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On April 17, the U.S. Department of Health & Human Services (HHS) announced that 8 million individuals have enrolled for coverage in the federal and state health insurance exchanges. It’s an open question as to how many of these individuals will pay premiums to finalize the enrollment process. Anecdotal reports from payers put the nonpayment rate at 10 to 20 percent of exchange enrollees. One thing that’s clear is, as expected, enrollees traded lower premium prices for higher out-of-pocket costs. Plans with higher cost sharing were the overwhelming favorites of exchange enrollees, with 63 percent selecting silver plans with another 18 percent choosing bronze products.
Bronze products have a 60 percent actuarial value, while the actuarial value for silver plans is 70 percent for individuals whose income is over 250 percent of FPL. By statue, the silver products offer sliding-scale subsidized cost sharing for individuals whose income is 250 percent of the federal poverty level (FPL) or less, which in part explains the popularity of these plans. For an individual at 250 percent of FPL (with an annual income of approximately $28,000) who purchases a silver plan, due to the subsidized cost sharing, the plan has a 73 percent actuarial value. As an example, for a standard silver plan in New York, the presence of the cost-sharing subsidy drops the out-of-pocket maximum from $5,500 to $4,000 and the deductible from $2,000 to $1,750.
Although the reduction helps, the cost-sharing subsidies are probably not enough to help individuals resolve many of their outstanding balances. Not surprisingly, an analysis of historical balance after insurance data show that across all percentages of the FPL, as an outstanding balance after insurance increases, the yield decreases significantly. For individuals between 200 to 400 percent of the FPL, approximately 50 percent of balances less than $250 are collected. When the balance increases to more than $500, the yield drops to 16 percent, according to a data study by Waltham-Mass.-based Connance that HFMA submitted to the IRS to contribute to the agency’s 501(r) rulemaking process.
A similar trend holds for the relatively affluent (> 400 percent of FPL). Smaller balances after insurance (<$250) yield almost 60 percent. However, the yield drops to 25 percent when the balance is greater than $500.
As the trend to higher cost sharing continues in both health insurance exchanges and employer-sponsored segments, the findings above suggest that providers will need to refocus their efforts on efficiently resolving self-pay accounts to maintain and improve margins. Key to achieving efficient account resolution is the ability to effectively communicate with patients about their financial obligation either prior to or immediately after the time of service. The goal of this communication is help patients understand how the billing process works and either provide them (if uninsured) with a specific estimate of their out--of-pocket responsibility or (if insured) direct them to the appropriate resource to obtain this information.
The findings also have implications for providers’ charity care and prompt-pay discount policies. Patients apparently find relatively small increases in balance daunting, as is evidenced by dramatic decreased in collection yields. Although providers will need to study their self-pay experience, offering a greater percentage discount on higher balances (either charity care or prompt-pay, or some combination of both) tailored to sliding scale FPL could increase self-pay yield significantly.
Chad Mulvany is director, healthcare finance policy, strategy and development, in HFMA’s Washington, D.C., office.
Publication Date: Thursday, April 24, 2014
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