The Medicaid expansion covers more than 267,000 Arkansans who make less than 138 percent of the federal poverty level (about $16,000 for an individual or a little more than $33,000 for a family of four). The expansion came from a 2013 compromise between Republican lawmakers and Democratic Gov. Mike Beebe. It became known as the “private option” because the state received a federal waiver to use Medicaid funds to purchase private health insurance plans for most newly eligible beneficiaries, rather than placing them in the traditional Medicaid program.

Hutchinson, a Republican, has backed continuing the policy he negotiated with the Obama administration.

Legislation enacting the governor’s plan, which he calls “,” passed by earlier this month. However, the state constitution requires 75 percent of both chambers of the legislature to okay the appropriation for the Medicaid budget, which includes funding for the “Arkansas Works” program. A rump group of 10 Republican senators opposed to the policy last week, the entire Medicaid program unless the Medicaid expansion was killed.

The impasse was broken via a unprecedented in Arkansas. The backers of “Arkansas Works” agreed to include an amendment to the Medicaid appropriation to end the program at the conclusion of this year. Hutchinson, however, announced that he would use the line-item veto to nix this amendment, so the Medicaid expansion would live on, fully funded.

This was enough to convince two of the 10 holdouts, Sen. Blake Johnson and Sen. Bart Hester, to approve the appropriation — which featured the language that they wanted. Of the governor’s plan to veto, Johnson said, “That’s beyond my control.” Those two votes were enough for the needed supermajority and the bill passed the Senate on Wednesday.

Hester had previously said that the 10 holdouts were willing to play a game of “hard chicken,” but balked with the potential of a shutdown two months away. “When I realized I was not willing to shut down Medicaid, then it was like, what are we going to do now,” he said.

The appropriation bill passed the House Thursday afternoon, and the governor immediately exercised his line-item veto to ensure continuation of the Medicaid expansion and signed it into law.

Hutchinson applauded “the spirit of cooperation in the General Assembly” and called Arkansas Works “a practical solution for the state of Arkansas.” Of the line-item veto maneuver, the governor said that “the key thing was transparency. Everybody knew what was happening — that’s not trickery.”

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Negotiations over the details will continue, the governor told the state’s health reform task force, but he said Secretary of Health and Human Services Sylvia Burwell “accepts the framework” that he presented to her in a in Washington earlier this month. That includes premiums and copays, as well as work referral programs, for some beneficiaries. However, federal officials rejected a controversial request for an asset test that would impose a fee on beneficiaries with substantial assets, such as a house valued at $200,000.

In a , released Wednesday, Burwell wrote that Hutchinson’s ideas for changes were “innovative” but “[i]n some cases, they also push the bounds of what is allowable under federal Medicaid law and raise concerns about potential adverse impacts on beneficiaries. However, I am hopeful that we can work together to find acceptable approaches to reform in each of your focus areas.”

Arkansas expanded Medicaid in 2013, when then-Gov. Mike Beebe, a Democrat, worked with a Republican-controlled legislature to craft a bipartisan compromise that became known as the “”: The state received a waiver from federal rules to use Medicaid funds to purchase private health insurance plans for most newly eligible beneficiaries, rather than placing them in the traditional Medicaid program. More than 250,000 Arkansans who make up to 138 percent of the federal poverty level — about $16,000 for an individual and $33,000 for a family of four — are now covered by the expanded program.

That waiver expires at the end of 2016, and Hutchinson — Beebe’s Republican successor — proposes continuing the coverage expansion with the GOP-friendly tweaks he discussed with Burwell.

Hutchinson calls his new program “Arkansas Works” and Wednesday he on the broad policy framework approved by federal officials.

Under Arkansas Works, Medicaid-eligible beneficiaries who are employed and are offered insurance at work would be required to enroll in those plans rather than Medicaid. The governor would have Medicaid pay the difference in costs to beneficiaries as well as provide any Medicaid benefits not offered by the employer plan.

Arkansas Works will also include work-encouragement elements — state agencies will refer unemployed beneficiaries to job training and job search programs. Beneficiaries might receive incentives to participate, such as additional dental and vision coverage. However, beneficiaries won’t be required to have a job and won’t lose coverage if they don’t participate.

Beneficiaries who make more than the federal poverty level would be assessed premiums of $19 per month, as well as small copays. The governor provided no details about the copays. The premiums and copays would potentially be waivable if beneficiaries followed wellness programs encouraging healthy behaviors. Beneficiaries who fail to pay would incur a debt to the state but maintain coverage.

Hutchinson urged the legislature to vote for Arkansas Works when it convenes for a special session in April. The governor said that if the state kills the Medicaid expansion, it will face an immediate hole of more than $100 million in next year’s budget. Under the health law, the federal government pays all the costs of Medicaid expansion for three years, with the states paying a small share in the future.

Getting legislative approval won’t be easy. Under the state constitution, a 75 percent majority of lawmakers in both chambers would have to approve it.

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No state has seen its uninsured rate fall faster since the implementation of the federal health law than Arkansas, where it has , to 9.1 percent, from 2013 to 2015. Most of the credit goes to the state’s decision to expand eligibility for Medicaid, which has provided coverage for around 250,000 low-income Arkansans who make up to 138 percent of the federal poverty level — about $16,000 for an individual and $33,000 for a family of four.

However, in a red state like Arkansas, dominated by anti-Obamacare lawmakers, the future of the expansion is politically tenuous. In 2013, Democratic Gov. Mike Beebe worked with a Republican-controlled legislature to craft a bipartisan compromise that became known as the : The state received a waiver from federal rules to use Medicaid funds to purchase private health insurance plans for most newly eligible beneficiaries, rather than placing them in the traditional Medicaid program.

That waiver expires at the end of 2016, and Hutchinson — Beebe’s Republican successor — is now seeking additional GOP-friendly tweaks to the program. Legislators are watching closely.

“My read on the politics is that if the federal government does not consider out-of-the-box and unprecedented measures, there’s a high likelihood that it’s not going to have the political support to get through the Arkansas legislature,” warned Republican state Sen. Jim Hendren, chairman of the state’s health reform task force (and the governor’s nephew).

Haggling with federal officials over what is allowed in the Medicaid program has become a familiar dynamic in GOP-controlled states across the country. Since the 2012 Supreme Court ruling that upheld the Affordable Care Act but gave individual states the choice on whether to expand Medicaid, have accepted federal money to expand the program. Nineteen states have declined, leaving in a coverage gap because they don’t qualify for Medicaid or subsidies to buy private policies on the Obamacare exchanges.

In addition to Arkansas, leaders in Iowa, Indiana, Michigan, Montana, and New Hampshire to expand Medicaid that have included Republican-backed policy ideas, such as privatized schemes, wellness and work programs, and “skin in the game” in the form of cost-sharing or premiums.

“CMS [the federal Centers for Medicare & Medicaid Services] wants states to do the Medicaid expansion, so they have rolled up their sleeves and tried to get to yes on all these agreements, without compromising the fundamental integrity of the Medicaid program,” said Joan Alker, executive director of Georgetown University’s Center for Children and Families and an expert on Medicaid waivers.

For reasons both philosophical and political, Hutchinson hopes to negotiate further alterations. After the governor’s one-day meeting with federal officials, they will likely continue to hammer out details in the coming weeks. If an agreement is reached, Hutchinson is expected to present it to the state’s health reform task force on Feb. 17.

Hutchinson calls his proposed new policy “Arkansas Works.” He described its framework — which would continue the expansion via purchasing private health care plans for beneficiaries — in a to U.S. Secretary of Health and Human Services Sylvia Burwell.

Hutchinson’s main requests are to charge small premiums or other cost-sharing for some beneficiaries, encourage employment and healthy practices, and make more use of employer-sponsored insurance plans. Medicaid-eligible beneficiaries who are employed and are offered insurance at work would be required to enroll in those plans rather than Medicaid. The governor would have Medicaid pay the difference in costs to beneficiaries as well as provide any Medicaid benefits not offered by the employer plan.

Hutchinson has made clear that he would like to establish work requirements as a condition of eligibility, but the Obama administration won’t allow states to insist that beneficiaries have a job. The federal government is more flexible on ways to encourage employment, and under Arkansas Works, the state’s Department of Human Services would refer unemployed or underemployed beneficiaries to job training programs.

Certain beneficiaries, meanwhile, would be assessed premiums, likely around 2 percent of their income (at , that amounts to $20 a month for an individual or $40 a month for a family of four). The governor envisions carrot-and-stick incentives to encourage healthy behavior. Those who follow practices such as visiting a primary care physician upon signing up could have their premiums waived; those complying with wellness and work referral requirements might also get additional vision and dental benefits not normally included under Medicaid.

“It’s a grab bag of the kinds of ideas that are being tossed around in the handful of states that are doing expansion by waiver,” Alker said. “The risk is creating barriers to access to care for beneficiaries and creating .” Most of the governor’s requests “are in the ballpark of the kinds of things CMS has been negotiating,” she said. “I think on most of those issues, they will find a way.”

Some requests from Hutchinson with the federal government. One is a fee that would be imposed on beneficiaries with substantial assets — such as a house valued at $200,000 or cash-equivalent assets of $50,000 or more — in order to stay enrolled. “The governor feels like that’s a common sense request, but there’s going to be a lot of pushback on that,” said Arkansas Surgeon General Greg Bledsoe, who is joining Hutchinson in Washington. “We’re hoping to get maximum flexibility.”

Asset tests for most Medicaid beneficiaries were explicitly banned by the ACA and Alker said it was unlikely that federal officials would cave on this point.

Previously, Hutchinson backed another controversial idea, a punitive that would bar beneficiaries from regaining coverage for six months if they failed to pay required premiums. The lockout provision is unmentioned in his letter to Burwell, however, and the governor about whether it’s still a request on the table.

“We will not be a part of any provision that says you cannot have coverage because you are poor or because you can’t make a payment,” said Democratic Rep. Reginald Murdock, a vice chairman of the state’s health reform task force. Murdock said that Democrats in the legislature were on board with the Arkansas Works framework as described in the letter to Burwell but would seek to block any changes to the private option that “undermined the tenets of the ACA.”

Whatever the governor and the federal government agree to, if the legislature doesn’t approve of the plan this spring, that won’t just threaten health insurance for hundreds of thousands of Arkansans. It will also stop the flow of federal money paying for their health care. Under the health law, the federal government pays all the costs of Medicaid expansion for three years, with the states paying a small share in the future.

According to a state consultant, ending the expansion would cost the state budget more than $400 million between 2017 and 2021 and cost hospitals $1 billion in uncompensated care expenses over the same period.

The state constitution requires a 75 percent majority of lawmakers in both chambers to approve continuing the expansion, a tall order for a controversial program. Hendren, who said he is prepared to walk away if he’s not satisfied, acknowledged that if the expansion is not continued that would lead to “pain in the budget, and there’s going to be a lot of people who are upset if we have to make cuts. There’s no question that the stakes are high.”

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