Arkansas May Pay Millions Despite Financial Trigger




On the Arkansas Project, there is an excellent guest article by Representative Joe Farrer titled “Private Option Costs Already Exceeding Federal Caps.”

Medicaid expansion in Arkansas is known as the “Private Option,” Representative Farrer reminds us that the Private Option, was promised to be run at no cost to Arkansas taxpayers for the first three years. Because he was concerned that the promise could not be kept, he researched the issue using information from the Division of Legislative Audit, the Department of Human Services, and the report prepared by Optumas for DHS. Despite the promise that there would be no state contribution, Farrer’s research shows, based on current expenditures, Arkansas taxpayers are likely to be responsible for paying millions of dollars for 2014, stating:

“The Obama administration capped federal Private Option funding with per-person monthly caps for each of the next three years. State taxpayers are on the hook for costs that exceed these federal caps, to be repaid at the end of the 3-year waiver window.

In the second month of the Private Option, we are already exceeding those federal caps and the state taxpayer will pay $6 to $18 million in 2014 alone as a result.”

Representative Farrer refers to the promise made when Arkansas Medicaid expansion was passed in 2013. But, it isn’t just a promise – it is the law. Arkansas law says the federal government must pay 100% in each of the years 2014, 2015, and 2016; and if the federal government reduces that percentage the program must terminate within 120 days, citing (ACA § 20-77-405):

“(h) The program authorized under this subchapter shall terminate within one hundred twenty (120) days after a reduction in any of the following federal medical assistance percentages:
(1) One hundred percent (100%) in 2014, 2015, or 2016;”

The “caps” to which he refers is part of the federal “budget neutrality” requirement imposed on Arkansas as a condition for approving the private option waiver. The effect of budget neutrality is to allow federal assistance to be reduced. However, by Arkansas law any reduction below 100% triggers automatic termination of the Private Option program.

David Ferguson warned that the budget neutrality provision imposed by the federal government on the Private Option (CMS Terms and Conditions) conflicts with Arkansas law. He gave this testimony on January 16, 2014 before the House and Senate committees on Public Health Welfare and Labor. He saw the federal restrictions as being in conflict with Arkansas law, even if the restriction did not actually result in the state becoming responsible to pay part of the costs of Medicaid expansion. Based on the expenditure trend, not only does it appear that Arkansas may be responsible for paying something, but that something appears to be many millions of dollars.

Although budget neutrality establishes caps for each year, enforcement of budget neutrality does not occur until the end of the demonstration project. One might argue that Arkansas’ financial trigger does not come into play this year because enforcement will not occur until 2017. Such an argument is clearly contrary to the language and intent of Arkansas law. The financial trigger watches for reductions below 100% in federal assistance percentages in 2014, 2015, or 2016. It is unreasonable to assume that Arkansas law envisioned a financial trigger that would let the state accumulate a vast Medicaid expansion debt over a period of years.

The budget neutrality requirement does not mesh with Arkansas law as passed in 2013. The conflict presents serious legal questions which now appear to involve millions of taxpayer dollars.

Will the costs be brought down and kept down? Ask yourself, “How often have I seen insurance premiums go down?” As Representative Joe Farrer said in his article: “We should not ask taxpayers to sign a blank check to create a new entitlement for able-bodied adults.”

The federal government has put supporters of the Private Option in a difficult position. On the one hand, they could stand by the commitment they made in the law to pull the trigger because the federal government is shifting cost to the Arkansas taxpayers. On the other hand, they could allow the state to accumulate large debt to continue the Private Option. And that would make the promises ‘just empty words.’


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