While expansion under any terms is good for the people who are uninsured and could now get coverage, there are some serious drawbacks to this idea spreading. There's the corporate welfare aspect—even more public money being poured into private insurance companies coffers, the question of whether this is the appropriate use of public money. But more to the point, is this is an effective use of taxpayer money. The doctors and hospitals like it, they get higher reimbursements from private insurers than from Medicaid. But, as Josh Barro argues, that's not good for the taxpayer.
Medicaid expansion through private insurance, if spread to many states, will sharply drive up the cost of implementing the Patient Protection and Affordable Care Act. Arkansas Governor Mike Beebe admits to the Times that his plan will likely cost more than a regular expansion of Medicaid, with federal taxpayers picking up nearly the whole tab.Barro argues that the constituencies that stand to gain from a privatized Medicaid—doctors and hospitals—also have a lot of sway with lawmakers, meaning more and more states could be jumping on the privatization bandwagon. In the long run, the cost savings from Obamacare, one of the whole points of the exercise, are decreased because we're spending more on one of the linch pins of the plan: expanded Medicaid. And increased costs for Obamacare add fuel to the critics and would-be repealers complaints that the law is a budget-buster.
If the administration starts letting other states take the Arkansas route, it’s hard to see how we don’t end up with a privatized Medicaid expansion in 50 states, for the same reason that some sort of Medicaid expansion in every state is inevitable. When the federal government offers states free money, sooner or later they are going to take it. The Arkansas plan comes with even more free money than the already rich Medicaid expansion deal.
Now, maybe that will make the plan moot. Federal law says that privately purchased Medicaid must be “comparable” in cost to traditional Medicaid. But nobody knows yet what “comparable” means, and if Republicans increasingly decide they can make peace with the Medicaid expansion through privatization, there could be pressure for a liberal reading of the term or even a legislative fix. It’s happened before: Republicans love Medicare Advantage, a privatized version of Medicare benefits, so much they agreed to spend more per beneficiary on it than traditional Medicare.
As Barro says, better to let Arkansas be the test case here, running this as a pilot project to see if costs under this system can be at all comparable to traditional Medicaid. If it works, great. If it doesn't, wait until the states come around to the idea of accepting free money to help balance their budgets.