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Obamacare Heads for the Hills -- of Arkansas

By Keith Speights - Apr 17, 2013 at 11:07AM

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The Patient Protection and Affordable Care Act's Medicaid expansion is headed for the hills -- but with a few Ozark twists.

Only one hurdle remains for Obamacare to head for the hills -- the hills of Arkansas, that is. The state's House of Representatives passed a bill on Tuesday to go along with the a key part of the Patient Protection and Affordable Care Act, or PPACA. Arkansas' Senate takes up the measure next, where it is expected to pass.

Half of the states have already opted to expand Medicaid according to ACA provisions. Why is Arkansas' move a big deal? The answer lies in the details of the legislation that actually passed.

A few Ozark twists
Several states controlled by Republican governors and legislatures have resisted moving forward with expanding Medicaid. Part of the reluctance stems from fears that federal funding could dry up in the not-too-distant future leaving states stuck with the bill. Some conservatives also oppose expanding Medicaid due to the serious financial challenges facing the hybrid federal-state health program.

The Arkansas plan, though, contains a few twists that addressed these concerns and enticed the Republican-dominated state House to approve the measure by a vote of 77 to 23. Most strikingly, this "Medicaid expansion" won't actually expand Medicaid. Arkansas residents who earn up to 133% of the poverty line will be able to purchase private insurance with government dollars through a health insurance exchange rather than enroll in the state Medicaid program.

Another key aspect of the deal is that Arkansas governor Mike Beebe, a Democrat, included a provision under which the plan expires in 2017. That allows the state legislature to assess how well things worked out before renewing the program -- and before Arkansas must begin paying part of the cost.

Moving mountains?
There isn't much for investors to get excited about with this development at first glance. Sure, several publicly traded companies should like the news. For example, UnitedHealth Group (UNH 1.52%) and Aetna (AET) sell insurance in Arkansas. These insurers could potentially pick up additional business.

Community Health Systems (CYH -2.37%) operates eight hospitals in the state. Health Management Associates (NYSE: HMA) also operates a couple of Arkansas hospitals. These hospitals could benefit with fewer uninsured patients.

However, the Arkansas market size isn't enough to make a major impact for any of these companies. What could be worth investors' attention, though, is what impact the Arkansas precedent might have.

14 states have pushed back on expanding Medicaid. Several, notably Texas and Louisiana, could closely watch how things unfold in Arkansas. The private purchase option and potential exit path that were key to passage in Arkansas could appeal to conservatives in these states who have been reluctant to act thus far.

If the "Arkansas plan" moves past the Ozark mountains to other states, particularly large states like Texas, some of the companies mentioned above could see larger gains. For example, Community Health runs hospitals in nine of the 14 states currently opting against Medicaid expansion. HMA owns hospitals in eight of those states.

Aetna and UnitedHealth also could benefit, but only if they participate in the health insurance exchanges in any affected states. Aetna indicated that it would likely participate in 15 health care exchanges initially, but says that these exchanges will probably contribute to the company's growth.

UnitedHealth seems to be moving somewhat cautiously. The company announced that it would initially participate in at least 10 of the marketplaces and perhaps up to 25. UnitedHealth CEO Stephen Hemsley said that "the level of interest in exchanges will be driven by how we assess each local market."

Obamacare heading for the hills of Arkansas might not be a huge deal. But if the Arkansas approach catches on, this week's action by the Arkansas legislature could set into motion the political equivalent of moving mountains. And some stocks might enjoy loftier heights as well.

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Stocks Mentioned

Aetna Inc. Stock Quote
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Community Health Systems, Inc. Stock Quote
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