A Free Lunch for Arkansas. Just Arkansas.

Josh Barro is the lead writer for the Ticker, Bloomberg View's blog on economics, finance and politics. His primary areas of interest include tax and fiscal policy, state and local government, and planning and land use.
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Arkansas has negotiated a rather unusual deal for implementing the Patient Protection and Affordable Care Act: Rather than expanding traditional Medicaid, it will offer private insurance plans to poor people, and the federal government will still pick up almost all of the costs.

Using private insurance instead of Medicaid will be good for both doctors and low-income individuals in Arkansas: Medicaid pays low reimbursement rates to providers, and as a result, many providers don't accept it. But low reimbursement rates are what make Medicaid cheap -- about a third cheaper than private insurance, according to the Congressional Budget Office -- so it's hard to understand how this deal won't come at a huge expense to federal taxpayers.

Aaron Carroll, a health policy expert at the Indiana University School of Medicine, says it will. Arkansas is out with its own analysis, arguing that there won't be added costs. It says that the difference in cost between Medicaid and private insurance isn't as large in Arkansas as it is nationally and that the state's plan will create various efficiencies that lower costs overall.

I'm skeptical -- as Sarah Kliff notes, the Arkansas analysis is pretty thin, and there are lots of health-reform plans that fail to live up to their cost-control promises. That said, I'm happy to let one small state give this approach a shot and see how much it costs. Having 50 separate state-level implementations of the Affordable Care Act has created something of a logistical nightmare, but the upside is the opportunity to let states experiment to see what works.

What I'm not prepared to do is let other states get in on the Arkansas deal. Kliff reports that about four other states are considering making their own proposals to mimic Arkansas. If health reform comes in over budget in Arkansas, the impact on federal taxpayers will be small; add Ohio and Florida to the mix, and the costs stop being trivial.

With health reform, coverage expansion is always going to be politically easier than cost control, which is why the Affordable Care Act is stronger on coverage expansion than cost control. One of the main ways the act does control costs is by making sure that much of the expansion is done with cheap Medicaid instead of expensive private insurance. We should let Arkansas experiment, but we shouldn't let lots of states abandon traditional Medicaid before we know the cost impact.

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