Not-for-Profit Hospitals Outlook Unclear Even With Newly Insured

It’s unclear whether the bottom lines of not-for-profit hospitals will benefit from the millions of people purchasing health insurance through the new insurance exchanges (or marketplaces) under the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148), according to a report from Moody’s. The uncertainty stems from several factors – how many people will actually be newly insured, what their health status is, how much they have to pay out of pocket for their coverage, and how experienced the new insurance plans are at managing claims and reimbursement.

Newly Insured

The Congressional Budget Office estimates that 7 million people will purchase health insurance through an insurance exchange in 2014, though Moody’s suggests the number could be either higher or lower. The number could be lower because of “general confusion over what an exchange is, who is eligible to participate in the exchanges and receive a federal subsidy, software glitches that prevent the exchanges from accurately calculating how much people will need to pay for coverage and continued delays in setting up the exchanges,” according to the report. Enrollment could be higher because the Obama administration has delayed for a year the requirement that the exchanges verify the income and health insurance status of individuals looking to receive subsidies to help buy health insurance. More people also may sign up because the open enrollment period extends from October to March 2014.

Moody’s also noted that younger, healthier individuals may choose to pay the relative small $95 penalty for not having insurance in 2014, and so the newly insured may include a large number of people with chronic illnesses. The impact on hospitals is unclear – while the newly insured may be sicker, their care also may be highly managed by in-network physicians and hospitals using greater care coordination.

More Bad Debt

Hospitals face the possibility of lower reimbursement rates with the new patients they see. Moody’s notes that “providers are reporting that negotiations with exchange plans range from Medicaid rates, usually the lowest rate-per-service a hospital receives and does not cover costs, to a discount off of commercial rates, typically the highest rate a hospital receives.” A certain number of the individuals getting insured through the exchanges will be moving from commercial insurance to plans that pay hospitals at a lower reimbursement rate. These newly insured are also likely to be responsible for higher co-payments Moody’s warns that “the lack of common understanding on co-pays and deductibles may result in higher bad debts.”

New Players

Moody’s also noted that many large insurers have decided not to offer plans on the new exchanges, which means that the products the newly insured purchase may be managed by “new, smaller, or less experienced plans that don’t have the necessary systems to manage the new population of enrollees.” Hospitals may face delays in receiving payments or processing claims from these more inexperienced entities.