Editor's note: In September 2013, Arkansas became the first state in the nation to receive approval from the federal government for a section 1115 demonstration waiver to require most adults who are newly eligible for coverage under the Affordable Care Act's (ACA's) Medicaid expansion to enroll in private health plans through the Marketplace, with the federal government paying the costs through premium assistance. This initiative has allowed Arkansas to cover 245,000 newly eligible adults. Arkansas's political leaders have announced they will continue the initiative through 2016 while a state task force develops recommendations for the future—and the initiative continues to be closely watched by other states.

A new issue brief prepared for the Kaiser Family Foundation draws on early data, as well as interviews conducted in spring 2015 with state officials, providers, insurance carriers and consumer advocates to offer an initial look at how implementation of the private option is going. The executive summary below captures key findings. Click here to download a free PDF of the full issue brief.

Arkansas's Section 1115 demonstration waiver—the first in the country—requires adults newly eligible for Medicaid with incomes up to 138 percent of the Federal Poverty Level (FPL) who are not medically frail to enroll in private health plans offered through the Arkansas Marketplace. (Newly eligible adults who are medically frail are served through the state's fee-for-service system, rather than the demonstration.)

Often referred to as the "private option," this approach was designed with the goals of:

  • Increasing access to care by placing beneficiaries in private health plans with robust provider networks,
  • Reducing the effects of churning as enrollees move between Medicaid and Marketplace coverage when their incomes fluctuate, and
  • Reinforcing the state's broader healthcare delivery reform efforts.

The private option expansion now covers close to 220,000 newly eligible adults in Arkansas. An additional 25,000 medically frail adults are covered through the state's fee-for-service system, bringing to 245,000 the number of newly eligible adults covered in Arkansas as of June 30, 2015. As a result, Arkansas has been able to drive down its uninsured rate and reduce uncompensated care costs.

Policymakers within Arkansas and around the country are watching the private option closely. To provide an initial look at implementation, the authors drew on a dozen interviews with a broad array of Arkansas stakeholders, as well as early data on coverage, reduced uncompensated care costs and other topics. The findings also are informed by data and reports from the state Medicaid agency and the state insurance department, state legislative oversight committees, and the Centers for Medicare and Medicaid Services (CMS).

Cuts in Uninsured Rates

Arkansas cut its uninsured rate among non-elderly adults nearly in half (from 27.5 percent to 15.6 percent) between 2013 and 2014. This reduction, the second-largest percentage point decline nationally, was realized in large part through the coverage pathway offered through the private option, as Arkansas had the lowest eligibility threshold for adults in the country prior to 2014. Arkansas's gains are consistent with the experience of states that expanded coverage through their traditional Medicaid coverage.

Arkansas's increase in coverage occurred despite limits on funding for outreach and enrollment, eligibility computer system issues, and confusion among some beneficiaries about where to seek enrollment assistance. Arkansas's use of fast-track enrollment strategies, by using SNAP data to identify beneficiaries eligible for the private option, contributed to strong early enrollment in the program.

Increases in Access and Decreases in Uncompensated Care Costs

Stakeholders reported that private option enrollees are generally able to access services, and hospitals are seeing sharp drops in uncompensated care, while the impact on community health centers is more mixed. Close to four in ten private option enrollees gained coverage for the first time in their lives, and stakeholders reported that enrollees were able to access a broad set of services, including specialty care and providers in rural areas.

Hospitals experienced a 55 percent drop in uncompensated care costs, and saw signs that people were seeking care in more appropriate community-based settings instead of emergency rooms. Community health centers also were seeing more insured patients, but some reported challenges due to delays in cost-based reimbursement payments from the state or note that new clinics established by Marketplace plans could "skim off" their insured patients. These findings are similar to the experience of other states that have expanded coverage, regardless of the mechanism used to implement the Medicaid expansion.

Wraparound Protections

Early reports indicate that private option beneficiaries are receiving wraparound protections for premiums and cost sharing that exceed Medicaid limits, while access to wrapped benefits required by Medicaid but not covered in the Marketplace was more mixed.Stakeholders credited Arkansas with protecting beneficiaries from having to make burdensome out-of-pocket payments up front and then be reimbursed. This was accomplished by standardizing the Marketplace plans' cost-sharing design and having the state make supplemental cost-sharing reduction payments directly to the Marketplace plans.

Nearly all required Medicaid benefits are provided directly through Marketplace plans, minimizing the need for a "wrap." However, two benefits—non-emergency medical transportation and Early Periodic Screening and Diagnosis Treatment (EPSDT) for 19- and 20-year-olds—are provided as a wrap through the fee-for-service system. Stakeholders reported some concern that beneficiaries do not always know how to access these benefits, particularly EPSDT.

Medically Frail Screening: Working Well but Underused

The screening tool used to identify medically frail beneficiaries is reported to be working well, although some stakeholders are concerned that it is underutilized. As of June 2015, 9.95 percent of beneficiaries (25,800 individuals) were considered medically frail and served through the state's traditional fee-for-service Medicaid program, which includes long-term services and supports, instead of in Marketplace plans. While there are no reports that beneficiaries were unable to secure a designation as medically frail, some stakeholders expressed concern that many beneficiaries are auto-assigned into a Marketplace plan. Therefore, they bypass the screening, raising the possibility that some medically frail individuals are not being identified sufficiently early.

Growth in Competition and Reduction in Premiums

The private option has helped to increase competition in the Arkansas Marketplace and contributed to reductions in premiums. The private option has nearly tripled enrollment in Arkansas's Marketplace:

  • Helping to boost the number of carriers offering Marketplace plans statewide from two in 2014 to as many as six in 2016,
  • Generating a younger and relatively healthy risk pool, and
  • Contributing to a 2 percent drop in the average rate of Marketplace premiums between 2014 and 2015.

On Track to Meet or Outperform Federal Budget Neutrality Requirements

Despite early concerns, the private option appears on track to meet or even outperform federal budget neutrality requirements. Spending on the private option initially was higher than the budget neutrality projections prepared for the waiver, but more recent data suggests that the state is meeting its targets and may even succeed in limiting spending to significantly below the allowable levels.

Stakeholders also are watching closely the broader question of whether the private option will prove cost-effective compared to traditional Medicaid coverage. As part of its waiver, Arkansas is permitted to use criteria that differ from what is otherwise required under federal law to evaluate cost-effectiveness. These include the private option's impact on coverage, access to care, Marketplace competitiveness, and reductions in churning between Medicaid and Marketplace coverage. While it may be some time before data is available to answer this question, the private option is credited with saving the state over $88 million and generating new revenue of $29.7 million in state fiscal year 2015.

Looking Ahead

Slated to continue through 2016, the private option is now part of an active political and policy debate in Arkansas. A state legislative task force and a Medicaid advisory group are in the midst of developing recommendations for the future of Arkansas's Medicaid program, including the private option. Many stakeholders expect that coverage for newly eligible adults will continue in some form, building on the foundation that the private option established and also that the private option will be modified in the years ahead. Just as importantly, the state will need to consider the future of its fee-for-service system, which continues to serve the vast majority of the state's beneficiaries, including medically frail adults with the greatest healthcare needs.

For other states, the Arkansas experience offers lessons on how they might combine their Medicaid programs and Marketplaces, leveraging the buying power of these two markets and potentially providing greater access to care and continuity of coverage. Stakeholders have noted that the private option has proven more administratively complex to implement than traditional Medicaid expansion, requiring close collaboration across state agencies and other stakeholders.

Unlike many other states, Arkansas did not have an established Medicaid managed care delivery system prior to expansion or a fee-for-service network that was equipped to serve a significant number of newly eligible adults. In some states, particularly those that already have a well-developed Medicaid managed care system, the private option may not be a good fit. Even in these states, however, the Arkansas experience highlights the considerable flexibility available to design an extension of coverage to newly eligible adults consistent with a state's delivery system, political culture and larger healthcare goals.