Federal health care bill undercuts governor’s plan for altered Medicaid expansion

Governor Hutchinson (file photo)
Governor Hutchinson

On Thursday, the same day that Governor Hutchinson signed legislation approving “Arkansas Works 2.0,” his plan to enact changes to the state’s Medicaid expansion program, the U.S. House passed a bill that would undermine many of the program’s key tenets.

The governor nevertheless plans to move forward with his plan, which still demands federal approval. “We will proceed with the AW 2.0 waiver and consider any additional changes necessary to align with federal law as it evolves,” said Hutchinson’s spokesman, J.R. Davis, in an email. He added that the governor supports some elements of the House bill, the American Health Care Act (AHCA), but would like to see additional changes made in the U.S. Senate. Without a dramatic re-write, however, the AHCA would almost certainly mean the end of Arkansas Works.

The Arkansas Legislature first voted to enact Medicaid expansion (funded by the Affordable Care Act) in 2013, implementing a unique policy known as the private option, which uses Medicaid funds to purchase private health insurance for adults who make less than 138 percent of the federal poverty level ($16,400 for an individual or $33,600 for a family of four). After taking office in 2015, Hutchinson continued the policy, with some alterations, re-branding it as “Arkansas Works.”

The Legislature approved a new slate of more aggressive changes proposed by the governor in a special session this week, which would add work requirements to the program and cut eligibility, removing people who make more than the poverty line ($11,880 for an individual or $24,300 for a family of four) from the program. Hutchinson argued that the 60,000 Arkansans who would be cut from the Medicaid rolls (those who make between 100 and 138 percent FPL) could move to the subsidized Affordable Care Act marketplaces or employer-sponsored plans. Speaking before a joint session of the Legislature, Hutchinson said that these Arkansans would get "the same level of financial support that they have now." That’s not quite the case — many would face significantly higher costs even with the protections in place under the ACA. But if Congress repeals the ACA and replaces it with the House version of the AHCA, the entire plan for Arkansas Works 2.0 described by Hutchinson would no longer be viable.

The AHCA would completely phase out the Medicaid expansion, eliminating the enhanced federal funding for new and returning enrollees starting in 2020. Without that funding, Arkansas could not realistically continue to offer Medicaid coverage for the population of low-income Arkansans reliant on Arkansas Works under current law, now numbering 300,000 beneficiaries. The Medicaid expansion provides federal funding for 90 percent of the costs in 2020 and beyond, with the state picking up the rest; without that enhanced match rate, the federal government would only pay 70 percent of the costs, tripling the share that the state has to pay. The result, in practice, would be that Arkansas Works would not be able to take any new enrollees starting in 2020, shutting out low-income youths who age out of ARKids, people who lost a job or saw a pay cut that would have previously made them eligible, low-income people who moved to the state, or anyone else who would have become eligible for the program.

The AHCA would grandfather in people who are already enrolled at the end of 2019, so that current enrollees at that time would not immediately lose coverage. The state could continue to get the enhanced funding for those enrollees, but only as long as they remained in continuous Medicaid coverage. If someone left the program in 2020 or after -- say, because she got a better job and started making too much to qualify -- the state would lose the enhanced match rate and she would not be able to get back in. Even if circumstances change -- say she lost that better job -- she would be shut out of the program. In practice, most Medicaid beneficiaries move on and off the program frequently, so even though the AHCA grandfathers in the current enrollees, attrition would happen quickly. For example, according to the Center on Budget and Policy Priorities, when Arizona froze Medicaid enrollment for a similar population prior to the ACA, around 45 percent of the people left the program within a year and 70 percent within 31 months.

In practice, then, the AHCA enrollment freeze on Medicaid expansion would completely wind down the Arkansas Works program.

Asked about the enrollment freeze, Davis said, "We will consider making additional changes in the future to ensure program sustainability if changes are made to our match rate." He said that the governor "supports maintaining the enhanced match for adults" -- which the AHCA does not do. Asked specifically about whether Arkansas Works would continue current coverage or enrollment if the AHCA passes, he said, "We can't speculate on plans until something is decided upon in D.C."

Davis said that while the governor wants to see the ACA's enhanced match rate continue, he would also like to see states get more flexibility in terms of eligibility for the Medicaid expansion, as evidenced by his request to cut eligibility for Arkansas Works. "Part of our motivation for pursuing AR Works 2.0 changes is to reduce the program to a more sustainable size," Davis said.

However, Hutchinson's idea to move the 60,000 Arkansans in the 100-138 FPL range off of Arkansas Works and onto the subsidized ACA marketplace (often called the exchange) presupposes that those subsidies continue. Under current law, people at that income level can get premium tax credits that ensure that the amount they are charged for premiums on the exchange will not exceed 2 percent of their income. The AHCA has no such limit; it gives smaller tax credits that are the same regardless of income up to $75,000, with a phaseout for higher incomes. The Arkansas Works beneficiaries that Hutchinson aims to send to the exchange would find themselves faced with premiums that most of them could not possibly afford if the AHCA passed in its current form. Premiums would be even higher for older people in this population because the AHCA would also allow insurance companies to charge higher amounts based on age than the ACA does. Under current law, an individual right at the poverty line can be charged a maximum of $20 per month in premiums on the exchange; an individual at 138 percent of poverty can be charged a max of $27 per month. Under the AHCA, regardless of how poor the consumer was, the Congressional Budget Office found that by 2026, the average premium faced by an individual who is 21 years old would be $120; at 40 years old, $200; at 64 years old, $1,216.

Hutchinson acknowledges this problem. "The governor would like to see the AHCA’s tax credits increase for the lower income populations to account for this issue and ensure there are affordable coverage options available outside of Medicaid," Davis said. "He sees this as a core component of incentivizing movement up the economic ladder – one of his main priorities."

In addition to drastically lowering the premium tax credits available to lower-income people, the AHCA would also altogether eliminate the ACA's cost-sharing reductions, which offer cost protections from co-pays and deductibles to low-income consumers. Under current law, people in the 100-138 FPL range can sign up for plans that cover 94 percent of the average cost of medical expenses; under the AHCA, those same plans would only cover 70 percent. Under the ACA, someone who was sent to the exchange as part of Hutchinson's plan would face an average deductible across eligible plans of $246 and an average out-of-pocket maximum of $661. Under the AHCA, cost-sharing would skyrocket, with deductibles for those same plans ranging from around $1,500 to $3,500 and the out-of-pocket maximum ranging from around $3,600 to $7,150.

In addition to eliminating the Medicaid expansion, reducing premium tax credits available to poorer and older Arkansans, and eliminating cost-sharing reductions available to low-income Arkansans, the AHCA would also enact hundreds of millions of dollars in cuts to the state's traditional Medicaid program (the program that existed prior to the ACA expansion, covering the elderly in nursing homes, low-income children, very poor parents, the blind, the disabled, and other vulnerable populations). Such cuts would put additional burdens on the state budget or force the state to cut services or eligibility even beyond ending coverage for Arkansas Works.

While the AHCA would seem to make some of the promises that Hutchinson made about his Arkansas Works 2.0 plan impossible to achieve, the governor is holding out hope that the Senate will make alterations to the House bill. "These changes include ensuring that private market subsidies are sufficient for low income individuals to buy insurance and that any cost shifting to the states in Medicaid comes with significant reform to allow states to manage their programs outside of a waiver process," Davis said.

Asked whether the governor was concerned that the AHCA would kill Arkansas Works 2.0 before it even started, Davis responded, "No. We intend to start Arkansas Works 2.0 on January 1, 2018."

This reporting is courtesy of the Arkansas Nonprofit News Network, an independent, nonpartisan news project dedicated to producing journalism that matters to Arkansans.

The Arkansas Nonprofit News Network is an independent, nonpartisan news organization dedicated to producing journalism that matters to Arkansans. Our work is re-published by partner newsrooms across the state.