LITTLE ROCK, Ark.—Obamacare is hardly a word for polite company in Arkansas. Like most folks in the region stretching across the South into Texas, Arkansans generally think of the Affordable Care Act as a hostile federal intrusion into their affairs. Yet this impoverished red state has recently emerged as one of the nation’s best innovators in health care reform. Its approach to Medicaid expansion, known as the “Private Option,” has brought full-service health coverage to nearly 100,000 low-income residents this year and opened the door to 150,000 more.
Arkansas’ Republican-controlled legislature narrowly approved the Private Option last spring, but the program will die automatically this year unless both houses of the Arkansas legislature reauthorize it by 75% super-majorities during the fiscal session that opened this week. Despite broad bipartisan support, the measure is still under attack by hardline conservatives, who oppose virtually any government involvement in health care. “The only sustainable solutions that will truly improve access and affordability come from the free market and not from big government,” says Republican Representative Nate Bell, a vocal opponent. The vote count is so close that single defection could kill it.
But whatever happens in Little Rock this month, the Arkansas experiment is already reshaping the national debate over how to improve health coverage for low-income people. Under the Affordable Care Act, any state can expand its Medicaid programs, at federal expense, to cover people earning up to 138% of the poverty level (roughly $16,000 a year for an individual, or $27,000 for a family of three). But the feds are letting Arkansas use its expansion funds to buy people private plans through its insurance exchange. Politically, this arrangement enables pragmatic conservatives to disparage their Obamacare and have it too. And by moving Medicaid into the new health-insurance marketplace, the Arkansas model promises to make both the public and private health systems more efficient. Perhaps best of all, the Private Option opens the mainstream health care system to rich and poor alike.
Extending a lifeline
Kiswanna Randle has never lacked a taste for hard work, but like many people in this hardscrabble state, the 24-year-old single mom has often lacked health insurance. Randle’s ebullient four-year-old daughter, Duy’Reonna, has always had the security of ARKids First, a state Medicaid program that covers the one-in-two Arkansas children who live below 211% of the poverty level.
But like many states, Arkansas has traditionally excluded working parents from Medicaid unless they earn less than 17% of the poverty wage—roughly $2,600 a year for a family of two. Randle wasn’t poor enough to meet that standard, or lucky enough to have a job that offered affordable health coverage.
Early last year, while she was working as a Wal-Mart cashier, Randle’s family helped her secure a bare bones health policy on the individual market. The deductibles were high and the benefits limited, but at $106 a month, it was what she could afford. Just weeks after the coverage kicked in, her health went dramatically awry. First she started fainting when she sat or stood upright (a problem known as vasovagal syncope). Then she developed heart palpitations and debilitating migraines. Over a seven-month period, her illness and absenteeism cost her the Wal-Mart job and then another one at Best Buy.
She tried to stretch her resources by skimping on costly medications, but when her insurance company raised her premiums in August, she was out of options. She had to drop her coverage.
If Randle lived almost anyplace else in the South, she would still be uninsured. But thanks to the Private Option, she now has a Blue Cross-Blue Shield insurance policy, and she enjoys the same benefits as any other subscriber. Specialists have yet to pinpoint the cause of her illness—they’re testing her for lupus, rheumatoid arthritis and sickle-cell anemia—but her symptoms are under control and she’s back at work, earning $8 an hour as a pre-school teacher. “I don’t know exactly how they determined my benefits,” she says. “I just thank God for determining it for me.”
Repackaging a progressive idea
Arkansas isn’t the only state pursuing federally-funded “premium assistance” as an alternative to Medicaid expansion. Iowa has worked out a similar arrangement with the feds. New Hampshire is pursuing one, and lawmakers are debating the idea in states as red as Oklahoma and Louisiana. And through Tea Party Republicans still view model as a sellout to Obmacare, Arkansas’ experience shows that Medicaid expansion can win far broader acceptance when it’s renamed and repackaged as a public-private initiative.
Mike Beebe, Arkansas’s democratic governor, is a veteran Arkansas pol who shuns the language of northern, urban liberals. “He was elected on a platform of education and economic development,” says Arkansas Surgeon General Joe Thompson, a buoyant Bill Clinton look-alike who was appointed by former Governor Mike Huckabee and re-appointed by Beebe. “He didn’t set out to be a health care governor. He became one because he realized we needed a healthy, productive workforce to grow the state’s economy.”
When Beebe broached the issue of Medicaid expansion in his 2013 state-of-the-state address, he didn’t dwell on inequality or the rights of the poor. He talked about the virtues of small business, the challenges facing the states hospitals, and the penalties that everyone pays when uninsured people default on their medical bills. “If you already have private health insurance,” he said, “you are paying a tax that was never approved by any government or by our citizens. It’s the hidden tax of uncompensated care.”
Rather than harangue hostile legislators on the virtues of Obamacare, he portrayed it as a fact of life, imposed by faraway forces, and urged them to make the best of it. “We balance our budgets, and we don’t need to sacrifice our share of federal money to other states,” he said. “Expanding Medicaid can keep hospitals open and operational. It can give 250,000 Arkansans the chance to lead healthier, more productive lives. It can ease uncompensated care and relieve the hidden tax that we all pay. It will create additional private-sector jobs. We just have to say yes.”
Getting to yes wasn’t easy. Moderate Republicans saw the futility of turning down needed federal dollars, but even they were wary of expanding the state’s existing Medicaid system by a third. Its costs had risen faster than revenues for years, causing an annual shortfall of more than $250,000. The system itself was unsustainable in their view. Their priority wasn’t expansion but reform.
"We balance our budgets, and we don’t need to sacrifice our share of federal money to other states."'
So Beebe’s administration devised a program that achieved both. The state’s traditional Medicaid program paid providers so little that most either refused Medicaid patients or raised other patients’ rates to fill the gap. The federal Medicaid expansion temporarily boosts Medicaid reimbursement to Medicare levels, but it keeps Medicaid participants walled off from the mainstream health care system. And by doing that, it forces people to navigate a whole different health system every time their income crosses the eligibility threshold. “As we studied the options,” says Arkansas Medicaid Director Andy Allison, “we realized it made more sense to expand health care access through the marketplace.”
To sell Republican legislators on that idea, Beebe’s aides and allies showed conservatives how it could advance their ideals as well as progressive ones. Besides reforming the state’s Medicaid program and reducing the “hidden tax” of uncompensated care, the Private Option would strengthen the workforce that low-wage employers rely on. Best of all, it would help turn an intractable budget gap into a surplus that Republicans could use to cut taxes. “People were surprisingly willing to work together,” says Rich Huddleston, executive director of Arkansas Advocates for Children and Families. “The state was facing horrendous budget cuts. The Private Option made sense to many conservatives, and it spared them having to shut down hospitals and nursing homes. Nobody wanted to throw grannies into the street.”
Last spring, after weeks of heated debate, the Private Option won 75% super-majorities by one vote in the state senate and two in the house. The state sent its full Medicaid expansion proposal to Washington in early August. The Department of Health and Human Services approved it in late September, and Arkansas officials started racing to enroll those 250,000 newly eligible people. By sending invitations to food-stamp recipients, and enrolling slow responders automatically, the state has already extended health coverage to about 100,000 people.
Marrying two health systems
For all its advantages, the Private Option is still an experiment that could bring some surprises over time. Private insurance is typically pricier than public coverage, and the forces inflating Arkansas’ Medicaid costs are inflating private insurance costs as well. When any insurer, public or private, rewards doctors and hospitals for the volume of services they deliver, rather than the quality of care they provide, medical spending tends to spiral out of control. While advancing the Private Option, Arkansas health officials are also pursuing a new reimbursement system that rewards providers for efficiency rather than volume. Part two of this story will focus on that initiative.
But financial incentives aside, Allison (the state Medicaid director) believes the very act of merging Medicaid with the marketplace will save money. The Private Option eliminates one of the thorniest problems other states will confront as they expand their Medicaid programs. Past research suggests that in any six-month period, half of all low-income people will cross Medicaid’s eligibility threshold as their incomes rise above, or dip below, 138% of the poverty level. In a state where Medicaid and the health insurance marketplace operate separately, a person in that situation will have to find new coverage and new doctors four times over the course of two years. In Arkansas, the same person will keep the same plan and the same relationships. All that will change is the cost-sharing formula. To avoid encouraging people to stay below the 138% cutoff, Allison’s team hopes to move toward a sliding scale that requires modest copayments even from Medicaid recipients. At that point, the public-private integration would be complete.
Meanwhile, the Private Option is super-charging Arkansas’ health insurance marketplace. The logic behind the new exchanges holds up well in heavily populated states; when everyone is required to have coverage, insurers compete vigorously for subscribers and everyone gets the best possible deal. But it’s hard to reach critical mass in a rural state like Arkansas, where many counties have too few consumers to attract competing insurers. Without Medicaid expansion, Arkansas’ new insurance exchange would have sold only 12,700 new policies during the last quarter of 2013. But the Private Option delivered nearly six times that number during the same period, pushing total enrollment above 82,000. “You need volume to make the marketplace work,” says Steve Spaulding, a senior vice president at Arkansas Blue Cross Blue Shield. “The Private Option gives us that volume.”
It may also stabilize the marketplace by bringing young, healthy people into the risk pool. In order to keep rates under control, insurers need to balance older, sicker patients with young, healthy adults who have fewer medical needs. So far, more than half of Arkansas’ Medicaid-sponsored enrollees are under age 40, and more than three-fourths are younger than 50. That mix means lower risk for insurers and lower rates for consumers of all ages. In short, says Allison, “we’ve quintupled the size of the marketplace and improved its risk profile too.”
And though conservatives may worry that free health care will sap initiative and foster dependency, the effect is often just the opposite. If Arkansas hadn’t found a way to expand Medicaid, Kiswanna Randle would be collecting disability rather than teaching preschool. And 28-year-old Tyler Pearson would be hard-pressed to pursue his graduate degree at the Clinton School of Public Service. Pearson lost his health insurance at 26, when he aged out of his parents’ family policy. His dad scraped together $175 a month to pay for a catastrophic plan last year, but the deductible was $5,000 and the coverage was spotty.
"You need volume to make the health care marketplace work. The Private Option gives us that volume."'
Like many grad students, Pearson is now surviving on a $750-a-month internship and splitting his nights between friends’ and family members’ couches. He earns too little to qualify for a discount on private health insurance, and until this year, he wouldn’t have qualified for Medicaid either. Now, thanks to the Private Option, he’s fully covered and free to finish his degree. He expects to graduate from Medicaid when he finishes school and starts earning a real salary. Meanwhile, he’s secure in the knowledge that a health emergency won’t bankrupt his family. “I’ve even got vision and dental coverage,” he says.
From almost any perspective, Arkansas’ adventure in health care reform is good news. Besides helping people in need and strengthening an impoverished state’s economy, it has shown that policymakers can sometimes put pragmatism ahead of politics—even on one of the most divisive issues the nation has faced in decades. Arkansas voters still overwhelmingly oppose Obamacare as such, yet 60% of them favor the private option. The coalition that pushed it through the legislature last year included groups as varied as the Arkansas Medical Society, the Arkansas Hospital Association, the Arkansas State Chamber of Commerce, Planned Parenthood and the Arkansas Interfaith Alliance. “Our state showed the nation how leaders come together to solve the most complex issues,” says Ray Hanley, a veteran health administrator who served both Bill Clinton and Mike Huckabee.
The Private Option could die as early as next week if either house of the legislature falls short of the super-majority needed to reauthorize it. From the opponents’ perspective, it’s still a bloated government entitlement and an assault on Southern self-reliance. The vote will be close, and no one is predicting the outcome, but supporters doubt that even the ultra-conservatives will ultimately want to upend the state’s finances, trash its health sector, betray its faith leaders, and strip 100,000 Arkansans of their hard-won health security. If they do kill the Private Option, they won’t kill the ground-breaking idea behind it. The stakes are too high for that.
This is the first of two articles on the Arkansas experiment. Next: Getting more health for the money.