Two big headlines from the DHS release of actuarial findings on expansion options Wednesday. They project that 1) The “private option” saves $670 million to the state bottom line over ten years. 2) The “private option” not only doesn’t cost the feds more than traditional Medicaid expansion, it’s cheaper — by almost $600 million over ten years.
That first one is not surprising. We’ve been explaining why expansion is revenue positive for the state for some time, and the “private option” doesn’t change that (DHS projects that traditional expansion would save the state a little less—$610 million over ten years).
But #2 is a bit of a doozy. Most outside observers have speculated that the “private option” will be significantly more expensive. When Arkansas first got the go-ahead for the new framework, Arkansas Medicaid director Andy Allison wrote to Cynthia Mann, the director of the federal Center for Medicaid Services, “Cost effectiveness is the obvious hurdle for folks who didn’t expect this” (e-mail acquired by the Times via FOIA request).
DHS challenged the consensus about cost last week with its release of general findings that it could be close to a wash; the fully enumerated projections this week suggest significant federal savings.
Of course we cannot know for sure, but predictions about federal costs matter a great deal. If the “private option” costs significantly more, it’s hard to justify it over a traditional Medicaid expansion (outside of political necessity). It also might create a significant problem for the federal government if other states want to hop on board the “private option” bandwagon. Some started worrying about billions in additional costs.
DHS is swooping in now with an actuarial study that says not so fast. If they’re right, then the case for the “private option” could be even stronger than the case for Medicaid expansion. But their arguments go against the general consensus about the costs of the government paying for health coverage through private companies instead of directly. They’ve been greeted with some skepticism outside the state so far.
I interviewed Allison yesterday to try and tease out where these numbers came from and why they think they’re on to something that the consensus view has missed. After the jump, see a summary of DHS’s key arguments, plus a response from a health economist who remains skeptical.