Gov. Mike Beebe

Late Wednesday the Arkansas legislature gave final approval to a bill that would expand Medicaid under the Affordable Care Act. The bill now heads to Gov. Mike Beebe (D) who plans to sign it.

What makes this bill special is that Arkansas’s plans to expand Medicaid using a so-called “private option.” Instead of putting people under 138 percent of the federal poverty level on Medicaid, this would basically use the money to help this population buy private health insurance on the newly created exchange.

Several other Republican controlled states have expressed interest in possibly expanding Medicaid using this same basic system.

One major issue is that regular Medicaid has traditionally provided coverage at a substantially lower cost than individual private insurance. The state claims, using what seems to be some rather dubious assumptions, that this private option will not actually be more expensive than traditional Medicaid.

It now looks like these assumptions will be put to the test with the federal government paying for this experiment.

If next year this plan does prove to be significantly more expensive, it could put the Obama administration in a very awkward position. The administration wants to try enticing more Republican states to take part in the Medicaid expansion, but at the same time they have made deficit reduction a top priority. It would be hard to justify letting other states use this “private option” if it would cost the federal government tens of billions more.

Photo by Arkansas Governor’s Office