ABC Accounting

January 9, 2015

Activity-Based Costing in Government Internal Accounting

Activity-based costing (ABC) is an accounting method used for internal management to tie costs with the activities associated with those costs. This method allocates indirect or overhead costs in a more accurate manner than traditional accounting methods.

Overhead costs are those costs which cannot be directly traceable to a specific item, activity, or department. An example of overhead cost is an electricity bill incurred for an entire building that is being used to manufacture multiple different products, or is being used by multiple departments. Traditional accounting methods allocate overhead costs of an organization in a simple fashion, usually based on a volume related factor. In the electricity bill example, a traditional method may allocate the cost of the bill between products in a manufacturing building based only on the number of machine hours used, or between departments based on their respective square footage. This allocation does not take into account differing electricity usages by different product machines or by different departments within the buildings.

ABC accounting separates all of the different activities which use resources by an entity and specifically identifies the common factors driving costs for each activity (also called the cost drivers). Cost drivers can include factors such as labor hours for wage costs, machine hours for production costs, square feet of space for rent costs, or miles driven for vehicle costs to name a few examples. Costs must be identified as belonging to a certain activity, then all costs associated with each activity are pooled together in cost pools. Cost pools are divided by cost driver units to arrive at a unit cost per each activity. Once a unit cost for each cost driver and activity is determined, then a product or department can receive accurate cost allocations based upon their usage of cost drivers. Unit costs can also be used for more accurate budgeting and decision making in the future. An in-depth example of activity-based costing in a government agency, the Iowa Department of Transportation, can be found in the Murphy Commission report.¹

Obvious drawbacks of implementing activity-based costing systems are the expense and time required to identify all cost activities of state agencies, their related cost drivers, develop software to accurately track these costs, and train employees to effectively maintain the system. However, existing statewide use of SAP systems in Arkansas could possibly mitigate the startup expenses. Opponents of ABC accounting could address the complexity of implementation, but as addressed by John Turner of the Public Interest Institute, ABC concepts are those that accountants should be familiar with from school.²

Many states use the activity-based costing system within internal accounting of state agency expenditures. Agencies in Texas, Iowa, Virginia, and Utah have switched to ABC accounting methods.^{1 3} North Carolina, South Carolina, Florida, Indiana, Minnesota, and Mississippi all adopted statutes requiring the use of activity-based costing accounting by local governments.²Mark Abrahams of the Abrahams Group assisted Iowa, Montana, Washington, and multiple cities and counties nationwide in incorporating activity-based costing into government operations.⁴

Utah adopted this system in 2008 as part of its Free Market Protection and Privatization Board Act, which was last amended in 2013.⁵ Leonard Gilroy, Director of Government Reform for the Reason Foundation, recommended its implementation for Utah government services so that costs associated with government or non-government activities would be accurately reflected.⁶ The Act also created a Privatization Policy Board to conduct inventories of state agencies and make the determination of whether an agency function is inherently governmental or commercial.⁶ That determination allows citizens to see how much state resources are spent on government versus private activities, and also gives public officials a chance to engage the private sector to perform certain activities instead of the government.⁶

Iowa implemented activity-based costing when it established its Department of Administrative Services in 2003 to manage the resources of the state. Section 8A.505 of the Act requires the department to “establish an indirect cost allocation system based upon standard cost accounting methodologies to allocate direct and indirect costs of state agencies.”⁷ The Department issued Regulation 11.1.4(6), which incorporates activity-based costing into its operations.⁸ Furthermore, under §8A.102-4, a governor appointed director oversees all of the financial and administrative activities of the state, including “developing best practices for the efficient operation of government and encourage state agencies to adopt and implement these practices.”⁷

States which have adopted ABC accounting did so in a manner unique to those states, for each state has differing economies and activities which contains different cost drivers. To be implemented in Arkansas, the state would have to develop a system of allocation and cost drivers unique to Arkansas. Then, like other states, Arkansas would need to create new government positions to monitor its use and ensure that ABC is being implemented effectively. Doing so would provide Arkansas public officials and citizens with more accurate data on where expenditures are going, and would provide officials with a useful tool of budgeting going forward.

Sources:

Murphy Commission. 1996-1999. “Making Arkansas’ State Government Performance Driven and Accountable.” <http://www.arkansaspolicyfoundation.org/policy/performance_driven.html>
Turner, John H. “Requiring Local Governments to Utilize Full Cost Accounting Methods.” Public Interest Institute 2.1 (1997): 5-7. <http://www.limitedgovernment.org/publications/pubs/limits/limmar97.pdf.>
Briner, Russell F., Mark Alford, and Jo Anne Noble. “Activity-Based Costing for State and Local Governments.” Management Accounting Quarterly 4.3 (2003): 8-9.
Abrahams, Mark D. The Abrahams Group. N.p., n.d. <http://www.theabrahamsgroup.com/Introduction_Resume.htm>
Utah House Bill 75 (2008 General Session) (enacted). Inventory and Review of Commercial Activities. <http://le.utah.gov/~2008/bills/static/HB0075.html>; Utah House Bill 94 (2013 General Session) (amended). Free Market Protection and Privatization Board Act Amendments. <http://le.utah.gov/~2013/bills/static/HB0094.html>
Agency Activity Inventory a Powerful Tool to “Right-Size” State Government, Utah Senate Business and Labor Standing Committee Cong. (2008) (testimony of Leonard Gilroy). <http://reason.org/news/show/agency-activity-inventory-a-po>
Legis. Serv. 145 (H.F. 534), 80th Gen. Assemb., Reg. Sess. (Iowa 2003)
https://www.legis.iowa.gov/law/statutory/acts (Iowa Acts Quick Search: GA 80, Session 1, Chapter 0145)
Iowa Admin. Code 11-1.4(8A) (2013).

Edwin Flores In Policy Positions

Containing Government Growth

Summary

This act is intended to contain the growth of Arkansas government by limiting government expenditures from year to year to the growth in inflation plus population. In addition, there will be revenue limits restricting the raising of taxes. This method alone will not change the appropriations and budgeting process, but rather responsibly limit the total number of expenditures. This bill will prevent policy makers from increasing state spending that does not reflect voters’ willingness to pay for government services.[1] Over 30 states have passed similar measures.[2]

In effect, this limit gives the people of Arkansas control on how much they want government to spend, and the legislators remain in control on what to spend the money on. It would prevent government from spending away everything it brings in, and will return extra revenue back to the people.

This is a responsible limit because it addresses the need to contain the growth in government expenditures, as well as addressing the needs in providing services to a growing population and changing value of the dollar. A working formula would look as follows:

Expenditure Limit = Previous Year Expenditures + (Previous Year Expenditures x (Inflation + Population Growth))

Inflation – means the percentage change in CPI in the United States Bureau of Labor Statistics Consumer Price Index (CPI) for South Region, all items, all urban consumers, or its successor index.

Population Growth – means the annual federal census estimates for Arkansas and such number shall be adjusted every decade to match the federal census.

The power to change this limit should be placed in the hands of the people rather than legislatures. Legislatures have incentives to continue government growth and spending by providing loopholes, exemptions, and special considerations that would undermine the limit. Measures that legislators can work around do not restrain spending.[3]

A comparable constitutional amendment was passed in Colorado in 1992 known as the Taxpayer Bill of Rights. That bill provided taxpayer refunds in 1997-2000 of over $2.3 Billion to the people of Colorado.[4] A simulation shows that if a similar formula had been enacted in 1980, Arkansas would have spent over $120 Billion LESS between 1980-2008. (Tax Foundation, TABOR calculator).

An ideal bill for Arkansas should contain the following provisions:

Growth in government expenditures limited to inflation plus population growth.
Any revenue collected over the limit goes immediately back to the taxpayers, and all tax increases have to be approved by a vote of the people.
When transferring government programs the overall limit must be reduced down accordingly.
Supermajority vote of legislature or popular vote of the people to change the limit or raise/change any taxes.

Introduction

Over 30 states have enacted some type of tax or expenditure limit (TELs).[5] TELs place a limit on how much taxes, revenues, or expenditures can increase in a state each year.[6] There are various types of TELs and no two are the same. The states change and adapt them for each state. The most common types of TELs include limitations based on (1) inflation + population growth, (2) Personal Income Growth, (3) Share of Income, (4) a Fixed Number, or (5) some variation of these.[7][8]

Effectiveness of TELs

TELs passed by initiative are more restrictive and contain fewer loopholes than those enacted by state legislatures.[9] TELs that limit government spending to the inflation rate plus population growth and mandate immediate rebates of government surpluses are more effective at limiting government expenditures than are other TELs.[10] This in turn creates incentives to cut taxes when it appears that revenues are going to exceed the limit. TELs that allow legislatures to increase the limit or work around them in some way do not restrain spending.[11] TELs that limit growth to the growth in state income is associated with slightly smaller budgets in low-income states, but is associated with larger budgets in high-income states.[12] TELs built as “some share of income” “have no statistically significant impact on either state-only spending or stand-and-local spending.”[13] TELs at a fixed number result in higher budget growths.[14]

Characteristics that tend to have more of an impact on keeping spending down include: (a) extra-legislative adoption, (b) constitutional codification, (c) a supermajority or public vote requirement for overrides, (d) a provision that automatically and immediately refunds surpluses in excess of the limit, and (e) prohibition on unfunded mandates to the local levels.[15]

Some research advocates that TELs are not effective at actually reducing government spending.[16] That conclusion is made because of the level of significance measured, and because of how TELs are structured.[17] At least one report states there is no statistical significance between states that have TELs and those that do not.[18] A measure was statistically significant if it was at least 5% of a difference.[19] Even though few states met that 5%, small percentages out of billions of dollars spent would still be significant to others. Most TELs do reduce per capita expenditures, but the ones that use formulas and calculations that included extra measures beyond just inflation plus population growth did not see much reduction in the growth of government expenditures. Many states enact TELs structured to allow them to say to constituents that they are reducing government growth, while actually allowing for them to spend more.

The “Anti-Tel” research advocated other measures to limit government expansion that include (1) increase competition among bureaus, (2) forcing state and localities to compete with each other, and (3) allow bureaus to compete for budget dollars in the provision of given services.[20] Zycher states that “TELs will be unable to substitute for the hard work of long-term public education and persuasion about the central benefits of reduced government spending.”[21] However, it seems like that advice coupled with a strict TEL like Colorado’s TABOR and described in the summary would help towards more economic freedom for Arkansans.

TEL Calculator

A “TEL Calculator” has been developed by the Tax Foundation to show how a certain TEL would impact a certain state over a certain period of time. There are options to apply differing styles of TELs to the same data. The TEL calculator can be found at http://interactive.taxfoundation.org/tabor/ .

Arguments For TELs

TELS are generally supported by those advocating smaller government and less spending such as conservatives and libertarians. This includes the national group Americans for Prosperity, and the CATO Institute’s support for TELs limited to inflation plus population growth. Common arguments in favor of TELs include[22]:

Enhance the stability of the policy environment;
Assure state residents that taxes will not rapidly increase unless a majority is in favor of change;
Make government more accountable;
Force more discipline over budget and tax practices;
Make government more efficient;
Control the growth of government;
Enable citizens to vote on tax increases and determine their desired level of government service;
Force government to evaluate programs and prioritize services;
Raise questions about the advisability of some functions provided by state government;
Help citizens feel empowered and result in more taxpayer satisfaction;
Help diffuse the power of special interests.

Arguments Against TELs

TELs are generally opposed by those advocating larger government and more spending such as liberals and those interests benefiting from more government spending. Interests that rely on government funding and subsidizing generally do not support TELs. Bell Policy Center is a leading advocate against TELs, specifically those like Colorado’s TABOR. Common arguments in opposition to TELs include[23]:

Shift fiscal decision making away from elected representatives;
Cause disproportional cuts for non-mandated or general revenue fund programs;
Make it harder for states to raise new revenue;
Cause a “ratchet-down” effect where the limit causes the spending base to decrease so that maximum allowable growth will not bring it up to the original level;
Result in excess revenues that are difficult to refund in an equitable or cost-effective manner;
Result in declining government service levels over time;
Fail to provide enough revenues to meet continuing levels of spending in hard economic times;
Shift the state tax base away from the income tax to the more popular (but regressive) sale tax if voter approval is required.
Does not allow local municipals to raise taxes and spend more if those constituents with for that
Increase in Health Care Services will reduce other services proportionally

Case Study: Colorado

Colorado’s TEL, the “Taxpayer Bill of Rights” (TABOR) is perhaps the most well-known TEL. It is praised by limited government supporters and demonized by big government advocates. TABOR was a constitutional amendment approved by the people of Colorado in 1992 that “limits revenue growth for state and local governments and requires that any tax increases be approved by the voters of the affected government.”[24] The expenditure limit was set at inflation plus population growth. Specifically, voter approval was required for (1) tax rate increases, (2) imposition of new taxes, and (3) increases in property tax assessment ratios.[25] Also, TABOR explicitly prohibits implementation of new or increased (1) Real Estate Transfer Taxes, (2) Local Income Taxes, (3) State Property Taxes, and (4) State Income Tax Surcharges.[26]

“Without any voter-approved adjustments to the limit, the TABOR cap ensures that state revenue growth will remain below the rate of economic growth in the state.”[27] TABOR also prevented creation of “Rainy Day” funds, with the excess revenue over 3% going back to the voters.[28]Emergencies require a supermajority vote of the legislature, and are general limited to natural disasters.

TABOR provided taxpayer refunds in 1997-2000 of over $2.3 Billion to the people of Colorado.[29]

In 2005, the people of Colorado approved a Referendum that basically “suspended” TABOR for five years. This allowed the state to take in all raised revenue with no rebates to the people, and exceed spending limits.[30] This allowed the state to keep over $1.3 Billion that would have returned to taxpayers as rebates.[31]

Colo. Const art. 10, §20

Colorado’s Taxpayers Bill of Rights (TABOR)

Colorado’s Taxpayers Bill of Rights (TABOR), with Annotations

Case Study: Utah

Utah passed a TEL by legislation back in 1989 that would set an expenditure limit at inflation plus population growth plus the growth in personal income.[32] In 2004, the limitation removed the growth in personal income from the limit.[33] This made the limit more restrictive and began “limiting the growth in state spending to the relatively low percentages of population growth and inflation.”[34] Utah’s bill did not appear to include provisions for refunds to the public when the spending limit was not met. This aspect incentivized legislators to spend more. So, those differences became smaller as more spending occurred. In 2004 there was $150 million below the spending limit, $88 million below in 2005, $50 million below in 2006, and then estimated for just $9.5 million below the limit.[35] In addition, there were numerous programs and funds exempt from the expenditure limit including public education, debt service expenditures, emergency expenditures, Rainy Day Fund, Education Rainy Day Fund, one-time project cots for capital developments, Centennial highway fund restricted account, and transportation investment fund.[36]

Utah’s change to keep the limit at inflation plus population growth was good, but the numerous exemptions and lack of refunds show the effects likely to occur – a lack of better containing government growth. A provision that would refund those large sums of money would incentivize tax breaks to avoid the refunds or provide the actual refunds back to the people. Making sure the bill included practically all government expenditures within the limit would avoid re-classifying expenditures to avoid the limit.

Utah Code Ann. §63J-3-101-402

Utah TEL

Case Study: Ohio

Ohio passed a TEL through the legislature in 2006. Their version would limit government expenditures by either inflation plus population growth or 3.5%, whichever is greater.[37] This means that there is a guaranteed spending increase in government of at least 3.5% per year, regardless of any other factors. The Ohio bill also included a provision that excess revenues brought in above the expenditure limit would go into a “rainy day” fund up until it is 15% of the budget, and only then would refunds be distributed out to the people of Ohio.[38] Also, it did not put the power of tax increases in the hands of voters, and so if there are any new constitutionally mandated spending increases into the fiscal legislation, the TEL becomes null and void.[39] The bill does not limit tax increases.[40]

Ohio’s bill shows that changing the formula and other attributes just slightly can affect the actual goal of containing government growth. This law could allow for an increase in expenditures even during periods of deflation and population reduction, although it will keep government from growing at a larger pace than 3.5% a year, it may do little in true containment of growth. A better solution would be like the one proposed in the summary that is more kin to the Colorado TABOR bill. The TEL proposal in Ohio “provides incentives to the legislature and those who benefit from public spending to budget the entire “guaranteed” maximum increase in public spending of 3.5%.

Ohio Rev. Code Ann. §131.55-60

Ohio TEL

Sources

Hill, Edward, Ph.D., Matthew Sattler, Jacob Duritsky, Kevin O’Brien, and Claudette Robey. A Review of Tax Expenditure Limitations and Their Impact on State and Local Government In Ohio. Issue brief. Cleveland: Cleveland State U – Maxine Goodman Levin College of Urban Affairs, 2006. Web. 6 Jan. 2015. <http://urban.csuohio.edu/publications/center/center_for_public_management/tel31806.pdf>.

Kinnaird, Andrew, and Cameron Smith. Exploring a Constitutional Expenditure Limit for Alabma. Rep. Birmingham, AL: Alabama Policy Institute, 2013. Print.

McGuire, Therese J., Ph.D., and Kim S. Rueben, Ph.D. THE COLORADO REVENUE LIMIT: The Economic Effects of TABOR. Issue brief. Washington DC: Economic Policy Institute, 2006. Briefing Paper. Web. 5 Jan. 2015. <http://www.epi.org/publication/bp172/>.

Mitchell, Matthew., Ph.D. TEL IT LIKE IT IS: Do State Tax and Expenditure Limits Actually Limit Spending? Working paper no. 10-71. Washington DC: Mercatus Center – George Mason U, 2010. Web. 2 Jan. 2015. <http://mercatus.org/sites/default/files/publication/TEL%20It%20Like%20It%20Is.Mitchell.12.6.10.pdf>.

New, Michael J., Ph.D. “Limiting Government Through Direct Democracy: The Case of State Tax and Expenditure Limitations.” Policy Analysis 420 (2001): 1-17. Cato Institute. Web. 2 Jan. 2015. <http://www.cato.org/publications/policy-analysis/limiting-government-through-direct-democracy-case-state-tax-expenditure-limitations>.

Patton, W. David, Ph.D. “Hitting the State Spending Limit.” Policy Perspectives 2.11 (2006): 1-6. Center for Public Policy and Administration – University of Utah, 20 Dec. 2006. Web. 6 Jan. 2015. <http://www.imakenews.com/cppa/e_article000718531.cfm?x=b11,0,w>.

“TABOR Bill with Annotations.” N.p., 13 July 2011. Web. 6 Jan. 2015. <http%3A%2F%2Fwww.colorado.gov%2Fcs%2FSatellite%3Fblobcol%3Durldata%26blobheader%3Dapplication%252Fpdf%26blobkey%3Did%26blobtable%3DMungoBlobs%26blobwhere%3D1251726086092%26ssbinary%3Dtrue>.

“The Taxpayer’s Bill of Rights (TABOR).” TABOR Text. N.p., n.d. Web. 2 Jan. 2015. <http://www.douglasbruce.com/ECO/ECOcontent.php?it=85>.

Waisanen, Bert. State Tax and Expenditure Limits. Issue brief. National Conference of State Legislators, 2010. Web. 2 Jan. 2015. <http://www.ncsl.org/research/fiscal-policy/state-tax-and-expenditure-limits-2010.aspx>.

Washington, Emily, and Frederic Sautet, Ph.D. Tax and Expenditure Limits for Long-Run Fiscal Stability. Issue brief no. 61. Washington DC: Mercatus Center – George Mason U, 2009. Mercatus On Policy. Web. 2 Jan. 2015. <http://mercatus.org/publication/tax-and-expenditure-limits-long-run-fiscal-stability>.

Zycher, Benjamin, Ph.D. State and Local Spending: Do Tax and Expenditure Limits Work? Rep. Washington DC: American Enterprise Institute, 2013. Web. <https://www.aei.org/wp-content/uploads/2013/05/-state-and-local-spending-do-tax-and-expenditure-limits-work_152855963641.pdf>.

Endnotes

[1] Washington at p.1

[2] Zycher at p.1

[3] Washington at p.2

[4] New at p.12

[5] Zycher at p. 1

[6] New at p. 3

[7] Waisanen at p.2

[8] Mitchell at p.22

[9] New at p. 3

[10] Id.

[11] Washington at p. 2

[12] Mitchell at p. 22

[13] Id.

[14] Id.

[15] Id. At 23

[16] Zycher at p.1

[17] Id. At 20

[18] Id.

[19] Id.

[20] Id. At 46

[21] Id.

[22] Waisanen at p.4

[23] Id.

[24] Id.

[25] McGuire at p.2

[26] Id.

[27] Waisanen at p.4

[28] Id.

[29] New at p.12

[30] Waisanen at p.5

[31] Washington at p.3

[32] Patton at p.1

[33] Id.

[34] Id.

[35] Id. at p. 3

[36] Id.

[37] Hill at p.39

[38] Id. at p.40

[39] Id.

[40] Id.

What Other States Are Doing

State	Year Adopted	Constitution or Statute	Type of Limit	Main Features of the Limit
Alaska	1982	Constitution	Spending	A cap on appropriations grows yearly by the increase in population and inflation.
Arizona	1978	Constitution	Spending	Appropriations cannot be more than 7.41% of total state personal income.
California	1979	Constitution	Spending	Annual appropriations growth linked to population growth and per capita personal income growth.
Colorado	1991	Statute	Spending	General fund appropriations limited to the lesser of either a) 5% of total state personal income or b) 6% over the previous year’s appropriation.
	1992	Constitution	Revenue & Spending	Most revenues limited to population growth plus inflation. Changes to spending limits or tax increases must receive voter approval.
	2005	Referendum	Revenue & Spending	Revenue limit suspended by voters until 2011, when new base will be established.
	2009	Statute	Spending	Revised general fund appropriations limit to remove the 6% of prior year appropriations alternative, while retaining a limit based on 5% of total state personal income.
Connecticut	1991	Statute	Spending	Spending limited to average of growth in personal income for previous five years or previous year’s increase in inflation, whichever is greater.
	1992	Constitution	Spending	Voters approved a limit similar to the statutory one in 1992, but it has not received the three-fifths vote in the legislature needed to take full effect.
Delaware	1978	Constitution	Appropriations to Revenue Estimate	Appropriations limited to 98% of revenue estimate.
Florida	1994	Constitution	Revenue	Revenue limited to the average growth rate in state personal income for previous five years.
Hawaii	1978	Constitution	Spending	General fund spending must be less than the average growth in personal income in previous three years.
Idaho	1980	Statute	Spending	General fund appropriations cannot exceed 5.33% of total state personal income, as estimated by the State Tax Commission. One-time expenditures are exempt.
Indiana	2002	Statute	Spending	State spending cap per fiscal year with growth set according to formula for each biennial period.
Iowa	1992	Statute	Appropriations	Appropriations limited to 99% of the adjusted revenue estimate.
Louisiana	1993	Constitution	Spending	Expenditures limited to 1992 appropriations plus annual growth in state per capita personal income.
Maine	2005	Statute	Spending	Expenditure growth limited to a 10-year average of personal income growth, or maximum of 2.75%. Formulas are based on state’s tax burden ranking.
Massachusetts	1986	Statute	Revenue	Revenue cannot exceed the three-year average growth in state wages and salaries. The limit was amended in 2002 adding definitions for a limit that would be tied to inflation in government purchasing plus 2 percent.
Michigan	1978	Constitution	Revenue	Revenue limited to 1% over 9.49% of the previous year’s state personal income.
Mississippi	1982	Statute	Appropriations	Appropriations limited to 98% of projected revenue. The statutory limit can be amended by majority vote of legislature.
Missouri	1980	Constitution	Revenue	Revenue limited to 5.64% of previous year’s total state personal income.
	1996	Constitution	Revenue	Voter approval required for tax hikes over approximately $77 million or 1% of state revenues, whichever is less.
Montana*	1981	Statute	Spending	Spending is limited to a growth index based on state personal income. * In 2005 the Attorney General invalidated the statute, and it is not in force at this time.
Nevada	1979	Statute	Spending	Proposed expenditures are limited to the biennial percentage growth in state population and inflation.
New Jersey	1990	Statute	Spending	Expenditures are limited to the growth in state personal income.
North Carolina	1991	Statute	Spending	Spending is limited to 7% or less of total state personal income.
Ohio	2006	Statute	Spending	Appropriations limited to greater of either 3.5% or population plus inflation growth. To override need 2/3 supermajority or gubernatorial emergency declaration.
Oklahoma	1985	Constitution	Spending	Expenditures are limited to 12% annual growth adjusted for inflation.
	1985	Constitution	Appropriations	Appropriations are limited to 95% of certified revenue.
Oregon	2000	Constitution	Revenue	Any general fund revenue in excess of 2% of the revenue estimate must be refunded to taxpayers.
	2001	Statute	Spending	Appropriations growth limited to 8% of projected personal income for biennium.
Rhode Island	1992	Constitution	Appropriations	Appropriations limited to 98% of projected revenue (becomes 97% July 1, 2012).
South Carolina	1980 1984	Constitution	Spending	Spending growth is limited by either the average growth in personal income or 9.5% of total state personal income for the previous year, whichever is greater. The number of state employees is limited to a ratio of state population.
Tennessee	1978	Constitution	Spending	Appropriations limited to the growth in state personal income.
Texas	1978	Constitution	Spending	Biennial appropriations limited to the growth in state personal income.
Utah	1989	Statute	Spending	Spending growth is limited by formula that includes growth in population, and inflation.
Washington	1993	Statute	Spending	Spending limited to average of inflation for previous three years plus population growth.
Wisconsin	2001	Statute	Spending	Spending limit on qualified appropriations (some exclusions) limited to personal income growth rate.

Edwin Flores In Uncategorized

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 31^st [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 31^st.

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.

Edwin Flores In Uncategorized

AFFORDABLE CARE ACT FORUM

Edwin Flores In News & Information

HEALTHCARE FORUM GIVES ARKANSANS A HEADS UP

Edwin Flores In News & Information

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:

Preface
Program Description And Objectives
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
        
        General Financial Requirements
        
        Monitoring Budget Neutrality
        
        Evaluation
        
        Monitoring
        
        Health Information Technology and Premium Assistance
    3. T-MSIS

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.

Compliance with Transparency Requirements at 42 CFR §431.412.

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.

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

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.

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.

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.
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.

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.

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:

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)

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”).

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.

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

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.

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.

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.

Edwin Flores In News & Information

“NO TO THE PO” – TERMINATION OF THE ARKANSAS “PRIVATE OPTION”

CALL FOR ACTION

“NO TO THE PO”

TERMINATION OF THE ARAKANSAS “PRIVATE OPTION”

Jan 6, 2014

As leaders responsible to the people of Arkansas, we will work to terminate the Arkansas Health Care Independence Act of 2013 (Private Option) over the next two months for the following reasons:

Our primary concern is for the complete health and well-being of the people of Arkansas. We will work to insure that the excellent health care (as opposed to health insurance) enjoyed in this great country is continued and available to all Arkansans at affordable costs.

It is our job to protect the health care and financial condition of our total population, including:
- Our approximate 3,000,000 citizen;[i]
- our 200,000 citizens expected to be covered under the Private Option;[ii]
- our 50,000 small business owners (which include many of our finest medical doctors);[iii]
- as well as the fine health care facilities in Arkansas from which we all benefit.

Our concern for Arkansans’ as a result of the passage and implementation of the Private Option are summed up in one statement:

The intent, purposes, and ability to terminate the Arkansas Health Care Independence Act of 2013 have been thwarted by the contract forced on Arkansas by the federal government which unilaterally expanded entitlement benefits to the participants.[iv]

Our specific concerns are as follows:

Obamacare is bad for Arkansas and the Private Option is the expansion of Obamacare:

For an overwhelming number of reasons Obamacare is clearly harmful to health care for all Arkansans;
Arkansans overwhelmingly oppose Obamacare;
As a result of the contract with the federal government, the Private Option is now proven to be an expansion of Medicaid and Obamacare in Arkansas-thus causing Arkansans to be forced into aiding in the implementation of Obamacare in our entire state and country– contrary to the 2012 US Supreme Court ruling.[v]

The Private Option was quickly passed in April 2013 due to what we now know was a false sense of urgency, based on now false principles and false assumptions , not the least of which was that the Arkansas Legislature could pull the trigger on the PO at its discretion .
c. Now that we have passed it….and now “read it”,[vi] we discover that Arkansas has entered into a contract with the federal government vastly different than the Arkansas legislature intended.[vii]

Those differences thwart the intent, purposes, and ability to terminate the Act while giving participants entitlement benefits.

d. These differences are set out below.

i. The intent and purposes of the Health Care Independence Act of 2013[viii] have been thwarted in that:

Rather than competitive and value based purchasing of insurance with increased participation, intensifying price pressures, and reduce costs for both publicly and privately funded health care, we have limited state-wide providers at increased premiums expected to be 138.6% more than prior to the passage of the Act (5^th highest increase in the nation);[ix] and we have more than 18 new federal taxes to pay as a result of Obamacare.[x]
Rather than promoting personal responsibility and efficiencies through cost sharing as well as discourage over-utilization and reduce waste, fraud, and abuse, we see that programs such as the PO have proven to drive use of the emergency room up 40% for non-emergencies by the users with no improved health consequences; [xi] (and since there is no costs to these users thus no cost sharing involved.)
Rather than private health care options increasing and government-operated programs such as Medicaid decreasing-and actually reducing the size of the state-administered Medicaid program, we see the PO has expanded Medicaid;[xii]
Rather than the decisions about the design, operation and implementation of the PO, including cost, remaining within the purview of the State of Arkansas and not with Washington, DC, we find that the contract forced on Arkansas by the federal government gives the federal government all the say on design, operation, implementation and the cost—including how much or that all the costs are borne by Arkansas taxpayers.[xiii]
5. Rather than improving access to quality health care and increasing quality and delivery system efficiencies, we find from the assurances of our own Arkansas medical community and unbiased national research that health care will be limited and likely rationed compared to that which Arkansans have grown accustomed. “Like having a life-time of gasoline for your bicycle,” was a recent statement made by a local family practice doctor when asked what he thought of Obamacare and Arkansas’ implementation of its Private Option. [xiv] (Sadly we have just witnessed a hospital in CA fighting in court to take from the family the decision to end the life of a young patient—in the name of quality affordable care-referencing her as a deceased body.)[xv]

ii. The triggers within the Act to terminate the program at the discretion of the Arkansas legislature are effectively removed or without real consequence. The five (5) triggers[xvi] within the Act are the following:

1 of 5: DHS is only allowed to submit to the federal government Medicaid State Plan amendments which are optional and therefore may be revoked by the state at its discretion;
2 of 5: If DHS is unable to confirm AR employers shall not be subject to penalties…the program shall not be implemented;
3 of 5: The Program shall terminate within 120 days after a reduction in any federal medical assistance percentages –meaning if the program costs AR in excess of 0% to 10% between 2014 and 2020 it is terminated;
4 of 5: An eligible individual enrolled in the program shall affirmatively acknowledge that the program is not a perpetual federal or state right or a guaranteed entitlement and subject to cancellation upon appropriate notice;
5 of 5: This Act requires appropriations for its continuation; if such is not made by the Arkansas legislature, the Act is void.

Although the Act itself contains the above triggers, through its Terms and Conditions contract[xvii] the federal government (CMS) has forced provisions into the PO which prevent discretionary termination. The contract with CMS purports to severely limit Arkansas’ ability to terminate the program by:

Giving the federal government (CMS) authority to approve or disapprove a transition and phase-out plan.
Providing the state cannot even begin phase-out procedures until receiving CMS approval.
Imposing a lengthy minimum notice period of seven months. This leaves one wondering whether, if the seven month period were to go into or near a new calendar year, would CMS impose another 12 months of coverage beyond the notice period (mirroring “eternal life of a government program” syndrome.)

iii. It was stated in the Arkansas legislation that the private option is not an entitlement program but the CMS Terms and Conditions give rights to participants. CMS added as a condition for terminating the program, that participants in the Private Option then be given an opportunity for a hearing on whether he or she is eligible to be covered by Medicaid and added a requirement that during the person’s appeal process the participant must still be given coverage under the private option, which could be even after the Private Option was scheduled to terminate.

iv. CMS added a condition that has the potential of causing the state to pay more than allowed in Arkansas’ Health Care Independence Act of 2013. CMS added a budget neutrality requirement which could shift cost overruns to Arkansas. Budget neutrality is not an unusual provision, however, it must be noted that the provision has the potential of increasing Arkansas’ burden beyond the spending limits set in Arkansas’ Health Care Independence Act of 2013, at the discretion of the federal government.

v. CAN WE TRUST THE FEDERAL GOVERNMENT NOT TO CHANGE THE RULE ON US? The track record of the Affordable Care Act is so bad that it is difficult to keep up with all the changes, exemptions and delays. Medicaid expansion is part of that legislation. For Arkansas Medicaid expansion wavier, allowing Arkansas to offer the “Private” Option, CMS Terms and Conditions have already changed the ground rules Arkansas set by its legislation.

vi. SHORT-TERM FEDERAL FUNDING ADVANTAGE VERSUS LONG TERM STATE OBLIGATION. The federal government promises 100% funding initially but after the state has gotten used to having the program the funding goes down to 90% and who knows what the federal funding will be in a few years when the program is fully entrenched in Arkansas.

vii. IS FEDERAL FUNDING LEVEL SUSTINABLE? Remember the funding is being promised by a federal government that is over $17 trillion in debt and rising.

viii. FREE MONEY IS NOT FREE. It was too tempting not to take “free” federal money that Arkansas would lose out on if Arkansas didn’t expand Medicaid or do so through the Private Options. But the money is not free. By Arkansas adding this PO, we have increased the burdens on all across the US. And the money comes from our taxes. Be aware that several new taxes have been added (at least 18). Also, be aware that the “free money” adds to our national debt that ruins our economy and that will continue to burden our children and grandchildren.

ix. WHY HAVE SO MANY STATES REFUSED THE MONEY? If the “free” money was such a good thing then why have only half of the states accepted the money? Many states have refused to expand Medicaid coverage. The Private Option is just another way of expanding the coverage. Note that in Arkansas’ waiver application the state admits that expansion of Medicaid is not workable in Arkansas.[xviii]

ARKANSAS CAN AND WILL TAKE CARE OF ITS OWN! We are committed first to the health and well-being of Arkansans. As a result, we will work to immediately end the PO and replace it with real Health Care reform which is good for all Arkansas. We can do this! We do not need an overreach by the federal government or enslavement to federal debt to take care of the health and welfare of those in our state.

This “Call for Action” is endorsed by the following AR State Senators and AR House Members:

Senators: House Members:

[i] http://quickfacts.census.gov/qfd/states/05000.html

[ii] Page 2 of CMS Terms & Conditions; see http://www.conduitforaction.org/arkspecialtermsandconditions/

[iii]http://www.sba.gov/sites/default/files/files/ar10.pdf

[iv] (CFC)-ISSUES WITH THE CMS TERMS AND CONDITIONS:

To implement Arkansas’ Private Option the state filed an application for 1115 Waiver from Medicaid requirements. The application was approved but as a condition for approval, CMS attached terms and condition as a condition for approval. The requirements are identified as Centers for Medicare and Medicaid Special Terms and Conditions, Document Number 11-W-00287/6.

Notice. Arkansas’ Health Care Independence Act of 2013 says Arkansas may terminate the private option “upon appropriate notice”.[iv] (ACA 20-77-2405 (i)(2)) Although “appropriate notice” is not defined in the act, it should be noted that the act provides that if federal medical assistance percentages fall below a threshold, the program automatically terminates within one hundred twenty (120) days. (ACA 20-77-2405 (h)) The CMS Terms and Conditions purports to make the termination process more difficult and even imposes an approval procedure. The CMS Terms and Conditions: (Note: the ACA subchapter listed in the Arkansas Act l changed once codified.)

Requires a minimum of seven (7) months of termination notice but this period could be longer in trying to meet all CMS requirements. This includes six (6) month written notice to CMS and before that notice a thirty (30) day public comment period before submitting written notice to CMS (Terms and Conditions (9)(a));
Requires Arkansas to obtain CMS approval of a transition and phase-out plan. No standards are specified on the criteria to be used by CMS in determining whether or not to approve the state phase-out plan. No time limit is provided for CMS to take actions. This appears to be a de facto veto power. (Terms and Conditions (9)(b))
Prohibits Arkansas from even beginning implementation of phase-out activities until 14 days after CMS has approved the plan; (Terms and Conditions (9)(b))
Extends the time in which the private option must be operated by guaranteeing participants the right to continue coverage under the private option even after termination of the program, if the person is appealing a Medicaid denial. (Terms and Conditions (9)(d)) The participants in the private option have the right to a hearing to determine if the person is eligible for Medicaid coverage after the termination of the private option. (Terms and Conditions (9)(c))

Not a benefit plan. Arkansas’ Health Care Independence Act of 2013 says “The program is not a perpetual federal or state right or a guaranteed entitlement” and repeats “The program is not an entitlement program.” (ACA 20-77-2405 (i)(2) and (i)(3)) The CMS Terms and Conditions impose procedures during program termination that in no way favor private insurance contract terminations but does resemble a benefit program. The Terms and Conditions say:

If a private option participant requests a hearing before the date of termination of the program, the State must maintain benefits during the appeal. (Terms and Conditions (9)(c) and (9)(d))
In addition, the State must provide for administrative review to determine if private option participants qualify for Medicaid eligibility under a different eligibility category while also maintaining benefits. (Terms and Conditions (9)(d))

Financial obligation. Arkansas’ Health Care Independence Act of 2013 imposes minimum federal medical assistance percentages (including 100% in 2014 and 2015 and lower percentages in future years). (ACA 20-77-2405 (h)) The CMS Terms and Conditions include a budget neutrality expenditure cap for the share paid by the federal government. (Terms and Conditions (55)) Budget neutrality provisions are not uncommon, but the percentage limits in the Arkansas act does not provide for an exception for additional obligations to Arkansas due to a budget neutrality expenditure cap for the federal government.

[v] http://www.supremecourt.gov/opinions/11pdf/11-393c3a2.pdf; National Federation of Independent Business, et al., V. Sebelius, et al., 567 U. S. ____ (2012)

[vi] REP. NANCY PELOSI: “But we have to pass the bill so that you can find out what is in it away from the fog of the controversy.” 3/09/2010; http://www.realclearpolitics.com/video/2013/11/17/david_gregory_asks_pelosi_about_pass_the_bill_so_you_can_find_out_whats_in_it_comment.html

[vii] CMS Terms and Conditions-No 11-W-00287/6 effective Sept 27, 2012 through Dec 31, 2016; see http://www.conduitforaction.org/arkspecialtermsandconditions/

[viii] See http://www.conduitforaction.org/arkansas-health-care-independence-act-of-2013/

(CFC) Specific provisions of “The Arkansas Health Care Independence Act of 2013” version prior to codification:

Intent and Purposes:

20-77-2102. Legislative intent.

(a) Notwithstanding any general or specific laws to the contrary, the Department of Human Services is to explore design options that reform the Medicaid Program utilizing the Health Care Independence Act of 2013 so that it is a fiscally sustainable, cost-effective, personally responsible, and opportunity-driven program utilizing competitive and value-based purchasing to:

(1) Maximize the available service options;

(2) Promote accountability, personal responsibility, and transparency;

(3) Encourage and reward healthy outcomes and responsible choices; and

(4) Promote efficiencies that will deliver value to the taxpayers.

(b)(1) It is the intent of the General Assembly that the State of Arkansas through the Department of Human Services shall utilize a private insurance option for “low-risk” adults.

(2) The Health Care Independence Act of 2013 shall ensure that:

(A) Private health care options increase and government-operated programs such as Medicaid decrease; and

(B) Decisions about the design, operation and implementation of this option, including cost, remain within the purview of the State of Arkansas and not with Washington, D.C.

20-77-2103. Purpose.

(a) The purpose of this subchapter is to:

(1) Improve access to quality health care; 11

(2) Attract insurance carriers and enhance competition in the 12 Arkansas insurance marketplace; 13

(3) Promote individually-owned health insurance; 14

(4) Strengthen personal responsibility through cost-sharing; 15

(5) Improve continuity of coverage; 16

(6) Reduce the size of the state-administered Medicaid program; 17

(7) Encourage appropriate care, including early intervention, 18 prevention, and wellness; 19

(8) Increase quality and delivery system efficiencies; 20

(9) Facilitate Arkansas’s continued payment innovation, delivery 21 system reform, and market-driven improvements; 22

(10) Discourage over-utilization; and

(11) Reduce waste, fraud, and abuse.

Triggers:

20-77-2105. Administration of the Health Care Independence Program.

(a) The Department of Human Services shall:

(1) Create and administer the Health Care Independence Program; and

(2)(A) Submit and apply for any:

(i) Federal waivers necessary to implement the program in a manner consistent with this subchapter, including without limitation approval for a comprehensive waiver under Section 1115 of the Social Security Act, 42 U.S.C. § 1315; and

(ii)(a) Medicaid State Plan Amendments necessary to implement the program in a manner consistent with this subchapter.

(b) The Department of Human Services shall submit only those Medicaid State Plan Amendments under subdivision (a)(2)(A)(ii)(a) of this section that are optional and therefore may be revoked by the state at its discretion.

(B)(i) As part of its actions under subdivision (a)(2)(A) of this section, the Department of Human Services shall confirm that employers shall not be subject to the penalties, including without limitation an assessable payment, under Section 1513 of Pub. L. No. 111-148, as existing on January 1, 2013, concerning shared responsibility, for employees who are eligible individuals if the employees:

(a) Are enrolled in the program; and

(b) Enroll in a Qualified Health Plan through the Health Insurance Marketplace.

(ii) If the Department of Human Services is unable 25 to confirm provisions under subdivision (a)(2)(B)(i) of this section, the program shall not be implemented.

(b)(1) Implementation of the program is conditioned upon the receipt of necessary federal approvals.

(2) If the Department of Human Services does not receive the necessary federal approvals, the program shall not be implemented.

(c) The program shall include premium assistance for eligible individuals to enable their enrollment in a Qualified Health Plan through the Health Insurance Marketplace.

(d)(1) The Department of Human Services is specifically authorized to pay premiums and supplemental cost-sharing subsidies directly to the Qualified Health Plans for enrolled eligible individuals.

(2) The intent of the payments under subdivision (d)(1) of this 2 section is to increase participation and competition in the health insurance market, intensify price pressures, and reduce costs for both publicly and privately funded health care.

(omitted (d)-(g))

(h) The program authorized under this subchapter shall terminate within one hundred twenty (120) days after a reduction in any of the following federal medical assistance percentages:

(1) One hundred percent (100%) in 2014, 2015, 1

or 2016;

(2) Ninety-five percent (95%) in 2017;

(3) Ninety-four percent (94%) in 2018;

(4) Ninety-three percent (93%) in 2019; and

(5) Ninety percent (90%) in 2020 or any year after 2020.

(i) An eligible individual enrolled in the program shall affirmatively acknowledge that:

(1) The program is not a perpetual federal or state right or a guaranteed entitlement;

(2) The program is subject to cancellation upon appropriate

notice; and

(3) The program is not an entitlement program.

20-77-2108. Effective date.

This subchapter shall be in effect until June 30, 2017, unless amended or extended by the General Assembly.

SECTION 3. NOT TO BE CODIFIED. (a) The implementation of this act is suspended until an appropriation for the implementation of this act is passed by a three-fourths vote of both houses of the Eighty-Ninth General Assembly.

(b) If an appropriation for the implementation of this act is not passed by the Eighty-Ninth General Assembly, this act is void.

SECTION 4. NOT TO BE CODIFIED. The enactment and adoption of this act 13 shall supersede Section 21 of HB1219 of the Eighty-Ninth General Assembly, if Section 21 of HB1219 of the Eighty-Ninth General Assembly is enacted and adopted.

SECTION 5. EMERGENCY CLAUSE. It is found and determined by the General Assembly of the State of Arkansas that the Health Care Independence 19 Program requires private insurance companies to create, present to the Department of Human Services for approval, implement, and market a new kind of insurance policy; and that the private insurance companies need certainty about the law creating the Health Care Independence Program before fully investing time, funds, personnel, and other resources to the development of the new insurance policies. Therefore, an emergency is declared to exist, and this act being immediately necessary for the preservation of the public peace, health, and safety shall become effective on:

(1) The date of its approval by the Governor;

(2) If the bill is neither approved nor vetoed by the Governor, 29 the expiration of the period of time during which the Governor may veto the bill; or

(3) If the bill is vetoed by the Governor and the veto is overridden, the date the last house overrides the veto.

[ix] 138.3% higher health insurance premiums (5^th highest increase in the nation) http://wallethub.com/edu/obamacare-report-states-benefiting-most-least/1276/#data-and-graphs

[x] http://blog.heritage.org/2012/08/20/obamacares-18-new-tax-hikes/

[xi] http://www.oregonlive.com/portland/index.ssf/2014/01/oregon_study_finds_that_medica.html

[xii] CMS Terms and Conditions-No 11-W-00287/6 effective Sept 27, 2012 through Dec 31, 2016 ; see http://www.conduitforaction.org/arkspecialtermsandconditions/;

http://www.thv11.com/news/article/292556/2/Medicaid-expands-private-option-plan

[xiii] CMS Terms and Conditions-No 11-W-00287/6 effective Sept 27, 2012 through Dec 31, 2016, see http://www.conduitforaction.org/arkspecialtermsandconditions/

[xiv] https://www.facebook.com/jeff.oland.3/posts/10152098637029259 and

http://wallethub.com/edu/obamacare-report-states-benefiting-most-least/1276/#data-and-graphs

[xv] http://www.cnn.com/2014/01/06/health/jahi-mcmath-girl-brain-dead/

[xvi] See endnote 7 above, “Triggers.”

[xvii] CMS Terms & Conditions, http://www.conduitforaction.org/arkspecialtermsandconditions/