Framing the issue

  • The Oct. 1 launch of the state public health insurance exchanges could alter the business model for hospitals depending on the mix of people
    signing up.
  • Getting those with existing conditions and illnesses to buy coverage poses less of a challenge than it does for healthier people, who are needed to make the exchange actuarially sound.
  • Even those people who get covered on the exchange may pose a financial problem for hospitals if too many choose bare-boned coverage with high deductibles and co-payments, leading to increases in bad debt after care is provided.
  • Each state will be taking a different approach to encouraging enrollment among the eligible uninsured, so hospital executives should find out how their efforts fit with what the state is or isn't doing.

On Oct. 1, the Patient Protection and Affordable Care Act will take a giant leap forward. Until now, its major focus has been setting plans for the future — creating pilot projects and tweaking existing laws. Beginning next month, barring any unexpected glitches,
it will become the major force it was intended to be as an estimated 7 million Americans become eligible for health care coverage through new public health insurance exchanges.

The opening of the exchanges — or as the government now calls them, marketplaces — will set off significant growth in insurance rolls and a corresponding reduction in the number of uninsured patients. The next step is the expected 2014 expansion of Medicaid programs in at least 21 states.

Together, those developments are designed to reduce hospitals' uncompensated care and to be the major offsetting benefit to the various and costly changes to care delivery and reimbursement hospitals already have sustained or will endure under the ACA.

But now, concerns are being raised that patients covered by insurance purchased via exchanges will be more costly to care for than expected. The worry is that the exchanges will attract enrollees who are sick or in need of care in much larger proportions than healthier Americans who would produce more premiums than they cost in care. Healthier people might decide to risk going without insurance and, instead, pay the tax penalty associated with not having insurance. The penalty would be $95 per adult and $47.50 per child — up to $285 for a family — or 1 percent of family income, whichever is greater, according to the Kaiser Family Foundation. Penalties will increase over the next two years, climbing in 2016 to $695 per adult and $374.50 per child up to a maximum of $2,085 per family, or 2.5 percent of family income.

"The big question on everyone's mind … is what the composition of the people on the exchange is going to be," says John Graves, assistant professor at Vanderbilt University School of Medicine. To succeed in offering reasonably priced insurance, "you need some balance of healthy and sick people in the pool."

For hospitals and other providers, the exchanges are expected to give insurers the upper hand in negotiations for reimbursement related to the low-cost plans. Those plans are going to be structured as narrow networks of providers, meaning hospitals will have to compete to be included in that plan.

In addition, people who sign up for lower-cost plans offered by the exchanges may not be able to afford the higher deductibles and copayments associated with them, potentially raising the bad-debt expenses of hospitals.

More bad debt, but still a better deal?

The exchanges were designed to give the uninsured access to the kind of group coverage that employers offer — pooling individuals to form insurable populations large enough to keep premiums affordable. To make the various offerings more understandable and easier to compare, the ACA set up common actuarial rules for participating insurers to follow within four categories of care. The Bronze level offers low-cost, bare-bones coverage with relatively high deductibles and co-pays. Bronze plans are designed to pay for 60 percent of the average actuarial cost of care. Coverage benefits and costs rise with each of the other three categories: Silver, 70 percent; Gold, 80 percent; and Platinum, 90 percent.

If too many people choose Bronze and Silver plans instead of Gold and Platinum plans, the viability of the exchanges could be at risk. "A best-case scenario is that individuals going on to the exchange pick the right plan that fits their needs," says Paul Milton, executive vice president and chief operating officer of Ellis Medicine, a one-hospital system near Albany, N.Y. "They take care of themselves, they get good preventive care and, as a result, they're healthier, and we reduce overall health costs in the community.

"I'm an optimist," Milton adds. "I have my fingers crossed [that] it's going to work out well."

What could go wrong? Bronze coverage is expected to attract a hefty proportion of enrollees because it will be the least expensive to buy. However, it will carry the highest deductibles — likely running in the thousands of dollars for the various exchanges. Providers fear that many Bronze enrollees will be unable or refuse to pay their deductible.

"I suspect we're going to see a surge in bad debt," says Barry Arbuckle, president and CEO of MemorialCare Health System, based in Southern California's Orange County. "The co-pay on the Bronze is [as high as] 40 percent, that's pretty significant."

But some coverage is better than no coverage, other experts insist. "This is still a better deal for the hospital than the old world," says Robert Town, associate professor of health care management for the Wharton School of Business and a fellow at the University of Pennsylvania Leonard Davis Institute of Health Economics.

Costs and competition

The costs for the plans within the four categories will vary depending on the insurer, and from state to state. The goal is to encourage competition while keeping the coverage comparable.

Subsidies helped to tamp prices down. The federal government subsidizes the exchange coverage for Americans and legal residents from other countries without other access to coverage and with individual incomes of up to 400 percent of the poverty level, which is about $45,000 for an individual and $94,000 for a family of four, according to the Commonwealth Fund.

California was the first to reveal premium rates and which insurers would participate in its exchange. The exchange,
Covered California, released data showing that the average 2014 price of its three lowest-priced Silver plans in six large regions was 2 percent higher to 29 percent lower than for comparable small group plans in 2013.

In New York, Gov. Andrew Cuomo's office says premiums for its exchange came in lower than expected, with the rates for the two higher tiers of Gold and Platinum about 50 percent below 2013's direct-pay individual rates. The average monthly rate for individual Bronze coverage in eight regions in the state ranged from $252 to $590, from $319 to $692 for Silver, $361 to $818 for Gold and $424 to $965 for Platinum, according to data provided by the governor's office.

Large insurance companies are being selective about the states in which they'll participate. For example, UnitedHealthcare opted out of California's exchange, but is joining the New York version. Insurers are making their decisions based on such things as existing market share and the amount of competition in that particular state. Blue Cross and Blue Shield plans, with a big footprint already in the individual market, reportedly are making a big push through the exchanges. A spokesman declined an interview request.

A Health & Human Services official says the intended goal of encouraging competition among the insurers was, indeed, working as intended, citing a July report from the Office of the Assistant Secretary for Planning and Evaluation. The report found that among the 11 states with available data, the least expensive Silver plan for 2014 was, on average, 18 percent less expensive than the ASPE office's estimates for individual market premiums.

The "report shows that the Affordable Care Act is working to increase transparency and competition among health insurance plans and drive premiums down," HHS Secretary Kathleen Sebelius says.

Taking the hits and changing tactics

A by-product of the exchange structure limiting premiums is that plans are more likely to offer narrower networks of providers to keep costs down. That means hospitals are likely to get paid less for their care. "It works to the insurers' advantage in that they increase their leverage over hospitals," Town says.

Catholic Health Initiatives, which is expecting to see its commercial rates fall 20 percent, is working to tailor its care offerings in different markets to accommodate those narrower networks, says Michael Rowan, executive vice president and chief operating officer.

Also feeling a commercial payer pinch is MemorialCare. "The reimbursement we agreed to in our contract with Blue Cross is less than we've had previously," Arbuckle says. "We took a discount of 15 or so percent." However, MemorialCare expects its market share will grow.

MemorialCare also is one of a growing number of health care systems that are forming insurance companies in response to the changes taking place in health care. The system decided not to participate in California' s exchange with its insurance company because it had too many questions about how robust enrollment would be in the first year, Arbuckle says. Instead, the organization will target patients enrolled in the state's managed Medicaid program and child services program.

But in New York, another health system got attention for its plunge into the insurance business and participation in a state exchange. North Shore-LIJ Health System announced Aug. 1 that it would launch an insurance company with an offering on the state's New York Health Benefit Exchange.

"The exchange is critical to our decision to introduce an insurance product at this point," says Howard Gold, executive vice president, managed care and business development, at North Shore-LIJ. The exchange essentially levels the playing field by giving all insurers an opportunity to gain members with a product that is priced and structured competitively, Gold says, adding that "the exchange is our first and maybe best attempt to get this idea in the marketplace fast."

States like California, Maryland and New York have made it easier for hospital officials to prepare for the start of enrollment by releasing information on participating insurers, premiums and plan structure relatively early.

Because hospitals treat so many uninsured patients, they're in a prime position to direct eligible people to coverage through an exchange or as a result of expanded Medicaid requirements [see Executive Corner, Page 35].

The less appealing choice for hospitals

Providers in states that are running their own exchanges got an advantage over those in states going the federal route. Hospital representatives had an opportunity to try to influence the terms of the state exchanges. But several GOP-dominated states decided not to create their own exchanges and, in effect, chose the federal version [see map, Page 33.].

Without their own exchange, states lose responsibility for such things as rate control and board membership.

"All along in the conversation, we've advocated for a state-based exchange," says Bill McAndrew, senior director of finance for the Illinois Hospital Association. However, state lawmakers failed to pass legislation authorizing the exchange for 2014.

Illinois, using a partnership model, will have some say in certain issues, but, ultimately, the feds are in charge. "A lot of the major decision-making is passed to the federal government," McAndrew says. "We think the decisions should be in the hands of the state government."

The IHA is working to try to get a state exchange authorized for 2015.

There are also questions about whether exchanges will be ready by the Oct. 1 deadline. HHS says it will be set to go with its federal exchanges, but in August, Oregon's exchange, CoverOregon, revealed that its website would not be operational on time, and that people would have to enroll through community groups and agents.

Meanwhile, Mississippi has experienced some rough going. The federal government rejected its application from the state insurance commissioner — an application opposed by the governor. Bids by insurers on the state's federally assisted exchange left 36 of the state's 82 counties with zero choices from private insurers. That caught some people off guard.

"I don't think anybody really thought it would be one county in, and one county out," says Therese Hanna, executive director for the Center for Mississippi Health Policy. The situation echoed what happened the first year that Medicare
Part D insurance was introduced. "It's a market of uninsured, low-income people," Hanna says, not the most attractive consumer segment for commercial insurers.

The loss of access to insurance would have dealt a blow to hospitals already losing millions when Mississippi elected not to expand its Medicaid program. "It's a really big deal," said Stansel Harvey, CEO of Delta Regional Medical Center, shortly before Humana amended its offering to include the 36 previously excluded counties.

Beyond the bumps

national, multistate plan from the federal government is not necessarily going to be offered in all states, but is on track to meet the minimum requirements of the ACA. As of the end of May, the Obama administration expected to offer the plan in a minimum of 31 states in 2014, meeting the ACA's 60 percent threshold. The national plan is designed to provide additional competition to private insurers on the state exchanges.

At the same time, there have been a number of other changes to implementation of the Affordable Care Act that may affect the exchanges directly or indirectly. A federal requirement that employers of more than 50 workers provide health insurance to their employees was delayed a year until 2015. The administration decided to postpone implementation because employers of that size were struggling to comply with the reporting requirements and likely would provide insurance anyway, according to a blog posting from the Treasury Department.

The administration also delayed some verification procedures regarding enrollees, but that was not expected to affect enrollment, a Congressional Budget Office analysis found.

The initial weeks of enrollment could be rocky, as people ramp up their questions and as the operations and information technology processes get tested in the real world. "There's going to be a lot of confusion and uncertainty," predicted Lee Sacks, M.D., chief medical officer for Advocate Health System, based in suburban Chicago.

But officials at Advocate and elsewhere in the industry are more focused on the long-term effectiveness of the exchanges in reducing the number of uninsured.

"Our thinking is that it's going to be a gradual process over a couple of years," Sacks says. As more data about the insured population become available — which should be well into the first quarter of 2014 — hospital leaders will know more about how to respond, if necessary, he says.

Jon Kingsdale, a director with Wakely Consulting Group, says the first year likely will not be a measure of the exchanges' success or failure. "It's going to take time for this to play out," he says. "2014 is only the beginning. We're going to watch enrollment build over time."

Executive Corner

The concept of a health insurance exchange is new enough and complicated enough that getting the word out to the public on how it works and how to get enrolled is no easy task. Health care providers alongside community health organizations are playing a key role in educating the public. "They will effectively be the boots on the ground," says Ellen Pryga, director of policy with the American Hospital Association. Given the sheer number of uninsured patients walking through hospital doors and the fact that they have experience helping patients to enroll in Medicaid, hospitals are well-suited to help patients learn about the exchanges, Pryga says. Below are five good resources for hospital executives seeking guidance on how to how to handle an influx of patients covered by the exchanges:

The federal government's online avenue for getting the word out on reform devotes a lot of its real estate to the exchanges.

Enroll America

The nonprofit group was formed by health care organizations to establish best practices, assist government entities and educate the public on the health insurance exchanges. The group, which has a multistakeholder board composition, provides fact sheets, survey results and webinars on its website,

American Hospital Association

The AHA offers resources on its website at, and plans a webinar in September.

California Hospital Association

The California Hospital Association has gotten a good response across the country to its guidebook, "Helping Individuals Obtain Health Coverage Under the Affordable Care Act," which it's selling on "I think there's a real need for this," says Anne McLeod, senior vice president of health policy for the CHA. "They're not getting help from the exchanges."


The association targets consumers with fact sheets and tools, and answers FAQs at

The nuts and bolts of an insurance exchange

• What it is

Redubbed marketplaces by the federal government, all states and the District of Columbia have one. The exchange acts as central coordinator and standard-setter for the sale of health insurance plans to small business and individuals and families who can't get covered elsewhere.

• Types

States were allowed to create their own exchanges under rules set by the Affordable Care Act or must use one created by the government. Some are using the federal government's exchange, but adapting parts of it in a partnership model. These differ from a private health insurance exchange [see story, Page 34].

• Tiers of coverage

The exchanges offer minimum essential benefits in actuarially standardized bands of coverage labeled Bronze, Silver, Gold and Platinum. Cost and benefits rise respectively. Bronze plans generally carry the lower costs, high deductibles and fewer choices for providers, while Platinum is the so-called Cadillac plan. Insurers are supposed to compete within the bands of coverage on price.

• Financial aid

The exchanges offer coverage that carries federal tax credits for people or families with incomes between 100 percent and 400 percent of the poverty level. Subsidies will be paid under a formula based on rates for Silver-level plans for those with incomes up to 250 percent of the poverty level.

• Who can help

Hospitals and other groups can apply to be designated certifiers of application counselors, a position that gets no federal funding. Once certified, application counselors can educate consumers and help them fill out applications. Navigators are federally or state-funded, performing a job similar to that of an application counselor. Non-navigator assistance personnel work in exchanges, but receive no federal funding, and agents and brokers can help in appropriate circumstances.

• Provider networks

The exchange structure for the lower-tier plans encourages the inclusion of fewer provider choices, including hospitals, creating a narrower network for the insured and putting more bargaining power in the hands of insurers when negotiating reimbursement.

Sources: H&HN reporting, 2013

Private exchanges are yet another option

The Affordable Care Act has put a spotlight on public health insurance exchanges, which play a key role in reducing the ranks of the uninsured. Private health insurance exchanges also are expected to grow in popularity, though how quickly remains to be seen.

There are big differences between the two types of vehicles. The public exchanges are intended to provide somewhat uniform levels of coverage. Most of the private exchanges are being designed by employee benefit firms and insurers to give companies a way to offer employees multiple choices of coverage that are generally paid for with a defined contribution. It's much like the cafeteria plans offered years back.

Employers are attracted to the idea because they are providing a defined contribution that they hope will limit their spending, says Paul Fronstin, research associate and director of the Health Research and Education Program at the Employee Benefit Research Institute.

Private exchanges are being promoted to employers by consulting firms with research predicting rapid growth, but Fronstin is skeptical. He says any shift to using defined contribution health plans on an exchange is likely to be gradual, noting that it was decades before defined contribution retirement plans took hold. "I don't expect this to be an overnight sensation," he says.

Fronstin also says that private exchanges can vary so widely in design and offer so few choices that the term "exchange" might be a misnomer. Some of the private exchanges now being developed offer different levels of insurance, but from just one carrier, which really isn't an exchange at all.

And the types of coverage guarantees and network design vary greatly depending on which companies will be offering coverage through the private exchange. "When you've seen one [private] exchange, you've seen one exchange," Fronstin says. "They're all different."

Hospitals and physician groups join enrollment campaign

The American Hospital Association, the American Medical Association, and other physician and hospital groups have joined the Champions for Coverage initiative to help spread the word about the Health Insurance Marketplace, also known as exchanges, that begin enrolling individuals and small businesses Oct. 1. Health & Human Services launched the initiative in August. Participants help to promote the marketplace at and and the Consumer Call Center at 800-318-2596 to members, customers and partners. For more information or to apply to participate, visit