David Ramsey of the Arkansas Times has done a ton of great reporting on the private option. His latest post begins,
The strangest part of the “private option” is that the plan grew out of pressure from local Republican lawmakers, the very same folks who had the loudest concerns about costs of the original Medicaid expansion. That’s strange because the new “private option” is going to cost more (not necessarily for the state — see here and here — but almost certainly for the feds).
It’s going to cost a lot more. This sort of thing has been studied. There are a number of reasons that offering coverage via private insurance is costlier than offering it via Medicaid but the main one ain’t rocket science: private insurers reimburse at higher rates. Even conservatives that like the “private option” better agree that it will cost more.
Well here’s the thing. Despite a broad consensus about cost, Republicans at the forefront of advocating for a “private option” as a possible alternative to Medicaid expansion do not agree. They think that the “private option” might not be any more expensive for the feds, and could even cost less.
(I should be clear. I’m not against expanding the scope of exchanges. I just think it will cost more and we should not be deluding ourselves that it won’t.)
It’s crucial to separate two propositions: (1) Competition can be efficiency increasing; (2) Competition on a state insurance exchange of the type permitted under the ACA can bring spending below that of Medicaid. The former can be true even if the latter isn’t. That’s a reasonable expectation if Arkansas or any other state goes forward with the private option, as we currently know it (which is not very well).
[Originally posted at The Incidental Economist]