**DHS issued a correction the day after this post. The $5,200 and $5,975 numbers provided to reporters were incorrect. The percentage differential and the total difference in cost are unchanged. You can read a detailed explanation of the correction here. I have highlighted sections in the post below that use the inaccurate numbers. Again, broadly speaking the conclusions and questions remain the same.

The Arkansas Department of Human Services told reporters today that the cost of offering folks health coverage through the “private option” in the state will be about 13 to 14 percent higher than offering coverage via traditional Medicaid expansion. When other factors are included, the number gets close to zero. They project that the incremental costs of the private option for the feds would be $120 million per year at the high end, but with some additional offsets not enumerated that would bring it down to a rounding error.

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Read a summary of the DHS findings here. Also worth noting — I asked whether they had any concerns whatsoever of DHS walking back the “private option” offer. I received a one-word answer: “No.”

DHS commissioned a study from legal consultants, actuarial consultants and the Arkansas Insurance Department. They found Arkansas-specific factors — as well as cost benefits of moving a large volume of beneficiaries to the private market on the exchange — that they believe will mitigate many of the cost concerns raised by previous estimates about an approach using private insurance companies.

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Probably the single biggest factor is that they found that the differential between private health insurance premiums and the cost of Medicaid was significantly lower in Arkansas than other places, about 25 percent. They did not speculate on why this is so, but their finding gives the state a much lower baseline.

The rosier cost projections also depend on predicted benefits from competition. DHS and the Insurance Department believe that doubling the pool of folks on the exchange will bring a significant number of additional carriers into the fold. “Just since this has been on the table, we’ve already seen companies that have inquired to the Department about coming in and participating,” Insurance Commissioner Jay Bradford said. “This concept has really sparked interest over the last two or three weeks.”

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The new study focused on the impact on the feds. “The question that continued to come up was that even if this looks good for constituents and good for the state, what does it do for cost in general, particularly for federal cost,” DHS Director John Selig said. “There has been a CBO estimate out there…the good news is that…the added cost to the federal government, instead of a 50 percent increase, it looks like it’s short of 15 percent and could be as little as zero.”

Those skeptical of this conclusion, which represents a dramatic shift from previous experiences with premium assistance, will likely be left with questions. While DHS provided a summary of their findings, linked above, and spent an hour with reporters today explaining their general framework, we have only a bare-bones understanding of the methodology and little in the way of hard numbers. At this point, we have assertions, not equations.

When I suggested that the projections seemed to be optimistic, Medicaid Director Andy Allison begged to differ. “I don’t believe that this is an optimistic estimate, I believe it’s a conservative estimate,” he said. “It’s possible that that rate relief could be greater….I think that the possibility that this marketplace could be significantly more efficient and competitive than the marketplace that we have now is real. We’re not assuming some sort of Pollyanna-ish level of competition. This is from actuaries who’ve seen, for example, Medicaid managed care for similar populations in other states that cover pretty much this level of income.”

After the jump, a closer look at the DHS findings, some questions, a skeptical economist, some thoughts from lawmakers, and more. Wade in to the weeds!

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