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Mike Beebe, Arkansas' Democratic governor, had a challenge in getting the Republican legislature of his state to agree to the Medicaid expansion in the Affordable Care Act. The condition those legislators set for the expansion was that the money would have to not be used in the traditional Medicaid system, but in the private market. So Beebe asked the federal government to allow him to put the whole Medicaid expansion population into the health insurance exchange, using what would have been the Medicaid funding to purchase private insurance.

Sarah Kliff explains how it works.

What Arkansas is doing is using Medicaid dollars and sending people to the private health insurance exchanges, where they will shop for a plan like millions of other Americans expected to receive subsidies.

The states get authority to do this under part of the Social Security Act (Sec. 1905A, if you want to get really specific) that allows states to use Medicaid dollars to buy private coverage for enrollees. This is known as premium assistance and already happens in a handful of states right now, although usually on a small level. Sometimes, states will do this to help Medicaid eligible residents use federal funds to buy into an employer-sponsored plan.

A GAO report in 2010 found that premium assistance programs had anywhere from five to 30,000 enrollees — a much smaller number than the 233,000 Arkansans expected to gain coverage.

The drawback for actual health care reform in this is that it's going to be expensive. Medicaid is far more cost-effective than private insurance, generally costing about 20 percent less than covering low-income people through private insurance. The CBO has estimated that coverage for people on the exchanges will cost about 50 percent more than Medicaid, with the difference averaging about $3,000 per individual. Three thousand per individual, covering 233,000 new patients, isn't peanuts. It's $699 million, actually.

But this does achieve extending coverage, and good coverage with better access to providers (many don't take Medicaid patients) which in the short term, at least, is very good new for uninsured Arkansans. In the slightly longer term, particularly when the federal subsidies start being reduced in 2016, it's hard to see how it's going to be sustainable.

It's also hard to see how it's going to help at all in terms of that goal of "bending the health care cost curve." It's more welfare for private insurance companies, at a greater cost.

Originally posted to Joan McCarter on Fri Mar 01, 2013 at 11:08 AM PST.

Also republished by Daily Kos.

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