Private option costs in line with approved budget, analysis finds


LITTLE ROCK — Expenditures associated with the so-called private option slightly exceed budget targets but will fall within the targets when allowable adjustments are made, according to actuaries hired to analyze the program.

“I believe we have established a very strong record for year one,” state Medicaid Director Andy Allison said of the analysis.

The state Department of Human Services released a letter Wednesday from Optumas, the Scottsdale, Ariz.-based independent actuarial firm that worked with DHS on the original budget projections for the private option, the state’s program that uses federal Medicaid money to subsidize private health insurance for Arkansans earning up to 138 percent of the federal poverty level.

In the letter, Optumas said expenditures have been slightly higher than the targeted per member, per month cost under the “budget neutrality cap” in the state’s federal Medicaid waiver.

The budget neutrality cap sets a federal spending threshold for the first three years of the program, which launched Oct. 1. If Arkansas stays within that cap, it pays none of the cost for those three years, after which it will begin paying a portion of the cost that will increase each year until it reaches 10 percent in 2020.

The cap is $477.63 per member, per month in the first year and will increase in each of the next two years. Actual expenditures are about $496 per member, per month, according to state Medicaid Director Andy Allison.

The expenditures include not only premiums but also “wraparound” benefits the state provides, such as non-emergency medical transportation, that total about $6 a month, Allison said.

Because the cap covers a three-year period, Allison said the state could exceed the cost target in one year and make it up for it in the other years. But as Optumas noted in its letter, the cap can be increased.

The waiver allows the cap to be revisited and adjusted to reflect demographic differences between projected enrollees and actual enrollees. The cap was based on cost projections that assumed the average age of enrollees would be just under 37, but enrollees in the first four months averaged 39 years of age, Optumas reported.

The firm said the age difference accounted for about $24 more in costs per member, per month, because older enrollees generally pay higher premiums.

Raising the cap by $24 per month would bring it to $501.63, bringing the program’s expenditures within the limit.

“When experience is adjusted for differences in the assumed age, the state is spending less than projected in the budget neutrality calculations,” Optumas said in the letter.

Allison said the state will ask for an adjustment to the cap, although DHS officials have not yet decided when to make the request. They have until Oct. 1.

The difference between the projected average age of enrollees and the actual average age would have been the same whether the enrollees were covered under the private option or traditional Medicaid, Allison noted. The private option is Arkansas’ alternative to expanding state Medicaid rolls, as proposed under the federal Affordable Care Act.

“We believe … the cost of expanding traditional Medicaid would have been at least as much as doing it through private carriers in the competitive environment of the marketplace,” Allison said.

DHS said Monday that more than 155,000 Arkansans have applied and been found eligible for the private option, or about 70 percent of the 225,000 estimated to qualify.

Among the measures of the program’s success, Allison said, will be its ability to attract more insurance companies into the state and increase competition, resulting in lower premiums.

“I expect that the private option will prove to have had a very meaningful and measurable impact on both the level of competition in the marketplace and the resulting prices, and that that competition and that pricing will benefit not just the state and participants in the private option but also others, eventually hundreds of thousands, who participate in the marketplace but are not in the private option,” he said.

Critics have complained that so far, the only competition for public option participants in certain areas of the state is between insurance carriers that are part of the same company, Blue Cross and Blue Shield.

“That’s no competition,” state Sen. Bryan King, R-Green Forest, said in a legislative hearing last week.

“We’re very hopeful that that will change over time,” Allison said Wednesday.