No, Arkansas’ Obamacare Expansion Isn’t Saving Taxpayers Money

Nicholas  Horton
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Posted: Feb 21, 2016 12:30 AM
No, Arkansas’ Obamacare Expansion Isn’t Saving Taxpayers Money

According to state law, Arkansas’ failed Obamacare expansion is set to expire at the end of this year. But Governor Asa Hutchinson has proposed overriding that deadline – which he signed into law last year – to continue providing welfare to able-bodied adults forever.

Hutchinson’s chief argument is that ending the program would create “a $100 million annual budget hole” due to lost budget “savings.” It’s a familiar refrain, used by former Democratic Governor Mike Beebe for years. There’s just one problem: it’s not true.

Arkansas’ so-called Private Option Medicaid expansion isn’t saving taxpayers money and allowing it to end won’t necessitate a massive tax increase or trigger the zombie apocalypse. In fact, allowing expansion to sunset would save taxpayers billions of dollars.

Late last year, the state’s health care task force received a report from the state’s Medicaid consultant, The Stephen Group. According to the report, the state stands to “net” nearly half a billion dollars over the next five years as a result of Obamacare expansion.

But contrary to popular belief, the Stephen Group wasn’t required to conduct its own actuarial analysis of the state’s Medicaid expansion. Instead, the consultants appear to have relied on unpublished 2015 estimates from the state’s original actuarial firm, Optumas, and the state’s solidly pro-expansion Department of Human Services.

Optumas’ original 2013 report was used to pass Medicaid expansion, despite significant methodological problems. But putting aside Optumas’ past forecasting problems, there’s plenty of reason to believe these latest projections are faulty as well.

$123 Million of Promised “Savings” Don’t Exist At All

Before Arkansas expanded Medicaid under Obamacare, the state had a small number of optional Medicaid waiver programs. One of the largest was a program called AR Health Networks. This program made highly-subsidized Medicaid coverage available to adults. But when the state decided to expand Obamacare, they let this waiver (and a few others) expire and instead enrolled these adults into the expansion.

Now that the expansion is scheduled by law to end, Obamacare supporters claim that these costs would somehow reappear if Medicaid expansion goes away, leaving taxpayers on the hook for the cost of these waiver programs – an estimated $123 million over the next five years.

But the dirty little secret is that these programs are gone. The waivers for the programs expired and they won’t come back if the state lets the expansion end on schedule. In fact, ending expansion would actually save taxpayers this money, not cost money.

$214 Million of Promised Savings Are Just Budget Gimmicks

Another huge portion of the promised “savings” are simply budget gimmicks. The idea is to move people from traditional Medicaid categories, including pregnant women and some individuals with disabilities, into the expansion group. Then, theoretically, women will sign up for Medicaid before they get pregnant and some disabled individuals will sign up for Medicaid without going through a disability determination.

If that happens, the state will be able to claim the higher Obamacare matching rate – 95 percent next year, dropping to 90 percent over time – instead of its traditional federal matching rate of roughly 70 percent.

The report calls this “cost shifting.” That’s an accurate descriptor because these aren’t savings to taxpayers. Taxpayers still pay every dime of these costs – the costs will simply appear in a different line item.

And there’s good reason to doubt these gimmicks will even work.

Take, for example, Medicaid spending on individuals with disabilities. The state assumes it will achieve savings because some individuals who are eligible for SSI – which requires a disability determination – won’t apply for it and will instead simply accept Medicaid through the expansion.

But here’s the problem: Medicaid expansion hasn’t reduced disability determinations in Arkansas. Determinations were trending down before expansion ever began and that trend has continued. (Determinations were actually trending down slightly faster before expansion.)

SSI determinations are also not declining faster in Arkansas than in neighboring states, all of which rejected Obamacare expansion, indicating that this downward trend isn’t unique to Arkansas or related to expansion.

Bottom line: the data shows that expansion has not reduced disability determinations, but even if it did, that wouldn’t produce Medicaid savings for taxpayers. It would simply be a cost shift.

Nonetheless, Obamacare advocates are trying to use these gimmicks to justify changing state law to keep Obamacare expansion forever.

Surprise: The Rest of The “Savings” Aren’t Savings Either – They’re Taxes

Finally, the report assumes a massive influx of new revenue from two places: a premium tax and new economic activity as the result of expanded welfare. State actuaries promise $567 million in new revenue over the next five years, which will help offset the state’s share of the expansion cost, resulting in net savings. But these aren’t “savings” at all – they’re taxes.

As part of the “Private Option” waiver, able-bodied adults receive Medicaid benefits through health plans sold on the ObamaCare exchange. These plans are subject to a 2.5 percent premium tax levied by Arkansas.

Medicaid enrollees don’t pay those taxes. Insurers pass that tax along to the Medicaid program, which passes it on to state and federal taxpayers – to the tune of $208 million over the next five years.

The remaining $360 million in projected new revenue, while also not “savings,” just doesn’t make a lot of sense. The idea is that infusing billions of new federal deficit dollars will create jobs and new economic activity, thereby generating new tax revenue and creating a Keynesian utopia. But it hasn’t happened.

Going into the first year of the program, the Beebe administration tacitly admitted on their way out the door that the promised economic boom wasn’t coming. Shortly thereafter, the legislature began bracing for future costs by redirecting state money to a new expansion trust fund.

Now, in the third year of expansion, the economic boom still hasn’t arrived. Arkansas’ economy is growing significantly slower than the national average and slower than surrounding states that rejected expansion. In fact, despite the promise of more than 1,000 new hospital jobs, Arkansas actually lost 819 hospital jobs in the first 18 months of expansion.

Perhaps the Congressional Budget Office was on to something when they said Obamacare would shrink the economy.

Allowing Expansion to End Will Save, Not Cost Taxpayers Money

Without all of these non-savings savings, Obamacare supporters say there would be a “$100 million hole in the budget,” requiring massive tax hikes. Setting aside the fact that Arkansas had a $200 million surplus last year, the reality of the situation is that these promised “savings” – built on faulty assumptions, budget gimmicks, and new taxes – won’t save taxpayers a dime.

Conversely, the state projects taxpayers will spend nearly $20 billion on the expansion over the first ten years. If Arkansas policymakers want to help taxpayers, they should let Obamacare expansion end.