‘ARKIDS FIRST’ UNFUNDED LIABILITIES

ESTIMATED AT $3.5 BILLION

“The long-term liabilities of the ARKids First program should be identified." Policy Foundation memos, 2006

(August 2012) The unfunded liabilities of the state’s ‘ARKids First program,’ a major component of Arkansas Medicaid are conservatively estimated at $3.5 billion, according to enrollment, federal reimbursement and average annual cost data obtained by the Policy Foundation.

‘ARKids First’ was established under former Gov. Mike Huckabee with a waiver from the Clinton administration in 1997. ‘ARKids’ enrolled 356,010 last year.¹ The liabilities are separate from Gov. Mike Beebe’s proposal to expand Arkansas’ Medicaid program by about 250,000 recipients.

History of Accounting Reforms

The Foundation calculated the unfunded liabilities of ‘ARKids’ after the state Department of Human Services termed it “a pay-as-you-go program for which budgets and appropriations are done each year” in a recent communication.² The Foundation has sought the estimate since 2006.

“Calculations that we’ve done,” the DHS communication³ states, “comparing expected spending and the programs’ FY 2013 appropriation show a clear funding gap that will need to be addressed.”

The Foundation has a long-standing interest in reform, recommending uniform accounting for K-12 school districts and activities-based costing for state government in 1998. The state Supreme Court granted the Foundation permission to file amicus curiae briefs in 2002 and 2004 in the Lake View school finance case. The briefs advanced uniform accounting as a reform, and the state now provides standard K-12 categorical data.

Unfunded Liabilities Greatest in ‘ARKids A’

Unfunded liabilities represent the fiscal cost of future commitments. They are routinely reported by the trustees of federal programs, including Social Security and Medicare. Arkansas public retirement systems, to their credit, also calculate and report unfunded liabilities on an annual basis.

The true cost of ‘ARKids’ and other Medicaid programs is not the annual “pay-as-you-go” amount cited by DHS. It is the fiscal cost of future commitments to age 19 when ‘ARKids’ eligibility ends.

According to DHS, the program’s administrator, “ARKids First A is Medicaid for children,” and ARKids First B is for people who make too much money to get regular Medicaid, but still do not have health insurance for their children.”⁴

The ‘A’ program’s unfunded liabilities are $3.3 billion, with the highest costs incurred by age groups “2-3” ($396 million), “1-2” ($385 million), and “3-4” ($371 million). The lowest cost is incurred by age “18-19” ($10 million).

The ‘B’ program’s unfunded liabilities are $161 million, with the highest costs incurred by age groups “7-8” ($15 million), “8-9” ($14 million), and “6-7” ($13 million). The lowest cost is incurred by age “18-19” ($1 million).

Conservative Estimate

The Foundation’s estimate assumes no medical insurance inflation through 2031, federal reimbursement rates of 70% (‘A’ program) and 79.5% (‘B’ program), and average annual costs of $3,826 (‘A’) and $1,266 (‘B’).

Inflation and lower reimbursement rates would increase ‘ARKids’ unfunded liabilities. Deflation and higher reimbursement rates would decrease unfunded liabilities.

--Greg Kaza

² DHS communication to Policy Foundation, July 11, 2012.

³ “DHS has been very open about this funding gap and is engaged in a comprehensive effort to transform the program and significantly reduce the projected funding gap over the long term.”