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Arkansas has turned heads with its plan to expand Medicaid using the private insurance market. The idea — which is still preliminary — would be to use Medicaid dollars to buy private insurance coverage for the expansion population.

For health policy experts, this has raised a huge number of questions: Will private plans guarantee the same benefits that Medicaid does? How will states pay for the private insurance, which generally costs more than the public program? And does HHS even have the legal authority to do this?

George Washington University's Sara Rosenbaum, an expert on Medicaid policy, recently dove into the regulations to answer these questions. She wrote an excellent policy primer here and, on Thursday, we had a lengthy conversation about it. What follows is a transcript of that discussion, lightly edited for clarity and length.

Sarah Kliff: Right now, you have a number of governors looking at the idea of using Medicaid expansion funding to buy private health insurance for enrollees. How novel of an idea is that?

Sara Rosenbaum: It’s been treated as this brand, new thing, but I don’t actually think it’s completely revolutionary. Keep in mind that states have been using Medicaid to buy managed care plans since the beginning of Medicaid. The whole notion of this as a conceptual breakthrough for Medicaid feels a bit off for me.

It does happen though that this is in Arkansas, which traditionally has not been a buyer of managed care, not a place like Arkansas, and not somewhere like Texas which has been buying managed care.

One of the good things about it, from my perspective, is that it gives you more stability of coverage, or gives you the chance at stability. You're brought into a plan to stay.

SK: So the idea is, if your Medicaid expansion population is in private insurance, they won't have to bounce back and forth between private and public plans.

SR: It does address a problem of churn. Four years ago I raised this and put this forward to House and Senate committees as a model. It was met with a lot of opposition from Medicaid advocates, which I didn't totally understand having worked in Medicaid for almost four years now.

The need for stability of coverage is so great. These are the youngest, healthiest and lowest-income workers. All they have to do is churn from different insurance plans two or three times, and they're going to say I'm through with this. And these are the exact people we want to enroll.

SK: One part of this I've been confused about is the cost of the program. The CBO estimates that private insurance plans cost $3,000 more than Medicaid. Will Medicaid need to bargain down insurers? Or something else entirely?

SR: When you're doing premium support for an employer plan, it's really easy to prove that it's cost effective. You're splitting the cost between the public program and the employee, so it's just generally less expensive.

Here, there is no employer. You're talking about the Medicaid program buying private coverage. We know from CBO that insurance is more expensive than Medicaid, even more expensive than Medicaid managed care.

When dealing only with Medicaid, the question [in the statute] is are the costs comparable. And there are some important considerations for CMS beyond just the price of the premium you'll pay next month. One is that, if you can keep coverage stable and continuous, your extra outlays might pay for themselves. You won't have churn, or at least decrease churn, and cut down the cost of dis-enrolling and re-enrolling.

SK: I know you mentioned that the cost of the Medicaid plan and private plan need to, under regulations, be "comparable." Is there any definition of what comparable means?

SR: It just says "comparable" so there's a lot of latitude. We don't know if CMS would decide that a 10 percent differential would count as comparable or not.

SK: I know that Medicaid has some strong protections, in terms of the benefits that enrollees receive and how much they can be expected to pay. What happens to those in the private market?

SR: The cost-sharing would have to be the same [in the private market], so the issuers that take Medicaid lives would have to agree to administer the program in compliance with Medicaid cost-sharing rules.

SK: Would they want to do that? It would really restrict the types of co-pays, for example, that they could charge.

SR: That is a question, and I think there are going to be a bunch of challenges. Insurers sometimes sees this population as high risk and don't want to cover them. I think we have enough research to show that's not the case though. These are a lot of young, working folks.

If Medicaid is willing to pay the [private insurer] price, that would be an increase of what Medicaid has historically paid. So some of the opposition might fade away, if they're now getting commercial level payments.

SK: Arkansas is the one state that has really pushed this idea. Do you see others looking for something similar?

SR: If Arkansas is allowed to do this, I expect it to spread like wildfire. I have three calls with Texas reporters who want to know more about what Arkansas is doing. New York is another state that is looking at something similar.

SK: That's interesting that you mention New York, since this has usually been an option that Republicans have promoted. Would you expect liberal states to look at this too?

SR: I think that every state is now going to be eying this thing. My own suspicion is it's going to be very popular. I think CMS sees this as a way to lure in states that might not otherwise do the expansion.

KLIFF NOTES: Top health policy reads from around the Web.

For insurers, the Medicaid expansion is big business. "For industry titans such as UnitedHealthcare and WellPoint, as well as smaller, Medicaid-focused plans such as Molina, the Medicaid expansion is expected to bring significant enrollment and revenue growth. “This is several hundreds of billions of dollars of new market opportunity for these plans over the next couple of years,” says Jason Gurda, managing director of healthcare with investment bank Leerink Swann in New York." Phil Galewitz in Kaiser Health News.

California's exchange wants to partner with Wal-Mart—and advocates aren't pleased. "Labor unions as well as some consumer advocates protest the idea of government officials partnering with Wal-Mart and paying for its help. They contend that the nation's largest retailer has no place advising others on health coverage when so many of its workers don't qualify for company benefits and end up in taxpayer-funded programs such as Medi-Cal." Chad Terhune in the Los Angeles Times.

Wonk battle! Casey Mulligan and Jon Gruber on how the Affordable Care Act will effect the labor market. Rachel Zimmerman in CommonHealth.

The Minnesota legislature rivals the Rand Paul filibuster, stretching on for 12 hours. "After 12 hours of debate and 150 amendments to consider, the Minnesota Senate passed a health insurance exchange bill Thursday night. The legislation passed nearly on a party line vote, with one DFLer, state Sen. Terri Bonoff of Minnetonka, joining the Republicans voting against it. Now, a conference committee must reconcile differences in the House and Senate versions." Joe Kimball in the Minnesota Post.