FILE: Republican Bill Haslam speaks to supporters in Knoxville, Tenn.,shortly after winning the governor's race. (AP Photo/Mark Humphrey)

Arkansas has been the central state in health policy ever since it proposed using Medicaid expansion dollars to buy private insurance coverage—and the Obama administration's Department of Health and Human Services, to the surprise of many, approved the idea.

At least, in concept. The details of the Arkansas agreement are not yet fully fleshed out. The agreement is one on broad concepts, discussed in a February meeting between Arkansas Gov. Mike Beebe and Health and Human Services Secretary Kathleen Sebelius. There are still lots of questions about how much it would cost and whether the price tag would be similar to Medicaid's.

But another state that was interested has found that striking a deal isn't easy.

Tennessee wanted to pursue a plan like that of Arkansas, one where it would use the Medicaid expansion dollars to buy private insurance coverage. And while Arkansas received a preliminary go-ahead from HHS, Gov. Bill Haslam had a quite different experience: He says that Health and Human Services would not support his plan to expand Medicaid and, as a result, he will not move forward.

"As a result of the lack of clarity from HHS," his office said in a late Wednesday statement, "the governor will not ask the General Assembly for approval to accept the Medicaid expansion federal funds as he continues to work for the flexibility needed to implement his plan."

Haslam told local reporters that the Obama administration didn't reject the entire proposal. "Of our request to Medicaid,” he said, “we got one or two yes’s, one or two no’s, and a whole lot of I don’t knows.”

Dave Smith, a spokesman for Haslam, confirms that Tennessee wanted to use the Medicaid expansion dollars to buy private insurance for that population. It was an approach the state had modeled after Arkansas.

That on its own shouldn't have been objectionable: HHS has said it's open, even eager, to see such "premium assistance" proposals from states.

"We have tried to make it as clear as possible that we are anxious to talk about this with any state that has an interest in using premium assistance as a way of accessing some private coverage for individuals who are otherwise Medicaid eligible," top HHS official Mike Hash told reporters earlier this month.

But some of the other points in the Tennessee proposal might have raised eyebrows in the Hubert Humphrey Building. The governor proposed "co-pays for those who can afford to pay something." As for what that would mean in practice, Andy Sher at the Chattanoga Times Free Press reports that the governor wanted Medicaid beneficiaries to pay the same cost-sharing as other exchange enrollees.

Medicaid experts I've spoken with have made it clear that such an approach wouldn't fly: Even if they receive private coverage, the Medicaid agency would need to ensure they aren't spending more out of pocket than they would in the public plan.

Officials in Arkansas agree with this interpretation, too. "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 told me last month. “We still believe those apply, and we intend to follow those.”

As for what happens next, it's not quite clear. Health and Human Services says it would be happy to keep talking about the Tennessee plan and see whether it could find a workable solution.

"We welcome continued conversations with Tennessee about developing a state-based solution that meets both the state’s unique needs and the requirements of the Medicaid program, while providing much needed coverage to thousands of Tennesseans," Medicaid spokesman Fabien Levy said.

Haslam doesn't seem swayed, arguing that his proposal is already a workable option.

"We don’t think our proposal is dead...We think we have a realistic proposal that will work for them and for us," he said.