States Urged to Expand Medicaid With Private Insurance

WASHINGTON — The White House is encouraging skeptical state officials to expand Medicaid by subsidizing the purchase of private insurance for low-income people, even though that approach might be somewhat more expensive, federal and state officials say.

Ohio and Arkansas are negotiating with the Obama administration over plans to use federal Medicaid money to pay premiums for commercial insurance that will be sold to the public in regulated markets known as insurance exchanges.

Republicans in other states, including Florida, Louisiana, Pennsylvania and Texas, have expressed interest in the option since Gov. Mike Beebe of Arkansas, a Democrat, received a green light from Kathleen Sebelius, the federal secretary of health and human services.

Valerie Jarrett, a top White House aide, has been a catalyst in talks with Ohio and other states.

The idea of using “premium assistance” to buy private insurance for new Medicaid beneficiaries is a sharp departure from the 2010 health care law, in which Congress expanded Medicaid to cover the poorest Americans and assumed that people with higher incomes would obtain private coverage through the exchanges.

In many states, Republicans are trying to create a hybrid of the two alternatives, taking federal money for the expansion of Medicaid but using it to help people buy commercial insurance instead.

State Senator Jonathan Dismang, a Republican from central Arkansas, said the idea appealed to him because it would “use the markets to provide better health care and to increase competition in the health insurance industry,” which could drive down costs.

The Arkansas Medicaid director, R. Andrew Allison, said the state had obtained “conceptual approval” from Ms. Sebelius to use Medicaid money to help low-income adults enroll in private insurance through the exchange in 2014. This arrangement, he said, could double the number of people in the exchange, to perhaps 500,000, while shrinking enrollment in the traditional Medicaid program.

The idea appeals to many doctors and hospitals because they typically receive higher payments from commercial insurance than from Medicaid.

“We supported the expansion of Medicaid before this idea came up, and we are more excited now,” said David W. Wroten, the executive vice president of the Arkansas Medical Society. “Providers of all types would be paid at private insurance rates, and that will help recruit physicians for Medicaid, especially in rural areas.”

Advocates for beneficiaries are torn. On one hand, they want to provide coverage to as many people as possible, and the use of private insurance may be the only way to entice Republicans to support the expansion of Medicaid.

On the other hand, they say, private insurance will often be more costly than Medicaid, in part because it pays higher rates to health care providers. They said they feared that higher federal costs would fuel demands in Congress for cutbacks in Medicaid.

In addition, many advocates prefer Medicaid because it has strict limits on co-payments and deductibles and provides benefits that may not be available in commercial insurance. These include long-term care, dental services, medical equipment and even personal attendant services for some people with severe disabilities.

Federal officials said state Medicaid programs could provide these extra services as a supplement to private insurance.

In Ohio, Gov. John R. Kasich, a Republican, wants to expand Medicaid, citing the biblical injunction to help “the least among us.” He wants to provide coverage through private insurance for many of the new beneficiaries, including those with incomes from 100 percent to 138 percent of the poverty level ($11,490 to $15,856 a year for an individual).

Greg Moody, director of the governor’s Office of Health Transformation, said Ms. Jarrett called Mr. Kasich in late January and indicated that the Obama administration was receptive to his ideas. Federal and state officials are working out the details.

“Every day I am a little more encouraged that we can put together a package that is compelling to the State Legislature and can be approved by the federal government,” Mr. Moody said.

Erin Shields Britt, a spokeswoman for the federal Department of Health and Human Services, said, “Our goal in working with states has been to be as flexible as possible within the confines of the law.”

In Florida, state legislators rebuffed a proposal by Gov. Rick Scott, a Republican, to expand Medicaid, but are exploring alternatives that would use Medicaid money to help people buy private insurance.

The 2010 health care law generally required states to make Medicaid available to people under 65 with income less than or equal to 138 percent of the poverty level. The federal government will pay the cost for newly eligible beneficiaries from 2014 to 2016, with its share gradually decreasing to 90 percent in 2020. In upholding the law in June, the Supreme Court ruled that the expansion of Medicaid was an option for states, not a requirement. The ruling touched off ferocious debates in statehouses around the country.

Arkansas Republicans, who control both houses of the Legislature, opposed a straight expansion of Medicaid, but have warmed to the idea of subsidizing private insurance for the same people.

“The feds have agreed to do what my legislators in various conversations have asked me to go ask them to do,” Mr. Beebe said. “Basically they’ve agreed to give us about everything we’ve asked for. What that really amounts to is to take the Medicaid population and expand it all the way to 138 percent of the poverty level and use federal Medicaid dollars to purchase insurance through the exchange.”

“It will probably cost the feds a little more money to do this,” Mr. Beebe said. Arkansas officials said the increase would be less than 15 percent.

Alan R. Weil, the executive director of the National Academy for State Health Policy, an independent nonpartisan group, said he saw nothing inherently wrong in expanding Medicaid by paying the premiums of private health plans in a state insurance exchange.

With that approach, he said, low-income people can stay in one health plan even if their income fluctuates, so they lose Medicaid and become eligible for subsidies in the exchange, or vice versa. “How better to assure continuous coverage and continuous access to the same doctors?” Mr. Weil asked.

However, Leonardo D. Cuello, who represents poor people as a lawyer at the National Health Law Program, said the use of private plans could lessen protections for beneficiaries and increase costs to the government.

“Congress authorized premium assistance more than 20 years ago as a way to save money, by allowing Medicaid to pay premiums for people who had access to private coverage through an employer’s group health plan,” Mr. Cuello said. “It will now be used to provide individual coverage that is more expensive than Medicaid.”