Insurance coverage that’s affordable and the plight of the uninsured is certain to be the central focus of partisan debate now that the GOP’s American Health Care Act has been set aside, at least temporarily. The Affordable Care Act expanded coverage by mandating that nearly everyone purchase insurance, expanding state Medicaid programs and subsidizing coverage for individuals through the health insurance marketplaces. The AHCA would have halted Medicaid expansion, repealed the individual mandate and cut funding for Medicaid.
The issue of expanded coverage is especially relevant to hospitals and health systems, which, along with physicians, shoulder the lion’s share of financial responsibility for those who are not insured or are underinsured. Expanded coverage for these two populations — Medicaid and individuals who do not qualify for government or employer coverage — is necessary to their long-term sustainability.
For most providers, Medicaid is fairly well understood. It’s a program that serves 74 million Americans — the poor and disabled — who qualify for coverage. It is a program run by the states, with 57 to 75 percent of funding provided by the federal government. Under ACA authority, 31 states expanded Medicaid, with the federal government funding 100 percent of the costs for expanded enrollments through fiscal 2016, with the rate falling in subsequent years, dropping to 95 percent of expansion costs in fiscal 2017 and hitting a floor at 90 percent in 2020.
The reality is that Medicaid reimbursement does not cover costs, but some reimbursement is better than none. Otherwise, these individuals end up in the emergency departments lacking coverage and without a medical history on which diagnoses can be based.
The individual insurance market is more problematic to providers. It’s called the “nongroup” market by private insurers. First, some facts:
- Composition: The individual market consists of professionals, tradespeople, early retirees, and individuals not eligible to participate in a government (Medicare/Medicaid) or employer-based insurance program. As employers use independent contractors in lieu of hiring fulltime staff, the size of the individual market is expected to increase.
- Size: The individual market has grown to 18 million in 2016, federal research released in October indicates. Of that group, 6.9 million people purchase coverage from private insurers on their own, 11.1 million purchase coverage through the health care marketplaces, and of that 11.1 million, 9.4 million receive a subsidy that pays a portion of their premium and, for some, assists with cost sharing as well.. The majority of those insured through the marketplaces pay less than $100 out of pocket for their plan, which costs nonsubsidized individuals $450-600 per month depending on their location.
- Risk: The individual insurance market is a risky market for private insurers. The administrative costs for managing these plans is high: 16 to 27 percent versus 4 to 7 percent for large groups and 10 to 12 percent for small groups due to high turnover of enrollees, higher-than-average utilization and costs for marketing, member services and logistical support.
The ACA and the individual market
The Affordable Care Act targeted individuals not eligible for employer or government coverage in a government-subsidized program, i.e., Obamacare. States were granted funds to create marketplaces for individuals to shop for plans that were “qualified” per the ACA. The aim was to enroll large numbers of individuals earning between 138 and 400 percent of the federal poverty level, a third of whom were young and healthy and all previously uninsured.
But the ACA’s restrictions on what constituted a “qualified plan” coupled with adverse selection (sicker people enrolled, and the healthy didn’t) helped push premiums higher from 2014 to 2016 (last year alone, an average 22 percent increase for the silver plan to which federal subsidies are applicable). Given the restrictions in the Affordable Care Act’s oversight of qualified individual health plans, loopholes whereby individuals are able to gain coverage, receive service and disregard their premiums, and the sicker-than-expected composition of the newly insured, insurers are reluctant to offer plans on the exchanges. Anthem, Humana, United, Aetna and others have announced plans to limit or suspend their participation even more next year.
Implications for hospitals
The individual market is an important and growing market for hospitals. Employers are dropping coverage due to costs, pushing workers to the exchanges. The health insurance marketplaces cover two-thirds of the individual market going into their fourth year. But it’s a risky market.
The majority of individuals who purchase individual plans through the marketplaces are middle-income and have limited means. Some buy plans with high cost sharing that also cover their families — all they can afford. Some have previously gone without coverage and have medical conditions that need attention. And all depend on the local health care system for support. For hospitals, engaging the individual market is necessary.
Responding means hospitals and doctors must understand the total costs of the care associated with services provided these individuals. They must recognize that co-payments and deductibles are often beyond these individuals' reach, prompting delays in elective tests and procedures and infrequent preventive health.
Some hospitals are considering sponsorship of a health plan targeting the individual market: Beware. Premiums in the marketplaces, unless restrictions are lifted on their composition, will escalate at a double-digit clip. And the individual market is price-driven: Simply putting the name of a hospital on a plan means little for attracting adequate enrollment if premiums are higher than other options.
And advocacy efforts with state and local officials is paramount. The individual market will grow simply because employers will push their employees to assume accountability for their own coverage. That inevitably means bad debt will increase for providers, since individuals are inclined to pay for their utilities, housing and essentials first, leaving health care bills for later.
The individual market is risky but a significant part of the future for hospitals and physicians. How the political environment in D.C. addresses flaws in the marketplaces and how private insurers elect to engage this market are unknown.
Hospitals must prepare for two realities: The individual market will grow, and the risks associated with its management will be challenging.
Paul H. Keckley, Ph.D. (firstname.lastname@example.org), does independent health research and policy analysis and is managing editor of The Keckley Report. He is a member of Speakers Express; for speaking opportunities, please contact Laura Woodburn. Marina Karp can be reached at email@example.com.
The opinions expressed by the authors do not necessarily reflect the policy of the American Hospital Association.