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Why is Arkansas, of all states, becoming the Obamacare poster child?

Jewel Samad/AFP/Getty Images

Arkansas is quickly becoming Obamacare's poster child.

The state's innovative Medicaid expansion — which uses the public program's dollars to buy enrollees private coverage — has cut the uninsured rate nearly in half and become a model for other red states. Mark Pryor, Arkansas's vulnerable Democratic senator, is running on health reform. And on Tuesday, news broke that insurance premiums on the state exchange would fall in 2015.

Arkansas's premiums will be 2 percent lower next year

Preliminary rate information was accidentally leaked late last week, and reported by the Arkansas Times. On Tuesday, the governor's office released a statement confirming that "the Arkansas Insurance Department is projecting that insurance policies sold through the Arkansas Health Insurance Marketplace will see a net decrease of two percent in premium costs for 2015."

The projected reduction is an average: premiums will go up for some people and down for others. Importantly, even with rate reductions, the amount of subsidy that a person is entitled to could change because of the new prices. Rather than auto-renew, enrollees should log into the state marketplace and make sure that their plans still match their budget.

This means that Arkansas will stand apart from national averages. A preliminary analysis by PricewaterhouseCooper pegs next year's average rate increase at about 8.2 percent. In the years before health reform, premiums in the individual market climbed between 10 and 15 percent annually.

The state might chalk up the reduction to a quirk in their Medicaid expansion

Why the net decrease? The state may have their special Medicaid expansion to thank.

Conservative politicians in Arkansas outright rejected a standard expansion of the public program. Instead, they crafted something we now call the "private option:" newly-eligible beneficiaries enroll in private plans offered through the state's insurance exchange, rather than through Medicaid itself. The federal government foots the bill just like they would in Medicaid.

But there's a catch: Arkansas kept the sickest — and, not coincidentally, most expensive — beneficiaries in the public program.

Using a 12-question survey and an algorithm, the state wants to siphon off the sickest 10 percent of patients to keep in public Medicaid. Since enrollees in the private option are entitled to all Medicaid benefits — including services that private insurers don't provide, like transportation to and from medical appointments — the state hopes to reduce the need for coordination between private plans and the public program for these additional benefits.

But by holding back the sickest Medicaid patients, the pool of enrollees in the exchange's private plans might be healthier, on average, than insurers expected.The private option beneficiaries make up over three-quarters of the state's current exchange population, and they skew younger than the state's general uninsured population.

Does that mean the private option is a good deal?

The pool of plans that the Arkansas marketplace analyzed includes coverage offered through the "private option," Arkansas's unique private Medicaid expansion.

And if Arkansas does chalk up lower premiums in 2015 to their health private-option enrollees, it might make this unique form of expansion more appealing to states that have opposed expanding Medicaid.

But in other states, the demographics of the Medicaid population could be different, and less healthy on average. Moreover, expanding through private coverage is still, on net, more expensive than expanding through traditional Medicaid. Arkansas is shielded from this for the first few years, but eventually the state will need to pick up 10 percent of the tab.

The private option could be both more expensive than traditional Medicaid and "worth it." What remains to be seen — and what we won't know for many years — is whether the private option really offered better access and care than traditional Medicaid would have.

But there's a logical wrinkle that has remained largely unaddressed: if public Medicaid is superior to private coverage for sick patients — the ones who really need access to high-quality care — why shunt everyone else who gained Medicaid eligibility into the more expensive private market?