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WASHINGTON (Reuters) - Two Republican state senators from Arkansas may soon accomplish what seasoned Washington politicians couldn't: make the main provisions of President Barack Obama's healthcare overhaul palatable to hard-core conservatives.
Jonathan Dismang and David Sanders, with two colleagues from the state House, believe they have come up with an alternative to the Medicaid expansion, as laid out in the law. Their idea is to use privatization to avoid the proliferation of government bureaucracy that conservatives vehemently oppose.
Democratic Governor Mike Beebe readily agreed to the idea. Health and Human Services Secretary Kathleen Sebelius, Obama's top healthcare adviser, gave her verbal commitment.
Details are still being worked out, and each chamber of the Arkansas legislature needs to approve the changes by a 75 percent margin before the legislative session ends next month.
But Arkansas, a poor state with fewer than 3 million people, finds itself at the center of a potential big shift in healthcare politics.
If the proposal succeeded, it could help lower barriers to the expansion of the Medicaid health program for the poor in Republican states. It could also set a precedent for conservatives to accept another big part of the Affordable Care Act: new state-based insurance marketplaces, or exchanges. In Arkansas those would become the vehicle for providing private coverage to Medicaid recipients and others.
The main aim of the 2010 law was to expand healthcare coverage to millions of uninsured Americans. That included many of the country's poorest, who lack coverage because current state-run Medicaid programs often benefit only limited groups, such as pregnant women and the severely disabled. Obama's expansion would add an estimated 12 million adults by covering everyone who earns up to $32,500.
But some of the Patient Protection and Affordable Care Act's momentum has been blunted by broad Republican opposition to government-run health care.
Dismang and Sanders say their proposal overcomes these obstacles by putting a Republican imprint on extending health coverage, by involving the private sector.
"A lot of people would like to say this is moving the football down the field. In fact, what I think we've done is intercepted, and we're taking the ball in the other direction," said Dismang, 33, of his plan.
The Arkansas plan could still unravel. Florida Republican governor Rick Scott saw his effort to expand Medicaid up-ended by Republican legislators this month, an ironic development as Arkansas officials say Scott's plan to privatize the Florida program helped inspire their own initiative.
The proposed Arkansas solution stems from a U.S. Supreme Court ruling last June that - while it upheld the overall healthcare overhaul - allowed states to opt out of a provision expanding the Medicaid program.
Since then, officials in 26 of the 50 U.S. states have signaled a willingness to expand Medicaid, including several Republican governors.
But Republican leaders in 17 states, including most of Arkansas' neighbors, remain opposed, despite the lure of billions of dollars in new federal money that would benefit insurers, healthcare providers and others in the $2.8 trillion U.S. healthcare industry.
The Obama administration appears to have embraced the "private option" as a lever for giving reluctant Republicans who are besieged by health industry lobbying campaigns a way to accept the Medicaid expansion without losing political face.
Obamacare, as the law is popularly known, once seemed doomed in Arkansas, where Republican candidates ran hard in the 2012 election campaign on the promise of stopping reform, and won majorities in both state legislative chambers for the first time since the Civil War era.
Then Dismang, Sanders, House Majority Leader Bruce Westerman and House member John Burris started sounding out whether the Obama administration would allow Medicaid expansion funds to be used to purchase private coverage through an online healthcare exchange that Arkansas will run in partnership with Washington beginning January 1, 2014.
Under Obamacare, people earning from 100 percent to 133 percent of the federal poverty level would qualify for Medicaid. But they could also receive federal premium tax credits to help purchase private coverage through an exchange. States such as Wisconsin have already opted for that route.
The Arkansas plan would utilize Medicaid funds instead of tax credits and cover everyone who qualifies for the expansion, including those living below the federal poverty level - currently $23,550 for a family of four.
Beebe proposed that idea to Sebelius on February 22, and received what state officials termed a "conceptual approval." State and federal health officials are now in talks aimed at hammering out a working plan.
Arkansas' current $4.8 billion Medicaid program covers 700,000 people. The expansion would target a further 250,000 and provide Arkansas with an estimated annual infusion of $1 billion in federal Medicaid funds, which would benefit the state's tiny private insurance market.
That influx of extra money and insurance customers would also help ensure the success of the state's healthcare exchange, which could nearly double in size with an influx of new consumers who are poor but otherwise young, healthy and cheap to insure.
"There's been real concern about whether we'd have enough insurers for the exchange. And the feeling is that this makes it significantly more attractive," said John Selig, who heads the Arkansas Department of Human Services that oversees Medicaid.
Selig said the goal of the proposal is to provide new Medicaid recipients with private plans that look like the insurance sold to others on the exchange, while using Medicaid funds to cover premiums and the cost of Medicaid benefits that private plans are not required to include.
Private plans pay higher rates than Medicaid to doctors and hospitals and would likely give new recipients better access as a result. But that also increases costs.
The nonpartisan Kaiser Family Foundation, which tracks healthcare issues, said in a report that states could make premium-assistance cost-effective by getting all family members on a single plan rather than having adults and children on different programs.
Analysts also say the larger insurance pools created by the Medicaid expansion will give insurers that participate in the exchange vital leverage for containing costs.
The four Republican legislators, who must now sell the Medicaid plan to their fellow conservatives, say they also want "skin-in-the-game" measures requiring new copays, deductibles and other cost-sharing measures for beneficiaries.
Changes of that kind could fundamentally alter Medicaid benefits and expose Arkansas to lawsuits from consumer groups that might tie up the plan in court.
But lawmakers said conservative support, that is vital to winning passage in the sharply divided legislature, would be harder to come by without such changes.
At the moment, legislators say the mood in the state capital of Little Rock is supportive, but difficult to gauge without a formal written agreement with the Obama administration in place.
Meanwhile, what may prove to be a bipartisan solution for Arkansas is also gaining interest from conservatives in Texas, Louisiana, Mississippi and elsewhere.
"It's encouraging when states are allowed to craft their own plans and when the federal government is willing to review those and accept them," said Texas state Representative Brandon Creighton, who chairs his state's House Republican caucus.
"But that excitement stops there until we have exactly what we want to recommend in our own Texas solution," he added.
The Arkansas deal could also send Republican governors in several states running for political cover after they agreed to expand Medicaid without such innovations, analysts say.
"The question is going to be raised: 'Why didn't you get us a better deal?'" said Joe Antos, a health economist with the conservative American Enterprise Institute think-tank.
However, analysts say Arkansas-style privatization, if more widely adopted, could lead to a double-standard for Republicans who dislike deficits and government spending, if private insurance turned out to increase the cost of providing Medicaid.
The nonpartisan Congressional Budget Office estimates that private insurance sold through state exchanges will cost about $9,000 per capita, compared with $6,000 for those who gain coverage through standard Medicaid.
"Medicaid is always the lowest-cost provider of coverage in the market," said Timothy Jost of Washington and Lee University Law School. "Medicare (the public program for the elderly and disabled) is more expensive and private plans are yet more again."
But other analysts and state officials say these costs could be lower in Arkansas, where the current Medicaid program and the private market still operate under a costly fee-for-service structure.
On Monday, the state issued a cost analysis that lent support to both sides of the argument, saying the private option would cost up to 15 percent more than a more conventional Medicaid expansion. But the report said privatization could lead to no additional costs under "some realistic scenarios".
Reporting by David Morgan; Editing by Jilian Mincer, Frances Kerry and Tim Dobbyn