Tax Reform and Relief Task Force Recommendations

    By: Brenda Vassaur Taylor, JD, LLM (Taxation)                                                    

It is the objective of Conduit for Commerce (CFC) to offer to the Tax Reform and Relief Legislative Task Force recommendations for legislative changes which, not only reduce the size of government and therefore increase economic freedom for all Arkansans, but also:

  • Modernize and simplify the Arkansas tax code;
  • Make the Arkansas tax laws competitive with other states in order to attract businesses to the State;
  • Create jobs within the State; and
  • Ensure fairness to all individuals and entities impacted by the tax laws of the State of Arkansas.[I]

(Note:  These recommendations come from experienced Arkansas tax attorneys, certified public accountants, economists, and small Arkansas manufacturers who live and work in Arkansas.)

How Can Arkansas Afford to Cut Taxes?

Before we can have tax reform in Arkansas, it is absolutely necessary that we recognize that in Arkansas, we simply budget and spend all we take in.  Therefore, in Arkansas, as a direct result of the Revenue Stabilization Act (RSA 1945), the level of government spending in Arkansas is directly determined by the tax system not the budget process

While we appreciate that the RSA requires that we balance the budget, under the current A, B, C priority budgeting system, the legislature, with help, designs an annual budget that always “cries for more money.”  Under this system, as state dollars come in, “needs” are met (priority A), next the “wants” (priority B) are funded, and in good years the “wish list” (priority C) is filled.  Surpluses are also dumped into “rainy day funds” or the now unconstitutional “general improvement fund”—guaranteeing all annual revenues are spent.

The fact that the tax system determines revenues as well as spending was illustrated in a recent answer by the Arkansas Bureau of Legislative Research in its RFP No. BLR-170002- Q1 to a prospective tax policy consulting firm with the response that the tax task force with the assistance of its chosen Consultant will determine the amount of revenue that the state needs to raise for public service.

In Arkansas, the partnership of the RSA with those seeking more government solutions means there is no “getting spending under control” in our state as echoed at the Federal level.

It is merely a question of

“how much do the people of Arkansas want to pay for government?”

The authors of a recent research paper sponsored by Mercatus Center, George Mason University expressed this fact in the following terms:

“Taxes are the “tail that wags the dog” in Arkansas budgeting.  If taxes are raised, government spending is guaranteed to go up.  If taxes are cut, spending is guaranteed to go down. The level of spending is set by the tax system itself. Understanding this fact is crucial to understanding why government spending has increased in Arkansas.  …[I]n large part, the absolute size of Arkansas’s spending is determined by the tax system”.[ii] 

Therefore, if you want spending reduced in Arkansas, if you want smaller government, you simply cut taxes!

1-What We Pay & Can Afford:  So if spending is too high, how much do we pay in taxes?

Again, citing the Mercatus report,

“Arkansas uses all the major tax instruments available to states, including income, sales, and property taxes, while some of Arkansas’s neighbors do not have certain taxes (notably, Tennessee and Texas have no personal income tax).

 The overall state-and-local tax burden—10.1 percent—is the highest among the competitor states, and it is the 17th highest in the nation.  

 Arkansas has the second-highest average state-and-local sales tax rate, at 9.3 percent. The top marginal state income tax rate is 6.9 percent, the second highest among our competitor states …, and two border states have no individual income tax (Texas and Tennessee).

 The corporate tax rate is also the second highest among Arkansas’s competitor states, at 6.5 percent…  All these data points show that taxes are high in Arkansas compared with border and competitor states, and even compared with the nation in some cases.[iii] 

It took BLR, 192 pages to summarize all 10 categories of taxes in Arkansas for the legislature in October 2016 in its bi-annual preparation for the general session.[iv]  These also include the regulator taxes and fees not mentioned by Mercatus.  It includes not so visible taxes like the 2.5 percent tax on insurance premiums which yielded over $169 million, a 43% increase in receipts from the previous year (FYE June 30, 2015.)  (It is also worth noting—insurance companies like all big corporations do not pay taxes—they simply pass on the cost of the tax to the consumer—i.e. the 19.3% increase in insurance premiums recently announced by Arkansas BCBS starting January 2018.)

The Mercatus report also cites comparisons showing Arkansas spending per capita at $7,674 as the highest spending per capita among the boarder and comparable states.

“Arkansas spends almost 24 percent more per capita than the state with the next-highest spending, Mississippi. On average, Arkansas spends over 59 percent more than its competitor states, which spend an average of $4,815 per capita. Compared to its border states, Arkansas still spends 51 percent more than their average of $5,072.[v] 

Removing federal government spending,

Arkansas still has by far the highest state government spending compared with the competitor states. The amounts for other very poor states, such as Mississippi, do drop significantly …., but Arkansas remains at the top. The full group of competitor states spends on average $3,192 per capita, and Arkansas spends almost 72 percent more, at $5,481.”

Spending may be acceptable if one can afford it (and it gets you where you want to be!)  But Arkansas’s gross domestic product (GDP) per capita trails the national average of $55,295 in 2015 and ranks among the lowest compared to its peers.

“In 2015, Arkansas’s per capita GDP of $41,299 trailed the per capita GDP of Texas, Louisiana, Missouri, Tennessee, Oklahoma, and Florida, but exceeded the per capita GDP of Mississippi (Figure 1a). Each state in the region except Texas is below the national average.” [vi]

The high overall state spending in Arkansas is most notable for such a poor state!  It is time to let the people take charge of their own money to seek a better outcome.

2-Specifics Reforms:  What changes are needed?  CAVEAT:  One must clearly understand that in no way should legislators consider broadening the tax base or elimination of exemptions unless and until tax rates are significantly cut.  Waiting to cut rates while broadening the tax base and eliminating exemptions is simply a tax increase.

Corporate Tax Reform:

Totally Eliminate the Corporate Income Tax.

  • This income stream is the most volatile and is in fact double taxation passed on to the consumer.
  • The state already recognizes reducing taxes on companies increases economic development when it regularly choses certain companies for give tax give a-ways.
  • Pair this with a complete repeal of corporate welfare spending programs which include state and local tax incentives.
    • Corporate Welfare picks winners and losers, distorts the economy, and shifts current businesses tax dollars to competing companies. BLATENTLY UNFAIR!!
    • End the Corporate Welfare Quick Action Closing Fund Tax Incentive Program.
    • Repeal Corporate Welfare Tax Subsidies including: Create Rebate, ArkPlus, Equity Investment Tax Incentives, Research and Development Credits, and Advantage Arkansas.
    • This will also allow local taxing authorities to keep more tax dollars.

Eliminate the Corporate Franchise Tax.

  • Stifles growth in business creation in Arkansas
  • If necessary increase the initial filing fee when creating the entity to offset some lost revenue

Eliminate Sales Tax on Inventories

  • Improves competitiveness with other state

Individual Income Tax Reform

  • Individual Income Tax Rates Reduction and Simplify the Schedules to a single, flat rate of no greater than 4.9%.
    • Continue the current low-income exemptions and deductions
    • For pass-through business filers, allow complete expensing in year of purchase rather than depreciation
    • AR residents will likely lose the state and local tax deductions at the federal level which is basically a tax increase on AR residents.  This should be an added deduction on the state level in order to compensate for the increase in tax at the federal level.
    • Extend the number of years for a carryforward of a Net Operating Loss (NOL)
    • Allow for a carryback for a NOL
  • Freeze spending at last year’s level, and implement automatic triggers for rate reductions to be implement for the individual income tax rate reductions over no more than a three-year period as revenue grows.

Reforms to Avoid:

  • Eliminating exemptions without first significantly reducing rates.
  • Broadening the tax base without first significantly reducing rates.
  • Reforms that do not lead to a reduced amount of money going to Government.
  • An Internet Sales Tax or Gas Tax Increase.

 Offer to augment tax reform:

Government Spending Reform

  • Recommend a Proposed Constitutional Amendment for a Tax-Expenditure Limit to Contain Government Growth.
  • Tie the limit to the growth in inflation plus population growth.
  • Include a tax rebate mechanism automatically triggered at certain thresholds to return revenue collected above the spending limit.
  • A proposal like Colorado’s TABOR (Taxpayer Bill of Rights) should be considered.

Government Efficiencies Reform

  • Implement Performance Based Budgeting
  • Implement Activity Based Cost Accounting

3-Who agrees with CFC:  Below is a list of the most respected and conservative groups and foundations in the state and nation who spend millions developing good economic tax policies.  Guess what!  They all agree with our recommendations.   The articles on point are referenced in our footnotes.  It is certainly hoped that the members of the tax task force will take the time to build their own knowledge base so that they will have a bench mark to test their own consultant.  It is likely that like most task forces, this one has a pre-determined outcome.  But it is hoped that its members will reconsider, meet the challenge and learn what is at stake. Again, the following are all directly on point with what is discussed under section #2 above:

National Groups

  • Trump Administration[vii]
  • Heritage Foundation[viii]
  • The Heartland Institute[ix]
  • American Legislative Exchange Council[x]
  • CATO Institute[xi]
  • American Enterprise Institute[xii]
  • Freedom Works[xiii]
  • The Club for Growth[xiv]
  • Reason Foundation[xv]
  • Recent Arkansas US Senators vote to eliminate deductions for state and local taxes[xvi]

State Groups

  • Tax Foundation/ Arkansas Center for Research in Economics[xvii]
  • AR Policy Foundation (Murphy Commission)[xviii]
  • Arkansas Republican Platform[xix]

Conclusion:  It is not a matter of how much we are to spend on government or whether there is a spending problem or a revenue problem.  The question is—how much do the people of Arkansas want to pay for government services?  That is all that determines what is spent in our state.  The current mood in our country has sent a clear message to DC and to Little Rock.  The people want to keep more of their freedoms and more of their own money and want government to have less.  It will be left to another day to discuss the quality of service Arkansans receive for the money now being spent.

PDF: Conduit for Commerce Tax Recommendations for Tax Task Force

 

[i] Act 78 of 2017 Tax Reform and Relief Act of 2017

[ii] http://uca.edu/acre/files/2016/06/Theres-Nothing-Natural-about-the-State-of-Government-Spending-in-Arkansas.pdf

[iii] http://uca.edu/acre/files/2016/06/Theres-Nothing-Natural-about-the-State-of-Government-Spending-in-Arkansas.pdf

[iv] http://www.arkleg.state.ar.us/bureau/fiscal/Publications/H.%20%20Tax%20Handbook/2016%20Tax%20Handbook.pdf

[v] http://uca.edu/acre/files/2016/06/Theres-Nothing-Natural-about-the-State-of-Government-Spending-in-Arkansas.pdf

[vi] https://files.taxfoundation.org/20161206233223/Arkansas-The-Road-Map-to-Tax-Reform.pdf

[vii] https://www.treasury.gov/press-center/press-releases/Documents/Tax-Framework_1pager.pdf

[viii] http://www.heritage.org/taxes/report/analysis-the-unified-framework-fixing-our-broken-tax-code

http://www.heritage.org/taxes/report/time-real-change-repeal-the-corporate-income-tax

http://www.heritage.org/node/18247/print-display

http://www.heritage.org/taxes/report/the-economic-impact-25-percent-corporate-income-tax-rate

[ix] https://www.heartland.org/publications-resources/publications/research–commentary-maryland-corporate-income-tax-reform

https://www.heartland.org/publications-resources/publications/research–commentary-illinois-corporate-income-tax-reform

https://www.heartland.org/publications-resources/publications/tip-sheet-state-income-tax-reform

[x] https://www.alec.org/model-policy/statement-alec-principles-of-taxation/

[xi] https://www.cato.org/publications/research-briefs-economic-policy/do-corporate-taxes-hinder-innovation#ful

https://object.cato.org/sites/cato.org/files/serials/files/cato-journal/2016/9/cj-v36n3-8.pdf

https://www.cato.org/publications/tax-budget-bulletin/state-corporate-income-taxes-should-be-repealed

[xii] http://www.aei.org/?s=STATE+CORPORATE+INCOME+TAX

[xiii] http://www.freedomworks.org/content/state-state-income-taxes

http://www.freedomworks.org/content/freedomworks-releases-principles-fundamental-tax-reform

[xiv] http://www.clubforgrowth.org/issues/taxes/

[xv] http://reason.org/news/show/the-facts-about-the-corporate-incom

http://reason.org/news/show/county-leaders-and-the-elusive-ques

[xvi] Cotton and Boozman voted this week in favor of eliminating the deduction for state and local taxes-ADG-Oct 20, 2017.  See the argument in favor:   http://dailysignal.com/2017/10/17/state-and-local-tax-deductions-stump-growth-says-legislators/

[xvii] https://files.taxfoundation.org/20161206233223/Arkansas-The-Road-Map-to-Tax-Reform.pdf

http://uca.edu/acre/files/2016/06/Theres-Nothing-Natural-about-the-State-of-Government-Spending-in-Arkansas.pdf

[xviii] http://www.arkansaspolicyfoundation.org/policy/murphy_summary.html (this one is a little dated but still good policy.)

[xix] http://www.arkansasgop.org/platform.html

Calvin Coolidge Heroes of Freedom Award Winners

Conduit for Commerce is pleased to announce their biennial Calvin Coolidge Heroes of Freedom Award winners. These awards are presented to Arkansas legislators who fought for liberty in the recent legislative session and is based solely on their voting records. Broken campaign promises and bloviating tweets net you zero Coolidge Awards. The winners represent the cream of the crop of conservative, limited government Arkansas state legislators.

The awards reflect legislators who voted to:

(1) Decrease the size of government;

(2) Decrease Dependency on Government; and

(3) Not spend money we do not have.

The complete list of Calvin Coolidge Award Winners: Calvin Coolidge Award Winners

 

The Calvin Coolidge Heroes of Freedom Awards were given to the top scorers on the Conduit for Commerce Scorecard rankings. The Freedom Bill awards were given to legislators who sponsored the best bills of the session.

The best bills of the session included:

  1. SB175 – Medicaid Disclosure by Senator Bryan King
  2. SB726 – Ethics Reform prohibiting legislators who are attorneys/consultants from running bills for clients – by Senator Linda Collins-Smith
  3. SJR10 – Fair Ballot Titles Reform – by Senator Linda Collins-Smith
  4. SB727 – Civil Asset Forfeiture Reform – by Senator Linda Collins-Smith
  5. SB723 – Special Elections Reform – by Representative Justin Gonzalez
  6. HB1465 – Obamacare Medicaid Expansion Freeze – by Representative Josh Miller
  7. HB1222 – School Choice and Education Savings Accounts – by Representative Jim Dotson
  8. HB1405 – Unemployment Insurance Tax Cut – by Representative Robin Lundstrum
  9. HJR1016 – Voter I.D. Proposed Constitutional Amendment – by Representative Robin Lundstrum

 

2017 Ranking of the 91st General Assembly

2017 Ranking of the 91st General Assembly

Regular and Special Sessions– January-May 2017

By  Conduit for Commerce

June 13, 2017

 

Much like any specific vote, scoring of votes by Conduit for Commerce (CFC) is not an exact science as some bills have a greater impact on Arkansas if passed.  However, the weekly pre-vote publications (score cards) released during the Regular Session by Conduit for Action (CFA) referencing specific bills is reflective of the measure used in CFC’s final vote tallies.

Likewise, only bills which reflect the focus and mission of CFC are taken into account when deriving these rankings.  Therefore, our scoring is weighted for principles based upon the following preferred outcomes:

  • Reduces the size of government,
  • Reduces dependency on government, and/or
  • Reduces spending by government.

Votes cast by legislators on bills on the floor and during committees (when known) are all considered.  In total 30 Senate floor votes, along with three supportive committee votes, were scored.  For the members of the House of Representatives, 35 floor votes and 13 committee votes were included in the scoring.

It is believed that the methods used by CFC will ultimately yield a better assessment of the pattern of voting by a specific senator or house member.  It is our goal to assist voters as they measure differences in their expectations and results.  Ultimately our intent is that the voting pattern of these elected officials, as they relate to the above principles, is made clear.

Likewise, as the methods and results of the CFC rankings are compared to other groups, differences may be noted.  These differences should be filtered with the understanding that CFC is an Arkansas founded and small business focused organization, which not only understands the fiscal impact of these bills, but is able to use knowledge and background regarding directly related issues which may not be apparent to national groups.

(Note: Floor votes on bills reflected at the following government site: http://www.arkleg.state.ar.us/SearchCenter/Pages/historicalbil.aspx  This is the third Regular Session Report Card, starting in 2013, published by Conduit for Commerce.  For more information contact brenda@conduitforcommerce.org)

 

 

 

 

 

 

 

[table id=4 /]

[table id=3 /]

 

Any typographical errors will be promptly corrected.

 

 

What is Traded Sector & Its Importance

 

The Fall & Rise of Legislative Pork in Arkansas

Reprinted from Conduit for Action; By: David Ferguson

This is the second in a series of articles on General Improvement Funds

GIF PigThe General Improvement Fund (GIF) used to be used for improvements to state facilities, state parks and other state projects.  As an example of the type of state projects that were included, here is a link to Act 1030 of 1987, which distributed GIF. As you can see as far afield as the legislation went was to provide money to the Livestock and Poultry Commission for District Livestock Shows, but there is extensive legislation concerning state promotion of livestock through the shows.

The types of projects included in GIF became broader over the years.  The types of projects allowed exploded during the years Republican Mike Huckabee was governor, but it was not Huckabee’s doing. Much of the expansion came about because the overwhelmingly Democratic controlled legislature flexed its muscles in defiance to a Republican governor.  Adding more kinds of GIF projects was just one byproduct of the struggle to determine whether the Republican governor or the Democratic legislature would be king of the hill.

By 2005, the raid on state funds for GIF pork had gone crazy! The GIF distribution bill grew to 113 pages! Page after page made awards to not just state facilities and parks, but also to cities, counties, fire departments, and lots of private entities.  There were parks, museums, sports complexes, senior citizens centers, scholarships and out right support of private entities. Much of the money given to private and nonprofit organizations could be used however the entity saw fit. Some organizations got more than one GIF award because the awards came from different legislators who filed separate legislation.

I spent hours reading through the list of entities were authorized to receive money under the 2005 law and found no good way to summarize the projects.  A summary of the projects would have been much too long for this article.  I decided to list just a few random examples of awards of non-governmental awards, other than senior citizens centers and the many subscription fire departments.

Below is an example of twenty five projects listed in Act 2315 of 2005.  This is not a top 25 list.  I just picked 25 and quit reading the 113 page act.

  1. Arkansas American Red Cross $90,701
  2. Arkansas Baptist College $70,000
  3. Ballman Parent Teacher Association $2,500
  4. Boys and Girls Club of Pine Bluff Inc. $100,000
  5. Butterfly Community Ministries for North Little Rock Our Club $60,000
  6. Elmwood Cemetery Association, Inc. $25,000
  7. England Acres Neighborhood Association $100,000
  8. First Tee Golf Program for scholarships $50,000
  9. Free Will Baptist Family Ministries $25,000
  10. Habitat for Humanity of Jefferson County $5,000
  11. Hot Springs Village Property Owners Association $80,000
  12. Human-Elevation-Love Project $3,000
  13. Inner City Futurenet Incorporated $30,000
  14. Legion Hut in Lepanto $10,000
  15. North Little Rock Heflin YMCA $35,000
  16. Ozark Guidance for a Psychiatric Care Unit in Washington County $454,000
  17. Philander Smith College $30,000
  18. Runyan Acres Property Owners Association $20,000
  19. Sherwood Rotary Club (Veteran’s Memorial) $20,000
  20. Small Business Association $10,000
  21. Sylvan Hills Optimist Club $5,000
  22. United Family Services, Inc. $50,701
  23. Veterans of Foreign Wars (VFW) in Jefferson County $10,000
  24. Westside Business Men and Women’s Association $5,000
  25. White County United Way $40,000

There was much more legislation involved other than just the 113 page GIF distribution bill. There was also a separate appropriation bill for most of the projects in the list.  Separate bills were filed because Article 5, Section 30 of the Arkansas Constitution requires appropriation bills to be limited to a single subject.  Because some legislator would fail to get legislation filed in time, there was also a bill that would list multiple projects. Among legislators it was known as the “Christmas Tree Bill.”

Wilson v Weiss DFA

There was so much pork being spread around by 2005 that attorney and former state Representative Mike Wilson of Jacksonville had enough. Wilson filed a lawsuit challenging the constitutionality of a number of acts awarding General Improvement Funds. He challenged several claiming the acts violated:

  1. Amendment 14 of the Arkansas Constitution, which prohibits “local or special legislation”; and
  2. Article 5, Section 29, of the Arkansas Constitution, which requires appropriation bills to state a “distinct purpose”. Many of the appropriation acts merely stated that the funds were being appropriated “for state assistance to” the entity.

In Wilson v. Weiss DFA the Arkansas Supreme Court struck down several GIF awards as unconstitutional. Some observers thought the court decision meant the end of legislative pork. But the legislature was not inclined to give up.  As soon as the Supreme Court rendered its decision, legislators went to work devising a plan to get around the decision.

Scheme to continue GIF funding to local projects and groups

There was much discussion among legislators about the possibility of setting up a commission to make the same awards as grants, and the commission would be controlled by legislative appointments. This idea was eventually dropped, in part because it would focus too much attention on the legislature.

Eventually, they arrived at a plan that would keep the pork but make it harder for the public to track it. The GIF would be funneled through state agencies and GIF grants would then be awarded. The legislators would keep control of the grants by using informal communications with agencies. An unofficial behind the scenes list was kept on each project a legislator wanted to fund out of “his or her” share of GIF. The amount that would be appropriated to an agency was based on the unofficial list. Using this scheme, the appropriation bills avoided naming the particular recipients, which was thought to help avoid a constitutional challenge.

Under this scheme the GIF distribution bill no longer had to be 113 pages, but it is still lengthy because grants to colleges and state facilities are still listed separately. The latest distribution act is Act 1147of 2015.

A few bumps in the road

The scheme to keep funding local projects had an Achilles’ heel. The scheme depended on good backchannel communication between the legislature and state agencies.  There were glitches in communication at first.

Where is my publicity? The first complaint that arose among legislators was that some agencies didn’t give the legislator credit for the grant.  At least one agency sent out grant checks by the mail, which denied legislators the opportunity to make a big show of the award.  Agencies quickly found out that a good awards presentation with the legislator present for a photo opportunity was what was usually expected when it came to local grants.

Grants to colleges were not so much of a publicity problem because the legislator could still have his or her name on the act making the grant to the college.

But it is my money! In 2007, Senator Gene Jeffress send $100,000 to the state Athletic Commission for grants to Boys and Girls Clubs.  Not having any direction on how to divide the money, the commission announced that the fair thing to do was to give each Boys and Girls Club a GIF grant.  The commission’s decision revealed the lack of communication to the public and exposed the new system for what it was. Senator Gene Jeffress went to the next meeting and objected saying it was his money and that he intended for the entire $100,000 to be divided between just two clubs in his district.

“I did not seek $3,000 for each one,” he said. “I sought $75,000 and $25,000.” Do you think I would have sent $100,000 this way if I didn’t expect to get it back?” he asked. “I’m sorry, but I don’t represent Corning or West Helena. I got the money for the districts I represent.[i]

After the meeting, Jeffress said the Supreme Court decision was the reason the legislation didn’t mention specific clubs. “It was just the way it had to be written,” he said.[ii].

His public statement was an embarrassment to many legislators because they were trying to keep the funding local projects under the radar.  It was also too late.  The Athletic Commission was in a bind.  It could make the Senator mad or make the public and other clubs mad by reversing course and doing what the senator asked. With the public scrutiny the commission chose to keep its promise to divide the money among all clubs.

Local criticism of grants. After the 2008 article on the Boys and Girls club grants, GIF got little negative press because the big media normally didn’t notice the small grants being done though agencies.  A couple of exceptions began as local criticism of a GIF project and became statewide news. Two example are:

  1. A grant for a fireworks show that was criticized by a county judge who needed money for other projects; [iii] and
  2. A grant for a fully handicapped accessible playground which quorum court members criticized because they did not have money to maintain a park and didn’t even have a parks department. .[iv]

Letter of legislator support needed.

Many local GIF grants are funneled through the Department of Finance and Administration and then to one of the eight Planning and Development Districts covering the state.  The Planning and Development Districts then award grants to local projects.  How much money goes to a Planning and Development District is determined by how much each of a legislator’s “share” of GIF the legislator wants to funnel through the district.

The board of a Planning and Development District is made up of mayors and county judges. Although Arkansas Code 14-166-205 says the decision on allocating the funds “shall be solely within the discretion and control” of the board, the system doesn’t work that way. In 2013 the Arkansas Democrat Gazette exposed the fact that:

For five of the eight planning districts, a letter of support from a legislator is either required or strongly recommended and is considered in the grant evaluation process.[v]

Does that mean that the other three Planning and Development Districts make grants the way they wish instead of the way the legislator wants it to be spent? Do you think a legislator who knows how he wants the money to be spent would keep sending his “share” to a board that won’t listen?  It is more likely that the lack of a requirement for a letter of recommendation merely means there is no need for a paper trail in that district.

Good press at home

While the legislature tries to fly under the radar of statewide media, local press is still sought and is a big deal. Local newspapers are happy to provide their legislator publicity for bringing home the bacon to help the community. Many legislators are quick to let the public know that the grant was a result of the legislator’s willingness to share “his” GIF money (See examples in the CFA article: General Improvement Fund – A Reelection Tool )

The future of legislative GIF for local projects

Will the legislature act?  Not likely! Not every legislator likes the way the legislature uses GIF to fund a buffet of local projects across the state. But, don’t expect them to be brave enough to stand in opposition to the scheme. First, most of their colleagues love GIF as a way to help get reelected, and a legislator is not likely to alienate colleagues over GIF.  Second, if a legislator took the bold stand of saying I will not accept local GIF moneys, local groups would see funds going into other districts and rise up in opposition to the legislator’s reelection. Third, some entities have received GIF money for so long that they see it as their money and right.

If no one in the legislature has the guts to stop the raid on taxpayers’ dollars, how can it be stopped?  It may take another embarrassing lawsuit.

Mike Wilson speaks out on the new scheme.  Mike Wilson who filed the lawsuit over 2005 projects, has not been happy or impressed with the legislature’s scheme and has called it an attempt to bypass the court decision.

Concerning funding of a park in Saline County, he is quoted as saying:

“A single member of the Legislature does not have the privilege of directing where public money goes,” Wilson said by phone. “That’s a perfect demonstration of what the writers of the constitution said was unlawful. It’s an attempt to get around the constitutional provision of local or special acts. And it’s clear that’s what that is.[vi]

Concerning a grant of $5,000 for a fireworks show in Benton:

“I don’t believe that there is a state fireworks program that I haven’t heard of,” Wilson said. “Why is it that other firework-needy places don’t have access?”[vii]

Wilson has also called the scheme:

a corrosive example of pigging out at the public trough”.[viii]

Another lawsuit?  Sadly it may take another lawsuit to curb the legislative GIF practice.  With the legislative scheme being so obvious it may be time to put the scheme under review again to determine once again whether the local pork system violates:

  • Amendment 14, which prohibits “local or special legislation” or
  • Article 5, Section 29 which requires appropriation law to state a “distinct purpose.”

In addition, I think it would be worthwhile to also consider challenges based on:

  • Article 4, Section 2, which requires a separation of powers. This provision should be examined because the scheme allows individual legislators to act as the de facto authority over the distribution of GIF grants in their districts. Although this is being done indirectly, it should be remembered that the court has stopped intrusion on the executive base based upon a pattern of results.  (See Chaffin v Game and Fish)
  • Article 5, Section 30, which requires appropriation bills to be limited to a single subject. With the operation of the scheme being obvious, would the court decide that awarding grants is the single subject, or would the court look at the operation of the scheme as a “legislative Christmas tree” of unrelated projects.

Bottom line

When a legislator talks about being fiscally conservative and maintaining a balanced budget – remember the legislative GIF feed trough is still open and being filled each session (with your money!)

 

[i] Funds secured for his district, senator asserts, Arkansas Democrat Gazette, Jan 30, 2008

[ii] Ibid.

[iii] Display funding called to question, Arkansas Democrat Gazette, July 4,2014

[iv] Legislator’s letter eased funds for wife’s park project, Arkansas Democrat Gazette, Sept 3, 2013

[v] State tap still open on local projects, Arkansas Democrat Gazette, October 13, 2013

[vi] Legislator’s letter eased funds for wife’s park project, Arkansas Democrat Gazette, September 20, 2013

[vii] Display funding called to question, Arkansas Democrat Gazette, July 4,2014

[viii] State tap still open on local projects, Arkansas Democrat Gazette, October 13, 2013

– See more at: http://www.conduitforaction.org/the-fall-rise-of-legislative-pork-in-arkansas/#sthash.jzYyOAFw.dpuf

Arkansas DHS Director Misled Lawmakers On Obamacare Waiver

CFC Claims no Credit. This article is shared from forbes.com and all credit is given to the authors, forbes.com, and the Foundation for Government Accountability.

Original Link

By Jonathan IngramNic Horton and Josh Archambault

Arkansas bureaucrats are wasting millions of dollars providing Medicaid benefits to people no longer eligible for the state’s expansion of the program under Obamacare. But is that just the tip of the iceberg?

Last month, internal e-mails from the Arkansas Department of Human Services surfaced, revealing that the state had never bothered to verify that individuals enrolled in Obamacare’s Medicaid expansion were still eligible for benefits. According to data provided by state officials, this is costing taxpayers up to $20 million each and every month.

We previously questioned why the state hadn’t started the redetermination process yet – which should have begun months ago. After all, federal law requires states to verify Medicaid enrollees’ eligibility at least once per year.

As we reported at the time, state officials contended that they had received a temporary waiver from the Obama administration, allowing them extra time to perform the eligibility checks. But it turns out that no formal waiver ever existed. Worse yet, a recent follow-up letter from the Obama administration may generate more questions than answers.

No Waiver Existed

After news broke that the state wasn’t performing the required eligibility checks, a number of reporters and lawmakers reached out for a copy of that waiver. Such a waiver would be pretty important – without it, Arkansas would be violating federal law.

Obama’s Letter Provides More Questions Than Answers

Unfortunately, this letter provides more questions than answers. First, it says that the Obama administration is now providing Arkansas the authority to delay its eligibility redeterminations. Does that mean that Arkansas was operating without that authority prior to April 27th? It certainly seems that way.

The Department of Human Services also contends that this letter allows them to delay all redeterminations until September 2015. But that is not, in fact, what the letter says. The letter allows them to delay redeterminations due in 2014 “for 9 months.” While a redetermination due on December 31, 2014 would not be due until September 2015 under this letter, one originally due on January 1, 2014 was actually due back in October 2014. This means that all redeterminations originally scheduled between January and August of last year should already have been conducted.

But even more worrisome is that the letter limits the delay exclusively to “eligibility renewals scheduled for January 1, 2014 through December 31, 2014.” It provides zero authority to delay redeterminations that should have been scheduled in 2015. So why hasn’t the state conducted the mandatory redeterminations that were due in January, February, March and April?

The Redetermination Process Should Have Begun Months Ago

Regardless of whether or not Arkansas’ actions are approved by Obama, they should be worrisome to taxpayers everywhere. The state has yet to redetermine eligibility for a single Medicaid expansion enrollee. By now, the state should have re-checked eligibility for more than 170,000 enrollees. Another 70,000 should be due for verification later this year or early next year.

To make matters worse, the Department of Human Services expects that up to 40,000 enrollees are still receiving benefits even though they’re no longer eligible. If those estimates are correct, taxpayers could be on the hook for up to $20 million per month to provide Medicaid expansion benefits to people no longer eligible.

Worst of all, state officials have facilitated this fraud by asking for waivers and continuing to kick the can further down the road. Meanwhile, nearly 3,000 children and adults with developmental disabilities are sitting on Medicaid waiting lists. Some of them have been waiting eight years or more for their needed home- and community-based services. They continue to wait, while Arkansas bureaucrats provide Obamacare welfare to 40,000 able-bodied adults who aren’t even eligible.

Welcome to Obamacare.

General Improvement Fund – A Reelection Tool

Reprinted from Conduit for Action; By: David Ferguson

GIF-The members of Arkansas General Assembly are given discretion over millions of dollars in General Improvement Funds (GIF). For the 2015-2016 fiscal year $20 million has been set aside for the whims of legislators.  Each legislator determines how “their share” is spent. Some designate their share to go to a college others have the funds sent to the Department of Finance and Administration to then be sent to one of the eight planning and development districts and then awarded as grants.

The public is not privy to exactly how the money is divided among legislators, but if the House and Senate each received $10 million, and then with each Senator getting an equal share and each Representative getting an equal share, then each Senator would have discretion over $285,714.28 and each Representative would have discretion over $100,000.

Why are state funds distributed upon the discretion of an individual legislator instead of through a formula or perhaps retained for other needs? $20 million helps incumbent legislators gain favor in their districts.

2014 Election

Republican Doug Driesel, who ran against incumbent Democrat Representative Scott Baltz in District 61, stopped by a rural fire department to campaign.  According to Driesel, several firefighters told him they liked what he stood for, but that they couldn’t vote for him because Baltz had gotten General Improvement Funds for their fire department.

Blaine Davis ran as the Republican candidate in the adjoining District 60, against incumbent Representative James Ratliff. Recently, I asked Davis if he had a similar experience with fire fighters in his race. Davis responded:

 “Absolutely.  Several that I’d known for literally forever told me they would have to support him or just groaned when I told them who I was running against.  He’s given thousands to every one of them [fire departments].  Heck, at the Strawberry Fire Department fundraiser all he [Ratliff] did was stand up and talk about how much he gave them.”

A GIF grant is not likely to be forgotten by the members of an organization receiving the grant. In addition, local governments and volunteer organizations are also likely to be a good source of campaign workers because these are people who are already active in their community.

Could GIF make the difference in a legislative race?  You bet! Consider how close Blaine Davis’ came to winning.  Davis only lost to the incumbent by 50 votes. There are a lot of fire firefighters in House District 60. If just 26 firefighters voted for the incumbent because of GIF funds, then GIF funds made the difference in the outcome in that race.

Gaining publicity and building voter gratitude.

Legislators doling out GIF grants is a big deal in many areas of the state. Local newspapers, especially in rural areas, love to report that their Representative or Senator got GIF for local communities and organizations.  Legislators are quick to get in the photograph when as poster size check is handed out.  Click on name for an examples of the publicity legislators get from “their GIF:

 Rep. Scott Baltz                      Rep James Ratliff           Sen. Stephanie Flowers

Rep. Sheilla Lampkin            Rep Jeff Wardlaw          Rep Douglas House

 

Some legislators send all or a portion of “their” GIF to colleges. It is good publicity too.  For example, the University of Arkansas made sure its supporters and alumni knew that thirteen legislators deserve recognition for sending GIF to the university for three projects in the combined amount of $3 million. See article: University receives increase in state funding monies from General Improvement Fund

Many people see these articles and think “Our legislator is working hard and knows how to bring home the bacon.”  No effort was actually needed. Legislative GIF is just a slush fund created to give every legislator a share, whether the legislator uses it for a good purpose or not.

If the local newspaper fails to report the story or an organization’s newsletter fails to publicize it, what does a legislator do?  The answer is easy – toot your own horn on social media.  That is what Rep. Ratliff did when he did not get the publicity he hoped for.  Here are a couple of examples from James Ratliff’s Facebook account:

June 4, 2014: “Had a busy day. Started by going to the women’s battered shelter in Highland this morning awarding them a grant of $1000 for fixing their plumbing.”

April 12, 2015: “The fire chief Stan Mayland thanked myself (Rep James Ratliff) for the grants that bought all new turnouts and equipment for all the firemen in Strawberry.”

It seem a bit odd for a Representative to need to put his own name in parentheses on his own Facebook account.

 

Are there reasons for giving legislators discretionary funds (other than election purposes)? Are there legitimate reasons to give legislators discretionary funds?  No, there is not. Excuses cited in the past include:

1. Legislative discretion over the money is needed in order to get money for projects in rural areas. Wrong. Sorry but if getting funds to rural areas is the goal there would be a lot easier and cheaper ways of doing it. First, it is not just rural legislators who have say over GIF funds. Second, no legislator is required to use the funds for a rural project or even within his or her own district.

2. Legislative discretion is needed because a legislator knows better than anyone which local project should get a GIF. Wrong again. Legislators sometime do not know the greatest needs in their district and even if they do they have no obligation to use GIF for the most needed projects. In exercising discretion over the money, the legislator’s goals sometimes conflict with the priorities and needs of municipal and county officials.In 2013, Senator Jeremy Hutchinson directed GIF money to a firework show.  I happen to like firework shows, but local governments didn’t fund the firework show because of a lack of funds for more important projects.“Saline County Judge Lanny Fite said he has a list of projects that need funding like repaving parking lots or buying new lighting. ”“I did not like the way it was being used, plain and simple,” Fite said. “Money is very tight; we don’t have a sales tax. This money is always good to help us do projects that the county cannot afford.” [i]Also in 2013, then Representative Andy Mayberry and some legislative friends sent $120,000 in GIF to fund a playground that is fully accessible to disabled children.  That is certainly a worthy cause! But it also seems to be an instance in which a state Representative single handily pushed a project onto the county despite the quorum court not having money to maintain a park or replace equipment in the future.  It was noted by a quorum court member that the county didn’t even have a parks department. Julie Mayberry, Rep. Andy Mayberry’s wife and now a state Representative, responded to criticism by the quorum court in 2013 by suggesting that the quorum court create a parks department.[ii]Could we handle needs without giving legislators an expensive reelection tool?

On the other hand, maybe we would miss those newspaper photos of legislators handing out poster sized checks and their Facebook self promotions. The state also has turn back formulas for sending state support to municipalities and counties.

Also consider that a significant portion of legislative GIF goes to fire departments.  Again, there is a funding formula for support of fire departments.  In addition, a fire department with a significant need could be overlooked merely because it is in a legislative district where the legislator prefers to give his GIF allotment to a college or perhaps want to use it for a fireworks show.

Consider that a significant portion of legislative GIF goes to colleges. We already have a funding formula for the colleges. The Department of Higher Education should have a good understanding of needs of Arkansas colleges.  And, under the current system there is no guarantee that the most important need will be addressed because a legislator with a college in his or her district could choose to spend his or her share on other types of projects.

Do we really have to give a legislator a “please-reelect me fund” in order to fund worthy projects.

 

[i] Display funding called to question, Arkansas Democrat Gazette, July 4,2014

[ii] Legislator’s letter eased funds for wife’s park project, Arkansas Democrat Gazette, Sept 3, 2013

 

Why Are So Many Employers Unable to Fill Jobs?

This article is from Stephen Moore of The Heritage Foundation. CFC takes no credit or authorship of the article. It can be found here.

 

The great conundrum of the U.S. economy today is that we have record numbers of working age people out of the labor force at the same time we have businesses desperately trying to find workers.

As an example, the American Transportation Research Institute estimates there are 30,000-35,000 trucker jobs that could be filled tomorrow if workers would take these jobs- a shortage that could rise to 240,000 by 2022.

While the jobs market overall remains weak, demand is high in certain sectors.

For skilled and reliable mechanics, welders, engineers, electricians, plumbers, computer technicians, and nurses, jobs are plentiful; one can often find a job in 48 hours.

As Bob Funk, the president of Express Services, which matches almost half a million temporary workers with employers each year, said, “If you have a useful skill, we can find you a job. But too many are graduating from high school and college without any skills at all.”

The lesson, to play off of the famous Waylon Jennings song: Momma don’t let your babies grow up to be philosophy majors.

Three years ago the chronic disease of the economy was a shortage of jobs. This shortage persists in many sectors. But two other shortages are now being felt—the shortage of trained employees and of low-skilled employees willing to work.

Patrick Doyle, the president of Domino’s Pizza, says that the franchises around the country are having a hard time filling delivery and clerical positions. “It’s a very tight labor market out there now.”

This shortage has an upside for workers because it allows them to bid up wages. When Wal-Mart announced last month that wages for many starter workers would rise to $9 an hour, well above the federal legal minimum, they weren’t being humanitarians. They were responding to a tightening labor market.

The idea that blue-collar jobs aren’t a pathway to the middle class and higher is antiquated and wrong. Factory work today is often highly sophisticated and knowledge-based with workers using intricate scientific equipment.

After several years honing their skills, welders, mechanics, carpenters, and technicians can, earn upwards of $50,000 a year—which in most years still places a household with two such income earners in the top 25 percent for income. It’s true these aren’t glitzy or cushy jobs, but they do pay a good salary.

So why aren’t workers filling these available jobs—or getting the skills necessary to fill them. I would posit these impediments to putting more Americans back to work:

1) Government discourages work.

Welfare consists of dozens of different and overlapping federal and state income support programs. A recent Census Bureau study found more than 100 million Americans collecting a government check or benefit each month.

The spike in families on food stamps, SSI, disability, public housing, and early Social Security remains very high even five years into this recovery. This should come as no surprise given the vast majority of the federal government’s roughly 80 means-tested welfare programs don’t include any type of work requirement.

Economist Peter Ferrara argues in his new book, “Power to the People,” that if “we simply required work for all able-bodied welfare recipients, the number on public assistance would fall dramatically. This is what happened after the work for welfare requirements in 1996.”

2) Our public school systems often fail to teach kids basic skills.

Whatever happened to shop classes? We have schools that now concentrate more on ethnic studies and tolerance training than teaching kids how to use a lathe or a graphic design tool.

Charter schools can help remedy this. Universities are even more negligent. Kids graduate from four-year colleges with little vocation training and with debt averaging more than $25,000—although this number now commonly exceeds $100,000 at some universities.

A liberal arts education is valuable, but it should come paired with some practical skills.

3) Negative attitudes toward blue-collar work.

I’ve talked to parents who say they are disappointed if their kids want to become a craftsman—instead of going to college. This attitude discourages kids from learning how to make things, which contributes to sector-specific worker shortages. Meanwhile, too many people who want to go into the talking professions: lawyers, media, clergy, professors, and so on.

4) A cultural bias against young adults working.

The labor force participation rate is falling fastest among workers under 30.

Any time a state tries to change laws to make it easier for teenagers to earn money, the left throws a tantrum about repealing child labor laws. The move to raise minimum wages in states and at the federal level could hardly be more destructive to young people.

My own research finds that the higher the minimum wage in a state, the lower the labor force participation rate among teenagers.

Anecdotally, I’ve always been struck by how many successful people I have met who grew up on farms and started working—milking cows, building fences, cleaning out the barn—at the age of 10 or 11. They learn a work ethic at a young age and this pays big dividends in the future. Many studies document this to be true.

5) Higher education has become an excuse to delay entry into the workforce.

I always cringe when I talk to 22-year-olds who will graduate from college and who tell me their next step is to go to graduate school. Maybe by the time they are 26 or 27 they will start working. Here’s an idea: colleges could encourage kids to have one or two years of work experience before they enroll.

Here’s an even better idea: abolish federal student loans and replace the free government dollars with privately sponsored college work programs.

For instance, schools like College of the Ozarks require kids to work 15 hours a week to pay their tuition. It’s hardly a violation of human rights if a 21-year-old works to fund for their own education—and they will probably get more out of their classes if they do work.

Anything easily attained is lightly valued. This would drive down tuition costs too, because students would start demanding more financial accountability and less waste. After all, federal subsidies have increased college costs.

These may seem like old-fashioned and even outmoded ideas. But the decline in work among the young bodes ill for the future. Many European nations have removed the young from the workforce and the repercussion appears to be lower lifetime earnings.

A renewed focus on working would also help erode the entitlement mentality ingrained in so many millennials. Instead of more benefits and handouts, this generation needs to get a job.

A version of this was originally published in Forbes.

TRANSCRIPT OF PUBLIC HEALTH HEARING

Transcribed by Conduit for Action—January 21, 2014

(See http://www.conduitforaction.org/  ‘AR “Private Option” Removing the Cover from Medicaid…’—for a three part audio recording of this hearing.)

Joint Committees on Public Health, Welfare, and Labor

Discussion on the Development of the Amendment to the 1115 Waiver

 

 

Hearing date:  Thursday, January 16, 2014—Room A, MAC, Little Rock, AR; 3:00PM (this portion starting at approximately 5:55PM and ending at approximately 7:15PM)

Chairs:  Senator Cecile Bledsoe and Representative John Burris

 

In Attendance (may have been a few others):

Legislators remaining in attendance for this portion of meeting:

Sen Bledsoe (Ch), Rep Burris (Ch), Sen Irvin (M), Rep Harris (M), Rep Hammer (M), Rep Douglas (M), Rep D Meeks (M), Rep Farrer (Non-M), Rep Rice (Non-M), and Rep Ballinger (Non-M).

Legislators returning before end of this portion of meeting:

Sen Sanders (M), Sen Keys (Non-M)

 

(See Memos by CFA-David Ferguson and Matthew Miller-BLR staff attorney.)

 

<< Beginning of Transcript for Portion of Hearing Starting at 5:55PM>>

 

Chairman Burris: Ok, members, I know it’s late. Um, I think it was good; and productive questions.  Thank you all for staying. Thank you, Director Selig and Dr. Allison.  Yeah, we’re going to the next agenda item—it talks about what Rep. Harris… yeah, my point was saying, I know it’s late, but let’s hang in here a little bit; I think it’s good.

 

Madam Chair: Mr. Selig and Dr. Allison, if you don’t mind waiting… We’re not gonna call you up here right now anyway.  So if you wouldn’t mind waiting; that would help us a lot.  There may be some questions. And ladies and gentlemen, I believe, some information is going to be passed to the members of the committee right now, and we are gonna go to the next agenda item.

 

It was “C”, so let’s go up to the top of the agenda. And I would like to ask David Ferguson (DF) to come forward and Matthew Miller, please.  And what this is about is, uh, ladies and gentlemen is there… I’m sorry… oh, ok. (Yes, please, Mr. Price will help you hand that out). Uh. Members have asked questions about what happens if we do not fund the PO. And so I asked Matthew Miller (MM) to do a very quick overview of that, and then the gentleman here today was to do a very intense study on that, and I’m going to ask Mr. Ferguson to identify himself and who he works for and that kind of thing.  But he has to go to Ash Flat tonight, so as you see it’s almost six o’clock.  So it may be appropriate to let you go ahead and give your information, Mr. Ferguson, and maybe let the Committee ask questions of you. Would you have time for that? (DF says yes). Alright, that then the very quick overview from MM will just come after that. And I’m sure that most of the questions have already been asked by that time.  And because it is almost six o’clock, we would like for you [DF] to go first.  And if you don’t mind, identify yourself and who you work for. And then Matthew, if you would identify yourself as well.

 

David Ferguson—Governmental Relations Director for Conduit for Action:

Thank you Madame Chairman. My name is David Ferguson. I am the governmental relations director for a nonprofit corporation known as Conduit for Action. Most of my career was spent here in these buildings. I was with the Bureau of Legislative Research for 32 years, drafting legislation and analyzing statues. I spent the last 6 years of that career as the director of the Bureau of Legislative Research [BLR] and I’ve been back in my home place of Ash Flat for the last year and a half.

 

What I want to address… There have been some questions about what happens if Arkansas was to defund the private option and would there be any penalties for it. I began my investigation looking at that question, and realized there are some Terms and Conditions from CMS that, in my opinion, could impose some of those penalties and of course, Mr. Miller, who is on your staff, can address those better.

 

What I have discovered is that your act that you passed last time, the Healthcare Independence Act of 2013… there were a lot of safeguards and walls built into that legislation, and I know they were hard fought on all three sides or four sides. We went through the process where DHS was authorized by the Act to file for a waiver within the confines of the law; they have to do that. But then the surprise I think to many, is that once the waiver was approved, CMS (Center for Medicare/Medicaid Services) imposed about 30 pages of conditions. And a lot of those seemed like reasonable-type things to do if you’re in an agency. The problem is that many of those conditions appear to conflict directly with the safeguards that you put into your legislation.  So, we’re operating under CMS Terms and Conditions that probably shouldn’t have been approved. Again, I’m not saying whether it was a good idea or not, it’s just that the legislation you approved doesn’t seem to provide for that.

 

One example, the triggers. One of the triggers that people talk about is, if federal funding was just to fall down below a certain level, then we terminate. In fact, your law says that it will automatically terminate within 120 days. Not more than 120 days, but within 120 days. That is not what your Terms and Conditions say. Your Terms and Conditions now tell you that you’ve got to go through a 7-month notice period and a bunch of other steps, get approval, and maybe we’re going to let you off.  So your law’s trigger was not…. I don’t think that the federal government looked at the legislation and said, “Can we write these Conditions in a way that will meet the Arkansas law?”  They just did what they thought they ought to be doing.

 

One of those things that was pretty clearly built into the legislation was a very good flexibility to get out.  People were afraid that we might get into this, and something might go wrong with the program. So, there was a number of provisions—I just want to cite them very quickly—that say we want to be able to get out. One of them I’ve already mentioned, that if the triggers are not hit—state starts getting hit with too much money—120 days… it’s over.

 

Another trigger, you actually go in and require a person enrolling in the private option to affirmatively acknowledge that this program can be terminated upon appropriate notice. Of course… what’s appropriate notice? Well, it doesn’t really talk about the quality of the notice, the length of the notice, but we already know that 120 days under the Arkansas law was going to be good enough if the triggers were missed. So, again, there’s a position there that we can get out of this fairly rapidly built into the legislation.

 

And then DHS’s authority about their Medicaid state plan amendments; they’re only allowed to do those that are optional and therefore may be revoked at its discretion. So again, we’re looking at this, ‘We want to be able to get out.’

 

Also, the legislation at the end has a sunset bill, a sunset provision, telling them the date that the law will expire, and also mentions—it didn’t have to be mentioned—that it can be amended or extended and of course an amendment could be to keep it in effect for another 10 years, or it might be that we’re going to terminate it immediately.

 

Those concepts are continued all throughout this legislation about being able to get out of this.

 

Now in the CMS document, the Special Terms and Conditions, they have it a little differently.  They begin with requiring you a 7-month notice period.  First, you have to notify the public for a month; then you have to give 6-months’ notice to CMS; then that you have to submit a plan… a termination… phase-out plan, and it’s up to CMS to decide: ‘Do we approve it or not?’

 

There’s no conditions listed there– of, ‘Can we just sit on this or not?’…  but you’ve gone from a position of saying, ‘We’re going to get notice and we’re going to get out of this if things have gone bad,’ to ‘We’re going to give notice and then we’re going to sit around for approval.’

 

In addition, it says that you can’t even begin to start getting prepared for getting out of the private option until 14 days after we [CMS] approve.

 

So you can’t prepare until 14 days after they approve.  And then they added in a number of other provisions, where you’re going to have to set up procedures for people to appeal and possibly get into the regular Medicaid; and if someone has appealed their status, you’re going to try to stop the program and you’re going to appeal that status; and the thing ends… if the private option ends… in the middle of that appeal, you still have to cover them until the end of their appeal under the private option.

 

So that whole concept of flexibility was not acknowledged in the Terms and Conditions that were accepted by the state officials.

 

Now, another part that was you know, put into the bill that seems to be pretty important—that was repeated more than once—was that ‘this is not an entitlement.’  The person who’s on it, in fact, somewhere there must be a document for each individual affirmatively stating: ‘I affirmatively have acknowledged that this thing can be terminated at notice and that this is not an entitlement program,’ because those affirmative acknowledgements is required as being part of the program.

 

Twice they’ve told, it’s not an entitlement program. So, what is an entitlement program? I don’t even want to try and debate that. You can look at a common definition or maybe something more restrictive, which usually you go with a common definition when legislation doesn’t define it.  But, you’re talking about giving some kind of rights to people.

 

Well it looked like everything was fine, and then you got to the Terms and Conditions. The Terms and Conditions says, as a condition for this program, when you start trying to terminate, you have to give these people an opportunity for hearing to get into Medicaid. And as I mentioned, you have to allow them to stay on the program while they are appealing.

 

So, we’re giving legal rights to someone, and are we, at that point of giving an entitlement because they have legal rights to someone under that Medicaid program? It looks like the drafters intended this to be distinguished from the Medicaid program, and that’s why they said “no entitlement.” Whether that’s a good thing or a bad thing that they have that built in to with those procedures, I just point out that it doesn’t look like it [CMS Terms and Conditions] follows your law.

 

Another one is not a direct conflict, but I want to mention is that they also impose a budget-neutrality cap. It’s a common provision where if the state experiences more than what the federal government thinks it should be, that the state is subject to some of those things.  I would point out that there’s not any exception in there for if that added to any obligations if the State exceeded the financial triggers.  You know, it’s possible that that neutrality position could put us into that position of it not complying anymore [with the Arkansas law] because of that additional benefit. I don’t think those things were really considered.  And I don’t really even know how the phase-out, or program, is set in the waiver or whether it’s even addressed, but when you get down to the end of the program, and it’s going to go down to the end of, what is it, June or July of 2017?… Or whatever the date is, when you get there, it looks like you’re still subject to all the 7-month periods, [federal] plan programs, all the procedures, and addition, addition, addition.

 

I just point those out as provisions that don’t appear to match your legislation. And, again I can’t tell you whether it was good or bad for those positions to be added, but the other consequence of it—consequences—it looks like that if we were just to say ‘We’re not going to follow these rules that you’ve applied to us this length of period,’ we may be subject to some penalties from the federal government for being in breach of the contract, which it looks like, conflicts with the Act.

 

So that’s my statements with it. And again, I have all of the statutes that you can look at.  I want to note that in the back there are some statutes listed; those are not the codified sections, so the numbering’s a little different. But the sections are there. You don’t have to take my word for it; take your look at it.  This is something that needs to be looked at because I think in Arkansas we tend to really value our legislation, and if the legislation is not what we still want it to be, then maybe that’s a situation where something needs to be amended to meet the Federal.  But, your legislation and those federal… federal provisions, don’t really see eye-to-eye.

 

Madam Chair:

Just for clarification, Mr. Ferguson, you are an attorney, and you were head of the Bureau of Legislative Research right here in this very building for how many years?

 

David Ferguson:

I was the director for about six years and wrote legislation and analyzed legislation for about 32 years.

 

Madam Chair:

So, really am I understanding this correctly that you’re saying the triggers don’t work? Or maybe that they do work, but then there’ll be a lot of penalties?

 

David Ferguson:
I’m saying that the triggers by Arkansas law, they work, but that doesn’t mean that we haven’t made a bargain with the CMS that would require us to have some more responsibilities or maybe not let us follow the Arkansas law, so there’s a conflict between the two and could subject us to penalties for following the Arkansas law.

 

Madam Chair:

So… could one penalty be that if we did not continue, that they could take away all of the money that they give the state, I mean what could that… I’ve forgotten, it’s called FFD I think?

 

 

David Ferguson:

I think including some sort of cost recovery in there would be one of the remedies they would want to do; what federal programs they would want to reach out to… I’m not going to say that these things are necessarily going to happen, maybe you’re going to be, some people seem to be happy with the program and maybe you never get to the point where termination is an issue, but there are some triggers that it just can happen. If the federal government changes their reimbursement of the state, it’s a trigger you’ve set out… has to happen within 120 days and the federal terms are saying, there’s no way that you can even comply with the first set of our requirements during that time.

 

Madam Chair:

So it’s kind of the carrot and the stick, huh? They gave us the carrot, and now we’re getting the stick.  Alright, there are several who would like to ask you questions, Mr. Ferguson.  Representative Farrer, you’re first.

 

Rep. Joe Farrer:

In your expert opinion… If we write a bill and pass a law and another document says that what we put in the law is not what was in the document that was approved. What usually happens to that law? Is it null and void? Or which one do we go by? Which one supersedes?

 

David Ferguson:

I think we’re in sort of a quandary because to some extent, I would think that the Terms and Conditions and in many provisions, might be outside the scope of the law and invalid. But, I do not know what happens once you make an agreement with the federal government, receive money from them, and then to say, ‘Whoops we can’t do this.’

 

Rep. Joe Farrer:

How do we find that out?

 

David Ferguson:

I think some more research needs to be done on what types of penalties they could impose and what happens if their requirements that we’ve agreed to have not complied with state law.

 

Rep. Joe Farrer:

What’s your opinion?

 

David Ferguson:

I think that we’re not bound by these Terms and Conditions because it was not within the scope of the Act, and I don’t think it was in the scope of any official to ignore the state provisions.  Those provisions were not put in there just for filling space.  They were there because there was a distinguishment that needed to be made between Medicaid and this program, and there was a concern about being stuck in the program.  Of course I wasn’t here during last session, but reading the paper… It looked to me like there was really some safeguards being put in here. It’s unfortunate that they don’t really meet with the federal government’s idea, but that’s something that the people should have been watching for.

 

Rep. Joe Farrer:

If we defund the private option, would we be bound by these regulations on the Terms and Conditions?

 

David Ferguson:

It’s just uh…. Matthew may be able to address that in his… I haven’t gone into those parts. I’ve primarily looked at—is there a conflict?  How do you resolve issues with the federal government, that’s not something I’ve dealt in.

 

Rep. Joe Farrer:

You also said that the definition of “entitlement…” And I want to read it to you, ‘Entitlement is a government program, providing benefits to members of a specific group.”  So this is an “entitlement.”

 

David Ferguson:

There are some definitions I’ve seen that talk about to giving a legal right, and that’s what caught my attention.  Because I’m not really sure how you set this up not to be an entitlement program, but I know that the object was to avoid that happening. I just think we’ve gone down the road of it looking like an entitlement program.

 

Rep. Joe Farrer:

By the definition I’ve just read you, it’s an entitlement.

 

David Ferguson:

By that definition, yes.

 

Madam Chair:

Representative Ballenger, you’re next.

 

Rep. Ballenger:

My question was answered.  I appreciate it.

 

Madam Chair:

All right. Thank you.  Representative Hammer, you’re recognized.

 

Rep. Kim Hammer:

Mr. Ferguson, the way you interpret things and with all your research and everything, when we submitted the waiver and people went up and advocated on behalf of Arkansas, the law was written to provide us with certain triggers if the federal government didn’t play by the rules that we wrote they play by—expecting the federal government to comply with us.

Did you see in your research that CMS wrote things into those number of pages you referenced a while ago, that if we as a state don’t do certain things then, CMS has authority to do certain things; and that basically what we’re heading towards is a showdown; and that if we don’t fund the private option, we’re in all likelihood going to be in court over it? Is that a fair perception or not?

 

David Ferguson:

I think that, no matter how strong I feel one way or another, you’re probably heading for a lawsuit.  I assume that DHS spent a lot of time trying to make sure everything they wrote complied with the law. Then when CMS gave their approval, they stuck a little gift with it. And this gift is what really conflicts.

 

Rep. Hammer:

Okay.  And when did that “gift” get installed? After we as lawmakers voted on the law? Or prior to it?

 

David Ferguson:

No, this gift of conditions was sometime in September-October, something like that.  It was, “Here is your approval; you may start your program; and, oh by the way, comply with these things.”  And I think they [CMS Terms and Conditions] were overlooked because there were so many things that were actual mechanisms about making the program run that needed to be looked at, that it wasn’t really a thought of “Oh, gee, does this comply with the law?”

 

Now, when I was with the program of legislative research, one of the things we did from the time I got here, was look at rules and regulations to see if they matched with the Act.  And that’s really what I’m doing here, but extending it out to federal provisions.

 

It’s just something that every agency does, is look to see if those things comply.

 

Rep. Hammer:

My last question… As we tried to leverage the federal government, CMS has leveraged us; and inevitably, regardless of what we do, if we continue on the course we’re going or if we buck up and say ‘No we want to change directions,’ someone is taking someone to court.  Whether they sue us or we sue them, which would be a pretty aggressive move, on either party’s part.  I don’t know if the federal government wants to be the first to take Arkansas first to court over this, but is that conceivably an option? That would be a worst-case scenario, I understand… but would that be an option?

 

David Ferguson:

It’s sort of a worst case scenario because on the one hand, you’re going to defend your law, you’re not going to ignore it.  I mean… We see a lot of criticism of ‘You’ve written a law and now you’ve changed it;’ but in this case, we’re seeing we’ve written a law; and now we’re going to try and live within it or fix it.  But, the federal government has given us a brand new set of marching orders.

 

Rep. Hammer:

Okay. Thank you.  And thank you Madam Chair.

 

Madam Chair:

Thank you, Representative Hammer.  Senator Irvin, you’re next.

 

Senator Missy Irvin:

Thank you, and you may have already said this because it’s late… So would state law trump this, or does this trump state law? The Terms and Conditions that were a part of the waiver that was applied for…

 

David Ferguson:

I think the state law trumps, because everything is based on the state law, but I will not rule out the possibility that we might not suffer some penalties from something that we shouldn’t have agreed to.

 

Senator Missy Irvin:

Okay.  Okay, thank you.

 

Madam Chair:

Thank you.  Next is Representative Harris.

 

Rep. Harris:

Mr. Ferguson, when you were with the Bureau, and we would bring you legislation, we’d have this grandiose idea that we were gonna do something and y’all would come back to us and say that it was unconstitutional or constitutional or that it complied with statutes or other codes in the law. Then we would to ya know either have to proceed with the bill or not proceed with the bill without your advice but you’d just tell us the way it is.  In this case, why do you think we continue to go on when this is a big trigger? Going from 120 days to 7 months.

 

David Ferguson:
I don’t think it’s been really talked about in committees and things. I had to find out about it from a web blog that happened to post the 30 page document.  Just because I’m sort of a government “womp” drinking my coffee up in Ash Flat, doesn’t mean that I hadn’t looked at it. When it first came up I was asked about the penalties and I thought yeah, but wait a minute, then reading it I thought this is not the intent of the legislation.  And if this is not the intent of the legislation, are some of these terms meaningless?

 

Rep. Harris:

I know you keep on saying you’re at home, and I’m happy for you you’re in retirement; we miss you. But did you watch testimony or anything when there was constant talk about, “If triggers weren’t met, we weren’t going to go forward from leadership.”  Were you aware that those comments were made?

 

David Ferguson:

No, I watched none of the proceedings.  Last regular session was the first session since January 1981 that I wasn’t a part of; and I really wanted to keep myself from being that involved in it. I had other matters to attend to. But I can’t help but notice some of these things.

 

Rep. Harris:

Good for you for staying away.  Thank you, Madam Chair.

 

Madam Chair:

Representative Ballinger, you’re recognized.

 

Rep. Bob Ballinger:

Thank you, Madam Chair.  I think you hit on this, but I didn’t necessarily see a clear answer.  The issue of the lawsuit, there is that possibility that if we move forward and defund it, we’d be faced with the possibility of a lawsuit, but if we don’t move forward and defund it, are we also subject to the possibility of a lawsuit because of the conflict in the law?

 

David Ferguson:

Maybe not… Well… Most of these provisions deal with what happens if you actually do try to exercise what the Act says.  So until you decide to try to terminate at some point, these issues of the notice in that doesn’t come up until it’s actually tried.

 

Rep. Ballinger:

Really my question is not so much the issue of someone who does feels like this is an entitlement because of the rights granted under the waiver, but more for a citizen who felt like that the law was violated, and so therefore should get an injunction against it being enforced.  Are we not subject to that because here we are–we’re in somewhat grey territory, but we have a bill that grants some authority, and then that scope was exceeded.

 

David Ferguson:

The benefits part, it’s certainly a possibility that some court may have to decide is this an entitlement and does this violate the law because the law says it can’t be an entitlement.

 

Madam Chair:

Ok, thank you.  Representative Rice…

 

Rep. Terry Rice:

Thank you, Madame Chair, since I’m not a member, I appreciate being recognized.  Since 2009, Mr. Ferguson I have been here and around you.  I respect you, your opinion.  I’m sad that we couldn’t have a two-way conversation from kind of two different sides. I think it’s very important. This room ought to be full to hear this. In your opinion, who do you think is responsible for accepting provisions contrary to what the Arkansas law says?

 

David Ferguson:

Those came back to DHS and the Governor; and again I think they just were not examined sufficiently to realize there’s a possible conflict.  I have to say that having worked for legislatures for 32 years, I haven’t gotten it out of my blood to be very protective of state laws.  Whether I like them or not, I’m always frustrated to see state laws changed by the federal government or the courts.  Some of these things probably were just overlooked.

 

Rep. Rice:

I know we find things from time to time—who sets ballot titles, and just numerous things that happen in the law that we don’t get right. This is a huge thing; and the ramifications for whether it goes one way or the other is great.  There’s a lot of people affected by this; and we ought to be having debate on both sides.  I’m just very concerned that we didn’t have the opportunity to know all the things that we had asked.  Many in the legislature asked that we wait. We’ve had misinformation from Washington, [regarding] this… whether, for whatever reason, if it’s what it appears to be on the surface, to me, it’s very serious; and I hope we can have some further input on this.

 

Madam Chair…

 

Madam Chair:

Thank you.  Chairman Burris…

 

Chairman Burris:

Thank you, Madam Chair. Mr. Ferguson, thank you.  Did you send this to DHS?

 

David Ferguson:

No, it’s the first time it’s came out. I was sitting up in my mojo room and finished it up this morning.

 

Chairman Burris:

And I appreciate the work.  I think it’s worth the discussion. There’s also a process. I don’t think anyone was implying that this is the only discussion that will take place. This is the first time I’d seen any of it and I think DHS just got the documents as it were presented to us.  We can get answers. These are good questions, and we can continue this discussion.

 

David Ferguson:

And again, I keep saying, this is one of those things that I think just sort of slipped through, and it really needs to be examined… whether you come out saying there were violations or there weren’t.  I think the people receiving the waiver were happy, and this document was a just a bunch more paper that was stuck with it. And if it wasn’t for the question that someone asked me about penalties, I would not have realized that this document was really out there and has so much potential to conflict with the law.

 

Madam Chair:

All right.  Next is Representative Douglas.

 

Rep. Charlotte Douglas:

Thank you. Just from your experience, when there is a law we make, what is the procedure somewhere or where are the safeguards that the rules and regs. (or the manipulation of maybe some things outside that), have you seen a process in the past that caught that, that was not in play this time?

 

David Ferguson:

Yes, and the reason why it wasn’t in play this time is this is a very different document. From the time I got here, we would (the Bureau [Bureau of Legislative Research])… I keep saying ‘we;’ I know I need to stop that… the Bureau would look at rules and regulations; and in fact, I created a section specifically just for people to look at those rules and regulations and go to those hearings and actually help the agencies when they were out of compliance with the law; and if they disagreed with the Bureau about it, then it would go to the Rules and Regs. Committee and they could discuss it there and move forward. This is a different thing; we’re dealing with a waiver, and on top of the waiver, it’s these Terms and Conditions; so it’s an unusual provision, but this is a type of thing that can slip through the cracks.

 

Rep Douglas:

Have we never had waivers before that we have had to review?

 

David Ferguson:

I think the waivers of different types have been reviewed in general by legislative council and possibly public health, but as far as looking at all the different attachments and stuff, I don’t think that that’s been something that’s really been felt necessary. I think one of the things happening here, is this legislation is so specific, and the things that it doesn’t want the state to do, that the CMS is in the business of doing, that really cause that confluence there of possibility of conflict.

 

Rep. Douglas:

When you said a while ago that there was a possibility that the acceptance of the waiver or the rules and regs that accompanied the waiver, could have been outside the scope of those who accepted it, what is the backlash, or what is the penalty to someone that accepts… if it is outside the scope of my ability as a legislature to do something… what are the penalties?

 

 

David Ferguson:

I wouldn’t characterize it as being outside the scope of the authority, it’s just [that] what was accepted had provisions in it that conflict with the enabling legislation; so it’s not a question of it being beyond your power.  It’s just the provisions ended up not matching up and should not have been accepted.

 

Rep. Douglas:

Should the waiver and rules/regs gone to those agencies, you said either DHS or the Governor, for acceptance rather than the legislative body?

 

David Ferguson:

I would think the normal course would be agreement with the Executive Branch.

 

Rep. Douglas:

So it went through the proper channels; it just was not properly vetted?

 

David Ferguson:

Yeah, this particular piece of it, of course obviously, the waiver itself was looked at quite a bit, but when this came back ‘you’re approved’ –you know… and suddenly you see the small print of telling you how high the percentage rate is going to be on your credit card, it’s almost like that. There was so much information added there.

 

Rep. Douglas:

So if the… did it come to the Governor first, or would it have come to DHS first?

 

David Ferguson:

I don’t have that knowledge.  DHS would have to address that.

 

Rep. Douglas:

Probably to the Governor first…  If he does not properly vet it, what is the liability to the rest of the state?

 

David Ferguson:

Well, we’ve gone down the road into a program that has certain Conditions; and the liability could be that you’re in between; you have the violation of an Act, and you may have already, by accepting money, have some obligations there.  So, I’ll leave that for Matthew [Miller] and others that are really looking into the penalties.

 

Rep. Douglas:

Okay. Thank you very much.

 

Madam Chair:

Representative Rice, you’re recognized.

 

 

 

Rep. Rice:

Thank you, Madam Chair. Again, clarify for me, Mr. Ferguson, did you say that we would have to get the fed’s agreement first before we start termination?

 

David Ferguson:

No, I think as far as termination, first of all, your Act has a number of provisions for terminating.  The question becomes… Are those special conditions [CMS Terms and Conditions] binding on you? Then you get to fight out whether you have the ability to drop with notice, or whether you’re bound by some of these [CMS] provisions.  If by some actions by the state have bound us to it [CMS Terms and Conditions], there may be consequences.  But it’s a question of following the state law or fixing the state law to match all these long lists of requirement… to change the legislation some way to where it would match up with that.  But I don’t think that they match together.

 

Rep. Rice:

But if they didn’t match together, could you even have termination before?  Was there something said about the end of 2016?  The statute?

 

David Ferguson:

I was talking about the end of it [private option program ending date under the Act]. I don’t know if in the waiver, if there is some provision talking about the process of terminating it at that time, but if there’s not, just based on the Terms and Conditions, it looks like you still have to go through all these procedures.

Rep. Rice:

Does it not say in the statute, that it can only be revoked or that it can be revoked at the state’s discretion, with certain conditions? Is that right?

 

David Ferguson:

There’s just a group of provisions, there’s not a specific, but there’s a group of provisions, you know, if the triggers are violated, you have no choice, you have to quit within 120 days.  You’re telling enrollees that the state has the right to get out with appropriate notice, and there would be no reason to tell them that, if that really wasn’t part of the intention of Act.  So there’s several provisions in there that show this intent, to have flexibility to get out.

 

Rep. Rice:

Do you know if Secretary [Kathleen] Sebelius is the only one who has that trigger?

 

David Ferguson:

What trigger is that?

 

Rep. Rice:

The right to make the call.

 

 

David Ferguson:

I do not know.

 

Rep. Rice:

Thank you, Madam Chair.

 

Madam Chair:

Representative Ballinger…

 

Rep. Ballinger:

Thank you, Madam Chair. My question goes to the scope of the authority, and I direct it to the actual scope itself where it deals with submitting the application. And I just want your opinion about it. And it actually says that there would be a submission for application waiver under part 1115, and it says ‘consistent with the subchapter.’  And I guess the question is, the application you found to be consistent with this…..?

 

David Ferguson:

I have not looked at it to that extent because I really came in on this on the penalties, which we were looking at the federal side of it.  I’m just assuming for this point that DHS made their application consistent with the Act.  Again, I haven’t really gone through that. But it’s after the approval that we got additional conditions that disagree with the state law.

 

Rep. Ballinger:

Wouldn’t you say though, that we were under no position or authority to accept anything that was inconsistent with the Bill that grants the authority?

 

David Ferguson:

I think that is a defensible position that what we accepted violated some of the basic tenants of this legislation as I understand them.

 

Rep. Ballinger:

All right. Thank you very much.

 

(Comment by CFA/BVT:  See his Memo he distributed at the beginning of the hearing,)

 

Madam Chair:

Ladies and gentlemen, are there any other questions?  There’s no one on the queue right now.

 

All right, seeing no questions, what I’d like to do is have Matthew [Miller] give us a very quick overview. And if Mr. Selig is willing… I’d love for him to come up, (Ah, there you are…), and just maybe give a little explanation of how we got here maybe.  And by the way, ladies and gentlemen, before Matthew starts, he asked me if I wanted him to consult with DHS, and I… it was just fast and quick, and I said don’t worry about it, and here we are.  Thank you Matthew, and if you’d just give us a quick overview, I’d appreciate it.

 

Matthew Miller—Bureau of Legislative Research:

I’m Matthew Miller, and I’m with the Bureau of Legislative Research. I feel like I don’t have a whole lot to offer, as much of what I have to say is cumulative. I’ll run through this quickly because perhaps you’d rather hear from Dr. Selig than myself. Uhh, there is a timeline set out in the Terms and Conditions for terminating, suspending; and also a separate timeline for amending the program.

 

There’s two different tracks, a termination track and an amendment track. I think David Ferguson hit the highlights of that [termination] track—you submit it at least 6 months before you want to expire; a public comments period before you submit the plan; and then 15 days on the back end before the termination becomes effective.  So that is, in fact, in there.  I can’t speak to why that’s in there, although I will point out that the waiver itself expires by its own terms.  It expires Dec 31, 2016.

 

Perhaps, at some point there would be a phase out plan by the document.  Even by its own terms, it’s going to have to be a progression from the waiver to something else.  So perhaps those terms were geared for that situation; and we’re trying to apply it to this situation.  I’m not certain. Doctor Selig may know that.

 

As far as penalties, they’re very speculative.  I mean, obviously it doesn’t require a lot of speculation to see that if we were operating contrary to our state plan [which would include the CMS Terms and Conditions], there’s potential penalties. There’s a host of U.S. code provisions that give the Director of HHS, the Secretary of HHS, that authority.  What would those penalties be?  It’s really impossible for me to say, it would just be speculative.

 

[Comment by CFA/BVT:  By this time it was around 7PM….thus the Chair did not keep Miller—see his Memo which was distributed at the beginning of the hearing for more detailed clear info on penalties for termination and potential costs when/if termination occurs –and reference to potential breach of contract with insurance companies which the state may have entered.]

 

Madam Chair:

Ok, I think that’s good.  And again, I had asked you just for a quick overview, so it’s fine with me if you would just like to leave because I would like to call Mr. Selig up please.

 

And the question I have for you, Mr. Ferguson, is at the end of the time when the bill says that you… we have to re-certify or whatever, we may not be able to… from what I’m hearing you say, is that correct?

 

David Ferguson:

Are you talking about re-certify of the new waiver?

 

Madam Chair:

Yes.

 

David Ferguson:

Okay, well that’s all, the DHS has [been] given pretty broad discretion, and so it’s up to them about filing those waivers and whatever waivers are needed to do the program.

 

Madam Chair:

But when it ends automatically…?

 

David Ferguson:

At the end of the legislation? (Madam Chair: Yes.) I assume once you get to that position that you would have people looking at what you want to replace this with; otherwise, you would have extended it, so they would be doing the procedures of CMS to wind it down or start into something new.

 

Madam Chair:

All right. But… So there would still be penalties possibly?

 

David Ferguson:

Again, with those Terms and Conditions, there’s a possibility that they may want to try to assert some penalties, if we didn’t comply fully with those Terms and Conditions.  Again, it looks like to some extent they conflict with the state law.

 

Madam Chair:

All right. Thank you very much. And I appreciate you being here.  I don’t know how far Ash Flat is, but if you would like to stay, that’s fine, but if you’d like to leave, that’s fine as well.  Since Mr. Selig is coming up… maybe you could sit there, unless you have a preference.  I’m gonna give you that discretion.

 

David Ferguson:

I’ll just go back to my seat… I don’t think he’s going to punch me or anything… (laughter).

 

Madam Chair:

Ha, well… Okay, Dr. Allison.  You know we’ve got a small group here. We can kind of enjoy being with each other.  All right, Mr. Selig, you’re recognized.

 

John Selig [Director of DHS]:

Our comments can be very brief because we were unaware of this analysis and haven’t had a chance to interact with either Mr. Ferguson or legislative staff.  I think Dr. Allison can get into this a little bit more… but the initial reaction is these Terms and Conditions apply to the waiver and the waiver is only waiving a couple of things in particular:  Your ability to choose between programs; and I think there was one other piece.  It doesn’t apply to the funding and the expansion itself.  The Terms and Conditions don’t.  That’s in the state plan.

 

Maybe Dr. Allison can explain a little bit better.  But the short answer is, if there’s an actual document to look at in addition to what we have from Matthew, Mr. Ferguson had one we would be happy to look at that and analyze.  But we didn’t get anything from Mr. Ferguson if he wrote a document.

 

Madam Chair:

What would you like to say, Dr. Allison?

 

Dr. Andy Allison [Director of Medicaid]:

We didn’t know at the time, that the bill was passed, what would need to go through the state plan amendment process, and what would need to go through the waiver process.  And that was in-flux really for, I can’t remember, at least weeks.

 

In the end, and the reason why we had to bring a package of state-plan amendments to the committee process for review is that the expansion itself is in a state plan, not in a waiver. So when the waiver refers to changes, the waiver is referring to changes in how you might cover those individuals.  It’s not a change in whether those individuals are covered [Emphasis added].  And so the provisions in the Terms and Conditions for what happens when the state plan amendment changes, and that process is not subject to the same amendment or certainly the demonstration closeout constraints that are being described, so there is no automatic delay by the federal government by the state plan amendment process.  In fact, when we reduced, for example in Kansas, when we reduced payment rates, we did it first; and then we submitted the state plan amendment even after that.

 

I’m not suggesting we do that in this case; that’s just to make the point that different set of rules apply.  We do need some time.  I think it would be helpful.  Clearly the question has been asked now; so how would it happen; how would it interact; what would that technical correction look like; and we can now do that.

 

Madam Chair:

And I do, like I said, staff asked me, “You want me to call DHS?  Get DHS and ask them?”  And I said, “No, just an overview, just an overview that’s fine.”  So it’s really my fault.  So I do apologize.  But we can have another meeting where we can maybe get some clarity on this.  I think that might be very important.  I know that there were people that voted for the Private Option, thinking that the triggers really would work.  And this may cause a little bit of doubt in their eyes.  And, of course, that is coming up soon.  So we might have to meet pretty soon anyway, pretty quickly.  The other thing, I just thought about this when Mr. Ferguson was talking about what the federal government might do and that kind of thing.  Now, didn’t you work for Kathleen Sebelius and HHS?

Dr. Andy Allison:

I never worked for Gov.  Sebelius in Kansas.  I was the director of an independent agency which was not in her cabinet.  Either deputy or executive director of that independent agency.  I never actually worked for her.

 

[Comment by CFA/BVT:  On its face, this and testimony below (pg 26) by Dr Allison appear to contradict reports that he was the KS Medicaid Director from 2006-2009 in addition to working with the independent agency; Note, Sebelius served as governor of KS from 2003-2009; See:

http://www.nashpconference.org/speakers/andy-allison/ and

http://www.kdheks.gov/hcf/legislative/download/2007Testimony/MASTER1-31-07EnrollmentinHealthWaveMedicaid-HouseHealthTaskForce.pdf and

http://en.wikipedia.org/wiki/Kathleen_Sebelius ]

 

Madam Chair:

Well, the reason I asked that, I was going to ask if in your experience have you seen something like this, when a state puts out something that they want… they have a waiver; the waiver is accepted; and then they have conditions to the waiver? Have you, with maybe something as important as these claw backs or these triggers, not being acknowledged?

 

Dr. Andy Allison:

I personally have not.  There have been states with very substantive waivers or optional… I mean, in our case, we’re not dealing with spending that’s attached to the waiver; we’re dealing with spending that’s attached to a state-plan amendment. That’s where expansion occurs.  And it’s a different set of rules governing what the Healthcare Independence Act requires.  And what I’ve sat here and said many times, ‘This is optional.’  Judge Roberts [apparently referencing the US Supreme Court Chief Justice’s opinion dated June 2012] made this a state option.  And it’s a state-plan option; and Kathleen Sebelius does not have the power to reconvert that back into a waiver and thereby superimpose rules back on top of the state plan.

 

Madam Chair:

Alright, thank you.  We have some questions.  Representative Hammer, you’re recognized.

 

Rep. Kim Hammer:

Madam Chair, my question actually was for Mr. Ferguson.  And I’ll tell you what it was.  On one of the pages he handed, page four, there’s a question about section 4 if Madam Chair would allow, I’d ask that.  Otherwise, I’ll catch him after the meeting.  Thank you.

 

Madam Chair:

All right.  Representative Rice you’re next… Representative Rice?  Oh, yes, the yellow button… OK, well we’re good up here. We’ll try it again… [microphone issues resolved].

Rep Terry Rice:

Thank you.  Dr. Allison, do you agree that there are discrepancies between the legislation that this body passed and the federal terms that we received?

 

Dr. Andy Allison:

I don’t see them, but I would certainly want to give at least some time to considering the input that’s been provided today.

 

Rep Rice:

And, Mr. Selig, if there are things in here that are major, and not like some of the legislation we see in that; are there conditions in the contract that would allow for an early exit, because of the difference?  … If we’ve been sold something that we didn’t buy (that’s my terms in retail), we’ve been misled justly or by accident.  Are there conditions in our contract that we can exit early?

 

Director John Selig:

By your contract, in this case, I think that would be the state-plan amendment that Dr. Allison was talking about.  Again, we’ll want to go back and look at this; but from what we understand, we’re pretty certain there’s nothing in those rules that would keep us from getting out of this program.

 

I think to give you one example, again I’m not even sure if this is the perfect example because we haven’t had a chance to look at this… the waiver for example, says that we’re waiving the right to be in Medicaid if you just wanted to be.  We’re saying, “No that you will be in the private sector with at least two choices of a plan.”   If we were to say to the federal government, “Actually, no, we don’t want to give the clients two choices,” I think that’s when these Terms and Conditions would apply.

 

[Comment by CFA/BVT:   Point to consider–there may be in place for eligible Medicaid recipients auto enrollment or default enrollment by DHS into the PO which may allow one to effectively argue that this auto enrollment removes true “choice” in that no proactive election was made by the recipient personally??  Same with the affirmation of “no entitlement” status by recipient, referenced by Rep Rice.]

 

If we went to change something, then they [CMS] would say, “Well if this now is correct we need to have 6 months.”   That’s different than saying, “We’re stopping the private option; we’re getting out of this plan.”  As Dr. Allison was saying, that’s in the state-plan amendment.   The Terms and Conditions don’t apply to that state plan amendment. [Emphasis added]

 

So again, I don’t want to go too far here because we do want to go back and look at it. There may be some points…

 

Rep Rice:

What about, what would happen with the contracts with the insurance companies?

 

Dr. Andy Allison:

We’ll provide… So what we have is a ‘memorandum of understanding’ to stand on top of the payments.  We’re not going to make a 27 million dollar payment without having some sort of legal agreement with the other party.  So we do and those are ‘memorandums of understanding.’  We’ll provide a copy of that to anyone that needs one and certainly to this committee to demonstrate that those also don’t obligate us to continue the program for a year or 6 months, or what have you.

 

Rep Rice:

And I know you’ve got to have time to look at this, but what was testified to earlier about the participants… were they required to sign anything saying this was not an entitlement?

 

Director John Selig:

I don’t have the document in front of me, but they acknowledge in one of the documents we sent them that this is not an entitlement.

 

Rep Rice:

Is it a signature or is it just checked?

 

Director John Selig:

We have electronic enrollment now, so we don’t, in many cases, have any handwriting.  That’s actually one of the positive benefits here is that we’re moving away from handwriting…

 

Rep Rice:

I came from a day before when they used to do that with a handshake; and they’ve done away with that; and we went to signing things.  And if we’re doing something this major with a check box on a keypad, it’s concerning to me.

 

But the other thing, Dr. Allison and Mr. Selig, that I’ve asked for before and I’m sorry if I haven’t asked you, I think I’ve tried, but I’ve asked Ms. Crown and the insurance that was working with this stuff, is I would like to see some documentation that was sent out to ask people, “Do you want free healthcare?”

 

Can you get that to me?  What was put in with the food stamp EBT, or whatever?  I’d like to see that copy that was sent out, because I asked a few months before, “Are we going to have truth in advertising?” Because I’m required to as a retailer.  Are we going to have a disclaimer on there?  Are you going to be trying to sell this as free insurance?  And I was told, “No, we’re not going to do that.”  And I understand that that’s what it is; and I know on a major insurance carrier website, it says “Free or Low Cost Healthcare.”

 

If I could run furniture for free, and the government would pay for it, I would be a rich dude; but I don’t.  I work 6 days a week, like a lot of us do, 60-80 hours a week like a lot of us do.  The word ‘free,’ to me, should have a disclaimer on it.  And it’s the same thing with this checkbox on participation.  It needs to be something more clear than that.  And I’ll be through in just a minute, Madam Chair, if you’ll just give me a second…

 

When we were asking questions over this, those who wanted to know if there’s any way in the world we could do this fairly, ‘it was changing,’ ‘it was evolving;’ we’d been told stuff that the state and everybody was trying to accept and understand the situation, where you’re doing the best you can, and we’re doing the best we can for our constituents; but it was changing all the time.

 

What I heard Dr. Allison say a while ago is that the stuff that came on, it was still changing, it was still being formed.  And you can’t do business like that. You can’t write contracts like that.  I’m a simple person, and y’all are so far ahead of this than me, I couldn’t even get my arms around it.  But it’s a check-box.  That to me is not sufficient.  You’re not doing the people or the state of Arkansas right by making it too simplistic.  It needs to be something that the people feel they’re invested in that they got to put their name on it.  All right, Madam Chair, I’ll hush.

 

Madam Chair:

Next on the list is Rep. Farrer.

 

Rep. Joe Farrer:

Thank you, Madam Chair.  You said that you haven’t done an analysis on the difference between the Act, the law, and the waiver.  About four months ago, I had your office do that.  Only difference they found between the 3 was that the copays would not go up to 138 percent.  So the analysis has been done.  I’d be happy to email it to you.

 

Director John Selig:

I’m sorry Rep. Farrer, I may have misspoken; I said we have not had a chance to analyze this or give you any kind of written analysis we could give you on how to get out of the program.  I didn’t say we haven’t analyzed the Act or the law.

 

Rep Farrer:

Or, the difference between the three.  You haven’t done that?

 

Director John Selig:

I don’t think I stated that.

 

Rep Farrer:

Ok, but have you done that?

 

Director John Selig:

We have certainly looked at the three at many points.  I don’t think that anybody’s asked us for a written…..

 

Rep Farrer:

I have; I’ve asked for it; and I’ve gotten….

 

Director John Selig:

You’ve gotten it from us?

 

Rep Farrer:

Yes, I’ve got the analysis that your office did.  That’s the only difference they found from the three.

 

Madam Chair:

All right.  Representative Ballinger, you’re next.

 

Rep Bob Ballinger:

Thank you, Madam Chair.  So, if you all have done the analysis, you’ve said you’ve looked at all three of the documents, and I understand you don’t have a written analysis of all the documents sitting in front of you, and I wouldn’t expect you to do that.  But would you say that what Mr. Ferguson said is incorrect—that those inconsistencies aren’t there?  Or would you, are you prepared to state….let me just say this, what I’m a little bit concerned about, and what I was hoping is—that maybe you all never saw this approval—that would be great, because maybe then we aren’t bound by it.  But if you did see this approval, why are we just now talking about it? Why are these issues…I mean to me, if I was in your position and I received this with all these Terms and Conditions, 30 pages, some of them maybe if you interpret them differently, maybe they’re not inconsistent, (I would have a hard time seeing that), but the natural response would be to say, “I’m sorry, no, I can’t accept this because this is inconsistent with the bill that granted me authority to ask for the waiver.”

 

And did any of that analysis go through when you all got the waiver back?

 

Director John Selig:

I think the difference is the Terms and Conditions apply only to the waiver which is not the core of the program.  [Emphasis added]

 

Rep Ballinger:

Ok, so how are we able to put Medicaid recipients, and we’re expanding Medicaid, we’re putting people who would normally be put in the Medicaid population—we’re putting them on private insurance— is that in the scope of the waiver?

 

Director John Selig:

Putting them in to private insurance is under the scope of the waiver. The expansion is under the authority of the state plan amendment.  So it’s the combination, I think the error that the analyst made was to assume that the Healthcare Dependence Act was represented in whole in the waiver.  (Rep. Ballinger:  It references it).  Yes, it references it. But, in fact, the Healthcare Dependence Act is represented as a combination of the waiver and the state plan amendment.  And in this case, it’s the state plan amendment that would dominate.  It governs the question of whether someone would be covered or not and that, of course, is where all the spending would come from.

 

Rep Ballinger:

What I would be interested in is to find out, things like on page three of the Terms and Conditions, specifically says that if the funding for the federal government decreases, that there will be a revenue neutral.  I’ll give you an example.  It’s under paragraph 4, really paragraph 4A on page 3, specifically says that it will be revenue neutral.  And let me just read it for folks who aren’t able to flip to that.

 

It says, “…To the extent that change in federal law, regulation or policy requires either reduction or increase of federal financial participation, for expenditures made under this demonstration, the state must, must adopt, subject to CMS approval, a budget neutrality agreement as well as a modified allotment neutrality worksheet agreement… will be affective upon the implementation of the change.”

 

So, what I would want to know is, if the federal contribution reduces, or if situations change and insurance [cost] continues to go through the roof, whether we, as a state, are going to be on the hook, if these Terms and Conditions are applicable?  And I know that’s questionable; I question that. But if we are required to be under those Terms and Conditions, does this mean that we pay more out of our pockets when we pay a penalty?

 

Director John Selig:

It would mean that we have the option of eliminating the whole program through the state-plan amendment. So if that circumstance would arise, or if we believe it would arise, and we have the luxury in the private option of knowing in advance whether those costs would go up because premiums are announced months in advance before they go into effect… (That will happen again here in roughly October, in the next open enrollment). So we’d have plenty of time to change the state plan amendment if that was what the will of the state was.  And in that case the state plan amendment would dominate and not Term and Condition number 7.

 

Rep Ballinger:

So we pass a law that says, ‘If federal contribution reduces, this is done; this is over-with;’ and then within that law we say, ‘You all go get a waiver if it’s within the scope of what we’re trying to do with this bill.’  Then we get that waiver.  And we come back with approval that says, ‘Hey we [CMS] can change the funding amount at any time; if the law changes we change; and you [state of Arkansas] pick up the difference.’  Now, you don’t… you see how we would see that as a bit inconsistent?

 

Director John Selig:

I do certainly see the source of confusion here.  And I do understand how easy it would be to look at the Act; believe that all of it had to be achieved through the waiver; and look at the waiver; and then assume all that’s in there.  I do understand that confusion.  That’s not how it’s constructed.  But I do understand the source of confusion, yes.

 

Madam Chair:

Thank you, Representative Ballenger.  Mr. Selig, I so appreciate your desire to help us understand this, and I realize you have not had this material.  Do you think you would be available next Friday when we have our regular Public Health meeting, or would that give you enough time?

 

Director John Selig:

I think that would give us enough time.

 

Madam Chair:

All right, well let’s do that; and remember that ladies and gentlemen, I have two more people on the queue; and I’m going to let them ask questions.  But remember a week from tomorrow, they’ll come back, and they will explain all of this, and I think we will all be appreciative for that information.

 

Next on the list is Representative Harris; you’re recognized.

 

Rep. Justin Harris:

Thank you, Madam Chair. Just to make sure, I’ve got two questions; when I tweet, I want to make sure I’m giving correct information.  I’m just trying to be honest with you, I don’t want to lie…

 

What was your job when Governor Sebelius was governor in Kansas?

 

Dr. Andy Allison:

I would have had at least two jobs at the time that she was governor.  One was employee of a private nonprofit research institution, Kansas Health Institute.  And then as employee of the Kansas Health Policy Authority, which was under the direction/authority of an independent board appointed by various elected officials; and I can’t recall if I became executive director while she was still governor or not, if I did I would have reported directly to that board.

 

[Comments by CFA/BVT:  Various bios on Google say he was Ex Director of KS Medicaid from 2006-2009; Sebelius was Governor from 2003-2009.—See page 19 above for site references.]

 

Rep. Harris:

And you worked on Medicaid issues? … Because that’s what you’ve talked about the whole… (Dr. Andy Allison: Correct, I ran the state of the health plan and Medicaid program.)

 

Okay, I’m going to skip the question I had that has to do with what CFA [Conduit for Action] has done.  But I’m going to back to the question I had earlier, from previous…

 

If we don’t fund this… Here is the preface to the question, if I was the executive of my company, a very small company, but if I was Donald Trump of a big company, and I said, ‘Ya know what, employees, I don’t like what you’re running it… and I want you to fix it.’

 

So in essence, what we may do in February is say, ‘You know what, we don’t like the private option, and we’re not going to fund it.’

 

So then, as an executive, it comes back to you.  And I want to know, kind of, do you have a plan in action because I’m hearing a lot of (when I say that I’m not going to vote for it), ‘Well what’s your plan, what’s your plan?’  Well, I want to know what your plan is, if we don’t fund the private option?

 

Dr. Allison:

Representative, let me just say that it would have to be all of our plans because there is significant money involved.  I think we heard from the budget office that their figure, I think, was 89 million dollars.  So if you were to say, Medicaid would take that entire hit, we should probably come up with a plan. But, I don’t know that, I’ve not heard that any decision like that has been made, where if you were not to fund the plan that everything would come out of Medicaid.  It’s frankly beyond the scope of what we do to tell you overall what the plan would be.

 

We can tell you what happened in Medicaid, but ultimately what happens in Medicaid depends on how much money you allot to us.

 

Rep. Harris:

So I mean like, in committee, during the session, we’re talking about in the spending bill, we can take the private option portion out of it, and still fund DHS, and let it go as a department.  Do you still agree with that?

 

Director Selig:

You would have to have a new Medicaid budget. There’s not a piece of the Medicaid budget that you just take out.

 

Rep. Harris:

How quickly could you get that done?

 

Director Selig:

Could you write a new budget?  It wouldn’t take that long, but we would have to know what we have to work with.

 

Rep. Harris:

Ok, so it’s something we could do in the fiscal session if we don’t fund the private option?

 

Director Allison:

Right, if you don’t fund it, I think we would all have to quickly decide, what then.

 

Rep. Harris:

But there is a Plan B?  So it’s not like the end of the world is going to happen if we don’t fund the private option?  I know that’s not the scenario you want… I mean, I’m not asking the question…

 

Director Selig:

Ultimately, you would go back towards what you had before, which is a traditional Medicaid Program with more people on the traditional Medicaid Program. Unless you didn’t want to offer people with breast cancer coverage, and I’m assuming that that’s not, I mean people would want to put those categories back in place.  And we would have to say, “Are there Medicaid programs that we need to cut?” [Emphasis added.]

 

Or for you all working with the Governor to find other revenues to offset the fact, because there’s significant savings to Medicaid due to having the private option in place.  If we don’t have it, we need to make deep cuts in Medicaid; or the money has to be found somewhere.

 

Rep. Harris:

I think we can do that, so all right, thank you very much.

 

Madam Chair:

Chairman Burris…

 

Chairman Burris:

Representative Harris, I’m just going to say one thing.  I think they’re fair questions; and I do think it’s fair—and I’m saying this particularly because I haven’t said a lot—but we’re going to set a committee meeting.  Senator Bledsoe was working on it where they’re going to come back and review this information and be able to present, not just have it dropped in their laps here.

 

But I guess all I was going to say is, I think your points are fair, but they are the administrators of an agency.  And I think… I mean, there’s obviously an elephant in the room or it’s just a fact, either you’re either an advocate of the private option or not an advocate.  And so if you’re not an advocate, it’s not really their job to develop a plan based on their vote, it’s your job to develop a plan based on how you vote.

 

Rep. Harris:

Can I make a comment now that you’ve said that to me? (Chairman Burris:  Yes.)

As a boss, or an executive of my small company of 35 employees, what I’m trying to say is, if there’s something I don’t like in the company, I tell them, ‘You’d better fix it, or you’re gone.’

 

So I guess my question is, (it’s the legislative branch checks and balances) say we’re not going to do it, the executive branch, I want to make sure that they have a plan in action; or they’re gone if they can’t think of a plan.  No offense, Mr. Selig.

 

Madam Chair:

Thank you very much, and ladies and gentlemen I think we’ve decided to put the public healthcare meeting on the 31st [January]; that would give you more than 2 weeks; would that be agreeable?  And so Mr. Price will be sending out notices.

 

I do have two more people to ask questions.  I’m sure they will be very quick.  And Mr. Selig and Dr. Allison, I so appreciate you helping us understand this; and I’m really looking forward to your reports on the 31st.

 

Are these two questions for Mr. Selig?  I believe we have next, Representative Hammer.  Are you going to be asking questions? All right…

 

Rep. Hammer:

I have a question for the Chair.  On the meeting that you’re rescheduling them to come back, would it be possible to invite Director Bradford and Ms. Crown to be here and also to extend an invitation to the four providers?  I think if we are going to have a thorough discussion given what’s been brought up today, we need to have everybody here to answer any questions.

 

Madam Chair:

I think that would be possible.  We will work on that. And then our last question comes from Senator Sanders.

 

Sen. David Sanders:

Thank you, Madam Chair. I came in late; had to take care of a couple other items.  Part of the conversation I came in on was the part where they were talking about sort of the waiver being the controlling legal authority in the plan.

 

I remember specifically in the law itself, I don’t have it in front of me, but we had very long conversations about the waiver, but also state-plan amendments that would be governing the program.

 

And in fact, I think we put specific language in the program that said, only state-plan amendments that the state could change would be those changed, that would be those administering part of the program, because I think the criticism at the time, was made by someone out of state, was that once you make a change to the state plan amendment, you can’t change it, you’re locked in.

 

So, I think even in the essence of the law, but in itself, we completely contemplated that there would be the waiver but also the state-plan amendments that would govern this program. That’s explicit in the law, it’s not implicit; we had long conversations… because there had been other states that had extended coverage, and had cut back.

 

In fact, Wisconsin, had extended coverage 200% of federal poverty; they cut it back to 100% and then removed their cap; so they are actually growing their Medicaid plan there.  They are shifting people, so I think we litigated that one pretty heavily; I remember one of the Q&A’s we had…the state plan amendments, in fact, do matter.

 

Madam Chair:

Thank you very much, ladies and gentlemen.  This concludes our meeting.  And again, I thank you very much for being here.

CENTERS FOR MEDICARE AND MEDICAID SERVICES SPECIAL TERMS AND CONDITIONS

For a complete copy of CMS Terms and Conditions see: http://www.conduitforaction.org/arkspecialtermsandconditions/

(Note: some words may have been mistyped in this document through conversion from pdf to text format to shorten)

NUMBER:     ll-W-00287/6

 TITLE:   Arkansas Health Care Independence Program (Private Option)

AWARDEE:  Arkansas Department of Human Services

I. PREFACE

The following are the Special Terms and Conditions (STCs) for the Arkansas Health Care Independence Program (Private Option) section 1115(a) Medicaid demonstration (hereinafter demonstration) to enable Arkansas (State) to operate this demonstration. The Centers for Medicare & Medicaid Services (CMS) has granted waivers of requirements under section 1902(a) of the Social Security Act (Act), and expenditure authorities authorizing federal matching of demonstration costs not otherwise matchable, which are separately enumerated. These STCs set forth in detail the nature, character, and extent of federal involvement in the demonstration and the State’s obligations to CMS during the life of the demonstration. The STCs are effective on the date of the signed approval. Enrollment activities for the new adult population will begin on October  1, 2013 for the Private Option qualified health plan (QHP) with eligibility effective January  1, 2014.  The demonstration will be statewide and is approved through  December  31, 2016.

The STCs have been arranged into the following subject areas:

 

  1. Preface
  2. Program Description And Objectives
  3. General Program Requirements
    1. Populations  Affected
    2. Private Option Premium Assistance Enrollment
      1. Premium Assistance Delivery System
        1. Benefits
        2. Cost Sharing
          1. Appeals
          2. General Reporting Requirements
            1. General Financial Requirements
              1. Monitoring Budget Neutrality
            2. Evaluation
              1. Monitoring
                1. Health Information Technology and Premium Assistance
        3. T-MSIS

 

  1. PROGRAM DESCRIPTION AND OBJECTIVES

 

Under the Private Option demonstration, the State will provide premium assistance, to support the purchase by beneficiaries eligible under the new adult group under the state plan of coverage from QHPs offered in the individual market through the Marketplace.  In Arkansas, individuals eligible for coverage under the new adult group are both (1) childless adults ages 19 through 64 with incomes at or below 133 percent of the federal poverty limit (FPL) or (2) parents and other caretakers between the ages of 19 through 64 with incomes between 17 percent and 133 percent of the FPL (collectively Private Option beneficiaries).  Arkansas expects approximately 200,000 beneficiaries to be enrolled into the Marketplace through this demonstration program.

 

Private Option beneficiaries will receive the State plan Alternative Benefit Plan (ABP) primarily through a QHP that they select and will have cost sharing obligations consistent with the State plan.

 

With this demonstration Arkansas proposes to further the objectives of Title XIX by:

  • Promoting continuity of coverage for individuals,
    • Improving access to providers,
      • Smoothing the “seams” across the continuum of coverage, and
      • Furthering quality improvement and delivery system reform initiatives.

 

Arkansas proposes that the demonstration will provide integrated coverage for low-income Arkansans, leveraging the efficiencies of the private market to improve continuity, access, and quality for Private Option beneficiaries.  The state proposes that the demonstration will also drive structural health care system reform and more competitive premium pricing for all individuals purchasing coverage through the Marketplace by doubling the size of the population enrolling in QHPs offered through the Marketplace.

 

The state proposes to demonstrate following key features:

 

Continuity of coverage and care -For households with members eligible for coverage under Title XIX and Marketplace coverage as well as those who have income fluctuations that cause their eligibility to change year-to-year, or multiple times throughout the year, the demonstration will create continuity of health plans available for selection as well as provider networks. Households may stay enrolled in the same plan regardless of whether their coverage is subsidized through Medicaid, or Advanced Payment Tax Credits/Cost Sharing Reductions (APTC/CSRs).

 

Support equalization of provider reimbursement and improve provider access – The demonstration will support equalization of provider reimbursement across payers, toward the end of expanding provider access and eliminating the need for providers to cross-subsidize. Arkansas Medicaid provides rates of reimbursement lower than Medicare or commercial payers, causing some providers to forego participation in the program and others to “cross subsidize” their Medicaid patients by charging more to private insurers.

 

(pages 3-4 omitted)

demonstration, the governor or chief executive officer of the State must submit to CMS either a demonstration extension request or a transition and phase-out plan consistent with the requirements of STC 9.

 

  1. Compliance with Transparency Requirements at 42 CFR §431.412.

 

  1. As part  of  the demonstration  extension  requests  the State must  provide  documentation  of compliance  with the transparency  requirements  42 CFR  §431.412 a:tJ.d the public notice and tribal  consultation  requirements  outlined  in STC  15.

 

  1. Demonstration Phase Out.  The State may only suspend or terminate this demonstration in whole, or in part, consistent with the following requirements.

 

  1. Notification of Suspension or Termination: The State must promptly notify CMS in writing of the reason(s) for the suspension or termination, together with the effective date and a transition and phase-out plan.  The State must submit its notification letter and a draft plan to CMS no less than six (6) months before the effective date of the demonstration’s suspension or termination.  Prior to submitting the draft plan to CMS,  the State must publish on its website the draft transition and phase-out plan for a 30-day public comment period. In addition, the State must conduct tribal consultation in

accordance with its approved tribal consultation State Plan Amendment. Once the 30-day public comment period has ended, the State must provide a summary of each public comment received the State’s response to the comment and how the State incorporated the received comment into the revised plan.

 

  1. The State must obtain CMS approval of the transition and phase-out plan prior to the implementation of the phase-out activities. Implementation of activities must be no sooner than 14 days after CMS approval of the plan.

 

  1. Transition  and Phase-out Plan Requirements: The State must include, at a minimum, in its plan the process by which it will notify affected beneficiaries, the content of said notices (including information on the beneficiary’s appeal rights), the process by which the State will conduct administrative reviews of Medicaid eligibility prior to the termination of the program for the affected beneficiaries, and ensure ongoing coverage for those beneficiaries  determined eligible, as well as any community outreach activities including community resources that are available.
  2. Phase-out Procedures: The State must comply with all notice requirements found in 42 CFR §431.206, §431.210, and §431.213. In addition, the State must assure all appeal and

 

  • hearing rights afforded to demonstration participants as outlined in 42 CFR §431.220 and

§431.221. If a demonstration participant requests a hearing before the date of action, the State must maintain benefits as required in 42 CFR §431.230. In addition, the State must conduct administrative renewals for all affected beneficiaries in order to determine if they qualify for Medicaid eligibility under a different eligibility category.  42 CFR Section 435.916.

  1. Exemption from Public Notice Procedures 42.CFR Section 431.416(g).  CMS may expedite the federal and State public notice requirements in the event it determines that the objectives of title XIX and XXI would be served or under circumstances described in 42 CFR Section 431.416(g).

f.    Federal Financial Participation (FFP): If the project is terminated or any relevant waivers suspended by the State, FFP shall be limited to normal closeout costs associated with terminating the demonstration including services and administrative costs of disenrolling participants.

 

10.  Post Award Forum.  Within six months of the demonstration’s implementation,  and annually thereafter, the State will afford the public with an opportunity to provide meaningful comment on the progress of the demonstration.  At least 30 days prior to the date of the planned public forum, the state must publish the date, time and location of the forum in a prominent location on its website.  The state can either use its Medical Care Advisory Committee, or another meeting that is open to the public and where an interested party can learn about the progress of the demonstration to meet the requirements of this STC.  The state must include a summary of the comments in the quarterly report as specified in STC 46 associated with the quarter in which the forum was held.  The State must also include the summary in its annual report as required in STC 48.

 

11.  Federal Financial Participation (FFP).  If the project is terminated or any relevant waivers suspended by the state, FFP shall be limited to normal closeout costs associated with terminating the demonstration including services and administrative costs of disenrolling enrollees.

 

  1. Expiring Demonstration Authority. For demonstration authority that expires prior to the demonstration’s expiration date, the state must submit a transition plan to CMS no later than six months prior to the applicable demonstration authority’s’ expiration date, consistent with the following requirements:

 

  1. Expiration Requirements.  The state must include, at a minimum, in its demonstration expiration plan the process by which it will notify affected beneficiaries, the content of said notices (including information on the beneficiary’s appeal rights), the process by which the State will conduct administrative reviews of Medicaid eligibility for the affected beneficiaries, and ensure ongoing coverage for eligible individuals, as well as any community outreach activities.

 

(Pages 7-17 omitted)

  1. Administrative Costs.  Administrative  costs will not be included in the budget neutrality limit, but the State must separately track and report additional administrative costs that are directly attributable to the demonstration, using Forms CMS-64.10 Waiver and/or 64.10P Waiver, with waiver name Local Administration Costs (“ADM”).

 

  1. Claiming Period.  All claims for expenditures subject to the budget neutrality limit (including any cost settlements) must be made within 2 years after the calendar quarter in which the State made the expenditures.  Furthermore, all claims for services during the demonstration period (including any cost settlements) must be made within 2 years after the conclusion or termination of the demonstration.  During the latter 2-year period, the State must continue to identify separately net expenditures related to dates of service during the operation of the section 1115 demonstration on the Form CMS-64 and Form CMS-21 in order to properly account for these expenditures in determining budget neutrality.

 

  1. Reporting Member Months. The following describes the reporting of member months for demonstration  populations:

 

  1. For the purpose of calculating the budget neutrality expenditure cap and for other purposes, the State must provide to CMS, as part of the quarterly report required under STC 46, the actual number of eligible member months for the demonstration populations defined in STC 17. The State must submit a statement accompanying the quarterly report, which certifies the accuracy of this information.

 

To permit full recognition of “in-process” eligibility, reported counts of member months may be subject to revisions after the end of each quarter. Member month counts may be revised retrospectively as needed.

 

  1. The term “eligible member months” refers to the number of months in which persons are eligible to receive services.  For example, a person who is eligible for three months contributes three eligible member months to the total.  Two individuals who are eligible for two months each contribute two eligible member months to the total, for a total of four eligible member months.

 

  1. Standard Medicaid  Funding Process.   The standard Medicaid  funding process  must be used during the demonstration.  The State must estimate matchable demonstration

expenditures (total computable and federal share) subject to the budget neutrality expenditure

cap and separately report these expenditures by quarter for each federal fiscal year on the Form CMS-37 for both the Medical Assistance Payments (MAP) and State and Local Administration Costs (ADM).  CMS will make federal funds available based upon the State’s estimate, as approved by CMS.  Within 30 days after the end of each quarter, the State must submit the Form CMS-64 quarterly Medicaid expenditure report, showing Medicaid expenditures made in the quarter just ended.  The CMS will reconcile expenditures reported on the Form CMS-64 quarterly with federal funding previously made available to the State, and include the reconciling adjustment in the finalization of the grant award to the State.