From: Derek Monson
To: Utah House of Representatives, Utah Senate,
Subject: MEDICAID EXPANSION UPDATE #8: Cost projections on Arkansas expansion plan getting worse
Date: Fri Jun 13 17:50:32 MDT 2014

Dear Representative/Senator,


We’ve written previously about projected cost overruns in the Arkansas Medicaid expansion plan, known as the “private option.” Because the Arkansas Medicaid expansion plan uses federal Medicaid expansion funding to subsidize private insurance coverage for mostly able-bodied, childless adults – just like the Medicaid expansion envisioned by the proposed Healthy Utah Plan – Utah should pay attention to Arkansas’ cost overruns.


As of March 2014, the private option was projected to cost the state of Arkansas tens of millions of dollars during the “free years” of Medicaid expansion, based on cost overruns experienced in January and February. This was due to a cap in Arkansas’ Medicaid expansion waiver placed on federal funding for the private option. In the waiver, the state agreed to “be at risk” for any per-month, per-enrollee costs beyond the federal cap. At the end of the three-year waiver, the federal government will calculate the actual cost of the private option program, compare those costs to the cap written into the Arkansas waiver, and the state will be liable for any costs over and above the cap. The state has the ability under the terms of the waiver to request that those caps be adjusted, but that request is subject to approval of the federal government, which would have to pay for the excess costs if it approved the cap adjustments.


Since March, the January and February numbers have been updated (accounting for some previously unreported costs) and the cost figures released for March through May. As reported on Forbes’ website, the budget impact to the state of Arkansas from its Medicaid expansion plan has gotten notably worse.


In every month of its implementation (January through May) the private option has experienced costs that exceeded projections. Those cost overruns run between a low of 11 percent (January) and a high of 14 percent (April and May). Combined over the six months of implementation, Medicaid expansion has cost $7.7 million more than allowed under the federal spending cap. Assuming the costs for Arkansas’ Medicaid expansion program stabilizes for the rest of the year, the state is projected to be on the hook for $30 million to $45 million due to cost overruns in 2014, depending on actual enrollment. This projection, of course, does not include any cost overruns during the remaining two years of the Arkansas Medicaid expansion waiver, which could make the state’s liability significantly higher.


And these are the years in which the federal government supposedly will pay for 100 percent of the cost of Medicaid expansion. Perhaps not surprisingly, as reported by Forbes, surveys show that support for the private-option Medicaid expansion plan has fallen by 13 points among Republican primary voters.


The fiscally worrisome outcomes of the Arkansas Medicaid expansion plan suggest that the prudent choice regarding the proposed Healthy Utah Plan is to allow other states to be the guinea pigs for expanding Medicaid by subsidizing private insurance coverage for the expansion population, while we observe and learn from their failures. One reason Utah has achieved and maintained fiscal prudence is that it has a habit of balancing short-term thinking with longer-term realities, rather than simply chasing every dollar it can get. While other states may feel compelled to gamble their fiscal health and citizens’ well-being for the sake of federal dollars, Utah should maintain a political culture of fiscal discipline and restraint – setting an example to the nation of wise policymaking and good governance.


Derek Monson

Director of Policy


Stan Rasmussen

Director of Public Affairs


Sutherland Institute

O: 801-355-1272