher cost of the product,” Kelley said.
Asked about President Trump’s remarks on Twitter indicating he wants the Affordable Care Act to fail, Hutchinson replied that it created “a very unusual political dynamic, because his strategy appears to be just repeal it without a solution.” The governor said he has supported specific attempts to undo the ACA only if they contain what he sees as a viable alternative to the health care law.
“Whenever you’re dealing with 300,000 Arkansans, then you have to have a plan for the future. It can’t just be disruption,” Hutchinson said. “You’ve got those who are trying to end the ACA, which I’ve been supportive of, but I want to have a plan to replace [it].”
The governor also said Tuesday that Arkansas has still not received word from the Trump administration regarding a new waiver proposal for an overhaul of Arkansas Works that his administration submitted to federal authorities over the summer. That proposal, which Hutchinson first announced in March, would significantly decrease enrollment in the program and impose work requirements on beneficiaries beginning Jan. 1. Hutchinson said he was still “optimistic” that the waiver would be granted, but admitted time was growing short for the state to make preparations for such major changes.
“It’s very important that we get that word in the near future, just because you have to give notice [to beneficiaries], you have to change some of the IT systems. So there’s work to be done and we are anxious for that to be approved,” he said.
This reporting is courtesy of the Arkansas Nonprofit News Network, an independent, nonpartisan news project dedicated to producing journalism that matters to Arkansans. Find out more at arknews.org.