What the legislature could be sold on, they told the governor, was this: Using billions in federal Medicaid dollars to buy private health insurance coverage for the state's lowest income populations.
To the surprise of many — Beebe included — Health and Human Services has given that plan the go-ahead.
"After meeting with Secretary Sebelius and her team," he told reporters at the National Governor's Association meeting Saturday, "some things we might not have thought possible are now possible."
The idea, first reported by Dave Ramsey at the Arkansas Times, would be to use federal Medicaid dollars to buy private insurance coverage for everyone below 133 percent of the federal poverty line (about $15,000 for an individual).
Keep in mind, this is really different from what Florida did. There, Gov. Rick Scott received a waiver to move nearly all of the state Medicaid recipients into a Medicaid health plan, run by a private company, to manage their care.
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. 1905(a), Joan Alker notes here, 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.
Back in December, the Obama administration specifically addressed the issue of premium support and suggested that states could indeed use this same approach in their Medicaid expansions.
"Under Medicaid and CHIP statutory options,states can use federal and state Medicaid and CHIP funds to deliver Medicaid and CHIP coverage through the purchase of private health insurance," Health and Human Services wrote in a Q&A sent to the states on Dec. 10.
And, that's essentially what Arkansas plans to do: It will use federal dollars to buy private insurance coverage.
"Our goal in working with states has been to be as flexible as possible within the confines of the law," Health and Human Services spokeswoman Erin Shields Britt says. "In her meeting with Governor Beebe, Secretary Sebelius expressed support for ideas from the state that would take advantage of this flexibility and said she was glad to see the state considering an innovative, state-based approach."
Those plans will still have to meet certain Medicaid requirements so that their cost-sharing and benefit package is the same as what they would get in the public program. If that isn't provided by the private insurer, there is usually a wrap-around policy tacked onto the standard set of benefits.
"Medicaid definitely has strict rules for people below the poverty line and then they issued some new rules this year, for people above the poverty line," Arkansas Medicaid spokeswoman Amy Webb says. "We still believe those apply, and we intend to follow those."
The benefit of this approach seems pretty clear: The Arkansas legislature can say they're moving Medicaid recipients into private coverage, rather than expanding a cash-strapped entitlement program.
But will it sway other states on the fence? There is one possible downside they might want to consider, that this approach will likely be more expensive overtime.
That's due to the fact that a private insurance plan tends to be more expensive than Medicaid. The Congressional Budget Office estimates the difference between the two, for an individual, is $3,000.
Right now, that doesn't matter for Arkansas: The federal government will pay 100 percent of the costs for the Medicaid expansion up until 2017. But after that, the match drops to 10 percent — and then the price tag for coverage does have an effect on the Arkansas budget.
"We do anticipate the potential for our state share to grow, as a result of that, when it gets to 10 percent," Beebe spokesman Matt DeCample says.
I asked DeCample why buy the more expensive health plans, which will ultimately cost their state, and the federal government, more money.
"These policies are going to be pricier than strictly through Medicaid expansion," he replied, "But this is the kind of option that our legislature asked us to look for. Our primary hope is that, we can do this, and this is one way to pursue it."