As the dust begins to settle on the shaky launch of the HealthCare.gov website, new dynamics are emerging on the exchanges that will put significant pressure on provider organizations to reconsider their value proposition.
To try to ensure that premiums for health plans offered on the exchanges are affordable, insurers have taken two approaches. One is to combine low premiums with high deductibles. The Affordable Care Act does put caps on annual out-of-pocket spending ($6,350 for individuals and $12,700 for families), but those caps are relatively high, especially in comparison with the typical deductible in employer-sponsored plans. An analysis recently cited in The Wall Street Journal estimates that the average deductible for a “bronze” plan offered on the federal exchange is $5,081 per year (Scism, L., and Martin, T.W., “High Deductibles Fuel New Worries of Health-Law Sticker Shock,” Dec. 8, 2013). In contrast, the Kaiser Family Foundation’s 2013 Employer Health Benefits survey found that the average annual deductible for single coverage for an individual with employer-sponsored insurance was $1,135.
A second approach to low-premium plans is the creation of narrow networks. Early estimates indicate that approximately half of the plans offered on the federal and state exchanges will feature narrow networks. Moreover, consumer simulation research by McKinsey & Company showed that 55 percent of the consumers engaging in simulations chose lower-cost bronze or silver plans with narrow or tiered networks (Winning Strategies for Participating in Narrow-Network Exchange Offerings, May 2013).
Impact of High Deductibles and Narrow Networks
The combined impact of high-deductible plans and narrow networks will vary significantly by market and will be difficult to quantify until there is better sense of enrollment numbers on the exchanges.
Looking out over the 2014 calendar year, Moody’s Investors Service forecasts a negative impact on not-for-profit providers’ credit ratings as a result of the exchanges. With respect to high-deductible plans, Moody’s notes that “the lowest premium plans will likely require higher co-pays and deductibles” and that “lack of common understanding on co-pays and deductibles may result in higher bad debts” (“Health Insurance Exchanges Are a Modest Credit Negative for Not-for-Profit Providers in 2014,” Oct. 11, 2013). In other words, consumers may not have a good sense of what they have purchased with a low-premium, high-deductible plan until they face their first significant exposure to that deductible. Although the premium for the plan may have been affordable, the cost of paying the deductible may not be.
With respect to narrow networks, Moody’s identifies a two-fold risk. First, providers that have agreed to participate in narrow networks have likely accepted lower payment rates in return for expectations of increased volumes: Providers may be at risk if enrollment numbers do not materialize as expected or if providers cannot hold down expenses to match reductions in rates. Second, providers may find that they chose the wrong plan as a narrow-network partner if another plan has greater success in the marketplace (or they may find that not reducing their rates to join a narrow network was a mistake). In addition to these risks, out-of-network providers may also face more bad-debt exposure if they provide nonemergent services to individuals in narrow-network plans.
Responding to Exchange Dynamics
In response to the prospect of increased bad debt, providers should be taking a proactive approach to communicating with patients who have new plans and face new levels of financial responsibility for their care. This approach includes refining the ability to provide patients with estimates of their out-of-pocket payment for care and implementing patient financial communication best practices to help patients understand their financial responsibility and their options for meeting that responsibility. HFMA has recently worked with a multistakeholder steering committee to develop common-sense best practices to bring consistency, clarity, and timeliness to patient financial communications, which are available at hfma.org/communications.
In the longer term, the prospect of increasingly price-sensitive patients and the heightened use of narrow networks will demand that organizations carefully consider and, if necessary, refine their value proposition. Successful value propositions will again vary by market, but key questions for all providers organizations will include the following.
Are we doing all we can to enhance and quantify the quality and cost-effectiveness of care? Pressures to increase both price and quality transparency within the healthcare marketplace are growing and will likely intensify as consumers face greater responsibility for their healthcare choices. Consumers expect quality; providers must ensure that those expectations are met or exceeded. And increasingly, consumers will be shopping on price. Commodity services such as diagnostic testing or imaging, the total price of which may fall within the limit of a patient’s deductible, will see particular price pressures. But providers that can demonstrate quality outcomes at an attractive price—regardless of the service—will likely be situated for success with both patients and health plans.
What are our opportunities to achieve greater economies of scale and improve operational efficiencies? Pressures to keep premiums low on the exchanges will not go away. Moreover, if the federal and state exchanges succeed in keeping premiums low, employers will find them an increasingly attractive option for employees who are currently insured under employer-sponsored plans. Private exchanges are emerging as another option for employers interested in moving to direct-contribution support of their employees’ health insurance; as on the public exchanges, plans offered on private exchanges will need to keep premium prices low to attract customers. There are limits to how high deductibles can go and how narrow a network can get. Providers can also expect compression of the rates they receive from health plans offered on the exchanges closer to Medicare—or even Medicaid—rates.
Aware of these pressures, many provider organizations are already focused on making changes to their cost structure that enable them to break even at Medicare rates. The recently launched Phase 3 of HFMA’s Value Project is researching both affiliation and acquisition strategies and opportunities to reconfigure cost structure that will help organizations achieve the efficiencies needed to meet this goal.
Are we providing the right mix of services for our market? The success of narrow networks will depend in large part on the ability of patients to access the services they need through in-network providers. Does the range of services your organization provides complement demand for services in your market? Does your organization offer services that are in demand and not easily accessed elsewhere in your market? The answers to these questions will determine both your organization’s attractiveness as a narrow-network partners and its risk of being excluded from a narrow network.
The Affordable Care Act has thus far survived legal challenges, legislative efforts to defund it, and a bungled effort to launch the federal website. The exchanges are likely to find their footing. As they do, the dynamics they introduce will move the healthcare system further down the road to value.
James H. Landman, JD, PhD, is director, healthcare finance policy, perspectives, and analysis, HFMA.
Publication Date: Wednesday, January 01, 2014