The Patient Protection and Affordable Care Act is expected to benefit hospitals by shrinking the uninsured population, according to a report from Moody's Investors Service.
However, other factors could offset the positive effect of health insurance coverage expansion. The following three emerging risks could have a negative financial impact on nonprofit hospitals, according to the report.
1. The popularity of high-deductible health plans. Approximately 80 percent of the plans sold through the PPACA health insurance exchanges have been in the bronze and silver metal tiers. According to Moody's, these health plans have very high annual deductibles — as much as $5,000 for individuals and $10,000 for families with bronze plans and $3,000 for individuals and $6,000 for families with silver plans.
Although high-deductible health plans could ultimately encourage patients to take a more active role in their care, they also expose healthcare providers to bad debt, according to Moody's. During the last few years, the shift to more consumer responsibility for healthcare costs through high-deductible plans has coincided with a rise in bad debt, as patients who don't understand their plans end up facing bills they can't pay. In the end, dealing with patients enrolled in high-deductible plans might not be much better than serving the uninsured, says Dan Steingart, an associate analyst with Moody's.
"That may not play out in the hospital's favor," he says. ""The negotiated rate might not be much more than the deductible. You're losing quite a bit."
2. Health insurer profitability. Health insurers' profitability on the PPACA exchanges could also end up having a negative impact on nonprofit hospitals. A February Moody's report stated various PPACA policy changes could discourage younger and healthier people from enrolling in exchange plans and subsequently hurt insurer profits. Those changes include the extension of old, non-PPACA compliant health plans, the required expansion of provider networks in 2015 to include at least 30 percent of available essential community providers and the one-year delay of the employer mandate for businesses with 50 to 99 employees.
According to Moody's, health insurers including
"Given the challenges insurance companies faced in 2014, we expect negotiations for 2015 hospital reimbursement levels to be dynamic, with insurers seeking additional reimbursement discounts and hospitals seeking to offset discounts through risk-sharing arrangements that reward hospitals for controlling total medical expenditures, but also expose them to financial losses if medical expenses exceed budget," the most recent report states.
Because of the financial challenges insurers face, Moody's has determined there is a "strong chance" premiums for exchange plans will go up in 2015. This could create a "negative feedback loop," discouraging people from enrolling or leading them to pick the cheapest plans with the highest deductibles, putting a financial strain on hospitals in turn.
3. Narrow networks. If narrow provider networks catch on as a way for health insurers to control costs, hospital reimbursement will likely drop: Hospitals included in the networks face potentially decreased revenue by accepting lower payment rates than what they would receive from broader contracts, while those that are excluded risk losing market share.
However, narrow networks might fail to thrive in the PPACA marketplaces, particularly because of CMS' recently announced requirement that qualified health plan provider networks include at least 30 percent of available essential community providers, up from 20 percent in 2014. Essential community providers are those that serve predominantly low-income and medically underserved individuals, according to CMS.
This requirement will broaden the number and types of providers in exchange networks and subsequently protect certain essential hospitals from losing revenue or market share, according to Moody's. Nonprofit hospitals that have high exposure to Medicaid and treat large numbers of low-income patients stand to benefit the most, since the proposal specifically calls for the inclusion of safety-net hospitals.
Still, because of frequent policy changes issued by the Obama administration, Mr. Steingart says the fate of narrow networks is unclear, especially given the pushback from health insurers.
"The jury's still out on that," he says. "The administration has been putting out a lot of rule changes. I think what they're looking to do is discourage the creation of narrow networks that exclude clearly the most important hospitals in a region. They're trying to make sure that doesn't happen, but the market is saying that's what we need to do to keep prices down."
More Articles on Hospital Finance:
Moody's: 10 Children's Hospitals Most Reliant on Medicaid
Moody's: Provider Network Expansion Would Benefit Safety-Net Hospitals
Obama's Budget for 2015: 10 Points for Hospitals Know