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NEXT STEPS: Governor Asa Hutchinson made Arkansas the first state in the nation to implement Medicaid work requirements -- but the policy has been tied up in court since 2019. Brian Chilson

Arkansas will not request a continuation of its controversial “work requirements” policy when it applies for federal approval to renew Arkansas Works, the state’s Medicaid expansion program, according to a spokesperson for the state Department of Human Services.

But in a proposal floated by DHS in recent weeks to Arkansas lawmakers, the state may request to shift to a new work “incentive” program. Those who participated would be able to enroll in private health insurance plans on the Arkansas Health Insurance Marketplace; those who did not would instead be covered directly by the Medicaid program.

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The state’s Medicaid work requirements program, the first of its kind to be implemented anywhere in the nation, has been suspended since a federal judge halted the policy in March 2019. The U.S. Supreme Court is scheduled to hear oral arguments in an appeal of that case next month. But regardless of the outcome, the Biden administration informed states on Friday that it will no longer allow Medicaid work requirements.

“It’s not a surprise that the Biden administration has changed the policy from the Trump administration,” said Governor Hutchinson, who has long trumpeted work requirements as a key component of Arkansas Works. He said his administration was working closely with legislators on a proposal to continue the Medicaid expansion program with “some new elements that will help in heath care outcomes but also in terms of responsibility for the recipients. We’ll have to do that in a way that will get approved by the Biden administration. That’s a work in progress.”

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Work requirements were widely viewed as an important political tool for gaining Republican support in the legislature to continue the Medicaid expansion program. But despite the Biden administration nixing the policy, Senate President Pro Tempore Jimmy Hickey (R-Texarkana) said that he anticipated the legislature will re-authorize the Medicaid expansion in some form. Hickey supported the work requirements, but losing the policy was not a deal-breaker, he said.

While continued coverage for more than 300,000 low-income Arkansans appears secure, that still leaves the question of how the program will be designed. Currently, under the state’s unusual version of Medicaid expansion, most beneficiaries are covered by private plans. Some longtime opponents of Medicaid expansion are now backing a measure to maintain coverage but use fee-for-service Medicaid instead.

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“I’ve been adamantly opposed to Medicaid expansion from the get-go but at some point in time, you’ve got to realize you’ve lost that battle,” Rep. Josh Miller (R-Heber Springs) said. “Unless Congress changes something, Medicaid expansion is here to stay in Arkansas. If we’re gonna do it, let’s do it the most fair and economical way possible.”

DHS spokesperson Amy Webb confirmed that the agency has presented a new proposal in private meetings with lawmakers to use the private Marketplace plans as an enticement to encourage work, education and related activities. The proposal, part of a slate of new policies for Medicaid expansion dubbed “ARHome,” would offer a carrot instead of a stick. Webb said that discussions about the policy were ongoing and fluid. “At this point, they are just drafts, nothing’s final,” she said. 

In 2018, the Trump administration granted a waiver of federal Medicaid rules to allow the work requirements program in Arkansas. Beneficiaries were required to report their hours worked each month to DHS; if they were not working, they could instead report participation in job training programs, job searches or certain approved volunteer activities. If beneficiaries failed to comply, they would be kicked out of the program and lose coverage. Over the course of five months, more than 18,000 Arkansans lost their health insurance due to the policy before it was halted by the federal courts.

Under the new proposal, no one would lose coverage altogether. Instead, beneficiaries “engaging in work, education, or other activities that will lead to long-term economic independence” would “earn the incentive” of a private plan, according to a DHS document about the plan shared with lawmakers. The theory behind the incentive is that beneficiaries will prefer a private plan because it could offer better access to more health care providers than Medicaid (some providers do not accept patients on Medicaid because the program reimburses them at significantly lower rates than the private plans).

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The use of private plans as the incentive is outlined in PowerPoint presentations that DHS has given to lawmakers, but Webb said that approach was subject to change. The ultimate design of the proposal could take a different form, she said.

“We have been presenting ideas, proposals, and options to lawmakers,” Webb said. “We’re not looking to put a work requirement in but we are looking at how we can use work and education — and other things that would help move people out of poverty and improve their economic independence — as incentives.”

The Private Option and the Arkansas Medicaid expansion

As presented, the ARHome proposal would represent a major shift to the state’s unique approach to Medicaid expansion, often referred to as the “Private Option.”

The Affordable Care Act, passed under the Obama administration, expanded Medicaid eligibility to adults who make less than 138% of the federal poverty level (an annual income of $17,774 for an individual or $36,570 for a family of four). But a ruling by the Supreme Court offered states a choice about whether or not to expand the program. 

After a protracted legislative fight, Arkansas moved forward with Medicaid expansion in 2014 via the Private Option, enacted in part to secure the support of Republican legislators. The policy required a waiver of Medicaid rules, which was approved by the Obama administration. Instead of expanding coverage using the state’s traditional Medicaid program, which pays medical providers directly for services (“fee-for-service”), the Private Option used Medicaid expansion funds to purchase private health insurance plans on the Marketplace for eligible low-income Arkansans.

The program, later renamed Arkansas Works, has undergone a series of alterations in the years since it was first implemented, but it has retained this feature: Nearly all beneficiaries are covered by private plans (the ten percent of beneficiaries with the highest medical needs are instead covered by the traditional, fee-for-service Medicaid program).

Under the ARHome option presented to some lawmakers in recent weeks, this unusual feature of the program would instead be incorporated into a new reward program for work, education or other activities. In practice, that would mean a larger group of beneficiaries would wind up in traditional, fee-for-service Medicaid.

Rep. Deborah Ferguson (D-West Memphis), vice-chair of the House Public Health committee, who has been briefed on the proposal, expressed skepticism that Medicaid beneficiaries would be motivated by a private plan. “There is no incentive on the patient side,” she said. 

Ferguson also worried that there wouldn’t be sufficient outreach or support services in place. She pointed out that the monthly reporting obligation under the old work requirements program had very low participation. Most beneficiaries were exempt from reporting their hours; among those required to report, only a small fraction did, despite the threat of losing coverage. (Even among beneficiaries who were working, many had no idea there was a work requirement at all or had trouble navigating the system to report hours.)

“If last time is any indication,” she said, few would participate in the incentives program. “And the ramifications were much worse then — you got kicked off health care altogether.”

Legislative approval

The annual appropriation bill that includes the Medicaid expansion program requires a 75% majority in both chambers of the legislature for approval. That has led to nail-biting drama in past years. But the consensus at the Capitol is that the continuation of Medicaid expansion in some form will pass this year with relative ease, said Sen. Jim Hendren (R-Gravette), who chaired a Health Reform Legislative Task Force that recommended the continuation of the program under Arkansas Works in 2016.

Hendren supported the work requirements, but losing that element shouldn’t kill the program, he said. Particularly in the midst of a pandemic, Hendren said, there isn’t an appetite even among previous opponents of Medicaid expansion to fight to end the program altogether.

“Right now, the argument is more about the method of Medicaid expansion, rather than the existence of Medicaid expansion,” Hendren said. “Which is really quite a transformation.”

Hendren views Arkansas Works as a success and supports continuing the use of private plans in the program. But some right-wing lawmakers who fiercely opposed the Medicaid expansion in past legislative sessions are now pushing to move the entire program to cover people directly by Medicaid. A bill filed by Rep. Miller would maintain coverage for the eligible population via fee-for-service Medicaid but do away with the Private Option mechanism that covers people via private plans.

Why would longtime opponents of Medicaid expansion like Miller push this change? They believe that it would save the state and the federal government a significant amount of money. Buying a private plan costs more than covering someone with Medicaid, Miller said. The Private Option, he argued, uses taxpayer money to bolster profits for insurance companies.

If the state is going to cover low-income adults, it should do so in a more cost-effective way, he said, paying the same reimbursement rates to providers that are used to cover other beneficiaries in the pre-expansion Medicaid program, such as disabled Arkansans.

Miller recognizes the irony that a self-described “raw-boned, conservative, Republican redneck from Cleburne County” is now proposing that Arkansas shift from the GOP-backed Private Option to the traditional Medicaid expansion program as outlined in President Obama’s Affordable Care Act. “But I strongly believe that Arkansas is messing up by continuing to do it this way,” he said. “We’ve wasted a lot of the taxpayers’ money in the last seven years. We’re the only state in the union that does [the Private Option]. Is that because we’re so much smarter than all the other states? I don’t think that’s the case.” Asked about the new DHS proposal, Miller said that he would not support any version of the program that continued to pay for private Marketplace plans.

Economic impacts

The federal government pays for 90% of the costs of insuring the Medicaid expansion population, with the state picking up the rest of the tab.

DHS projects that insuring beneficiaries with fee-for-service Medicaid, which reimburses providers at lower rates, would cost less than paying for private plans, which reimburse at the same commercial rates as other plans on the Marketplace. (This represents an about-face from the state’s rationale for the Private Option in 2013; the federal government approved the original waiver under an agreement that claimed costs would be equivalent between the Private Option and traditional Medicaid expansion.)

However, DHS also projects that the additional federal money coming in from the Private Option component of the program has an outsized economic impact on the state, including a boost for struggling rural hospitals.

“We’re looking at the big economic picture when we make this proposal,” said Webb, the DHS spokesperson.

Moving everyone covered by the current Arkansas Works program to fee-for-service Medicaid, as under Miller’s bill, would significantly reduce federal and state Medicaid spending, DHS projects — by nearly $4 billion altogether over the next five years. But keeping the private plans in place would also bring in certain tax revenues for the state, offsetting some of the additional state costs, according to the DHS projections. All told, those factors could even make sticking with the Private Option a net gain for the state budget versus switching to Miller’s plan.

For backers of keeping the Private Option in place, the additional federal spending is a feature, not a bug, because it means more funding flowing into the state and its health care system. “I think the Private Option has been extremely successful, and you have to consider the whole macroeconomic impact,” Ferguson said.

The higher reimbursements offered by private plans are a boon to providers and hospitals in the state, Ferguson said, and could be a determining factor for the survival of rural hospitals. Those higher reimbursements could also lead to better access to more health care providers for beneficiaries, she said. And adding so many people to the Health Insurance Marketplace, Ferguson argued, helps to stabilize that market and keep premiums lower for individuals using the Marketplace to shop for private health insurance plans.

The ARHome plan could be an effort not just to incorporate remnants of work encouragement in the wake of Biden forbidding requirements, but also to split the difference between spending critics like Miller and supporters of keeping the Private Option element in place like Ferguson. State and federal Medicaid spending would be lower under ARHome than under the current Arkansas Works program, but DHS projects that the plan would still bring $3 billion more in federal spending into the state than Miller’s plan. A slide presented to lawmakers explains, “ARHome is designed to slow spending growth while maintaining tax revenues and federal funding.”

“We know that $3 billion in federal spending has a positive economic impact on the state, and we want to look at that as well as the costs,” Webb said.

Arkansas Works to ARHome?

The federal waiver agreement for Arkansas Works expires at the end of this year. Hickey, who supports the general framework of ARHome, said that a bill to enact the DHS plan for a new Medicaid expansion waiver could be filed as soon as the end of next week.

In addition to the idea of using private plans as an incentive for work and related activities, DHS has presented lawmakers with other potential options for the ARHome proposal. Possibilities include an increase in cost-sharing charged to beneficiaries, potentially up to 5% percent of their family income; mechanisms to cap the cost growth of private plans used for the Medicaid expansion; and new initiatives for rural health care, maternal and infant health, behavioral health and chronic disease. Once it secures legislative approval for a path forward, DHS plans to send a request for a new waiver to the Biden administration by this summer.

Sen. Bob Ballinger (R-Ozark), once one of the most vocal opponents of expanding Medicaid in the state, said that it is unrealistic to unwind a program providing coverage for hundreds of thousands of Arkansans now that it has been in place for more than seven years. He anticipates supporting its continuation this legislative session. He said that he was open to moving toward a fee-for-service Medicaid model like in Miller’s bill, but was generally inclined to continue the use of private plans because of the economic benefits for hospitals, providers and the insurance market. 

Ballinger had not yet heard about the hybrid proposal to use private plans as an incentive for work or education, but expressed some skepticism. 

“I don’t really know what kind of incentive that is for the average person who’s wanting to get their health care coverage,” Ballinger said. He also worried about the bureaucratic complexity of such a program that moved people between Medicaid and private health plans. “When you get people switching back and forth, that’d be a problem,” he said. “It sounds like a lot of my constituents could be getting booted off, looking for ways to get back on, and get caught in the system.”

As for work requirements, Ballinger said that broad support for the policy remained in the legislature. He said that it may well be taken up again if a future president gave the OK. 

Whether that option will be on the table could depend on the Supreme Court. If the work requirements case moves forward, the Court is expected to rule by June, but the future of the case is uncertain. 

The Biden administration might argue that the case is now moot, because it is no longer allowing the policy. However, last-minute agreements signed by the Trump administration and officials in certain states, including Arkansas, could slow down the process for the Biden administration to officially withdraw the waiver for work requirements, giving the Supreme Court time to rule on the case. A ruling from the Court could set a precedent that would ease the path for a future administration to grant work requirements, even if the Biden administration does not. 

Critics have questioned the legality of those agreements, and the Biden administration sent letters to states rescinding them. Would Governor Hutchinson challenge an effort by the Biden administration to withdraw the waiver on a more expedited basis? The governor referred the question to DHS. “We received the letter from [the federal Centers for Medicare and Medicaid Services] late Friday and are reviewing it as well as reviewing our options moving forward,” Webb said.

This reporting is courtesy of the Arkansas Nonprofit News Network, an independent, nonpartisan news project dedicated to producing journalism that matters to Arkansans.