Repeal-and-replace could benefit hospitals if the push to block-grant Medicaid spurs more GOP states to expand the program, one analyst says.

Nov. 15—Despite a reported enrollment spike in the government-run health insurance marketplaces following the recent election, Wall Street analysts expect large enrollment drop-offs in 2017.

The U.S. Department of Health and Human Services (HHS) projected that 13.8 million people will select a marketplace plan by the end of the ongoing open-enrollment period. That would be an increase of 1.1 million, or 9 percent, compared with the previous open enrollment.

Those projections were bolstered following the election of President-elect Donald Trump and a GOP-led Congress—amid their pledges to repeal the Affordable Care Act (ACA), which created the marketplaces—by a one-day enrollment surge as reported by HHS. Secretary Sylvia Burwell tweeted that more than 100,000 enrollees selected plans through the federal ACA marketplaces on Nov. 9, the day after the federal elections. That was the highest one-day total thus far during the open-enrollment period that began Nov. 1, when around 95,000 signed up.

But Wall Street analysts do not view the prospects for the ACA marketplaces as having improved since the election.

Ana Gupte, managing director and senior analyst, healthcare services, for Leerink Partners, said in an interview that she expects the ACA marketplaces will garner only about 11 million enrollees. That shortfall was expected to stem from the inability of penalties under the individual mandate to prod additional healthy people to enroll. However, those whose rising premiums are covered by subsidies likely will continue with enrollment.

“Whoever is in and who is subsidized will remain,” Gupte said. “They are insulated from premium hikes because of the subsidies; they don’t really have an alternative.”

Gupte’s expectation was in line with an October projection by Standard & Poor's Global Ratings that 2017 enrollment will range from 10.2 million to 11.6 million.

One indication that analysts are watching for is whether HHS releases weekly enrollment reports—expected to start this week.

Factors that could fuel greater enrollment include a fully phased-in individual mandate, greater awareness of the marketplaces, and more restrictions on the special enrollment periods (SEPs), Matthew Borsch, a healthcare equity research analyst for Goldman Sachs, said at a Nov. 15 event discussing the election’s impacts on healthcare companies.

“And that may potentially induce people to take up coverage at a greater rate,” Borsch said.

Factors that could depress enrollment include premium increases that average 25 percent, reduced numbers of plans, and higher shares of narrow provider networks in the remaining plans. Such factors were expected to outweigh the factors encouraging sign-ups.

“You’re going to see sign-ups materially lower than you did in the last open-enrollment period,” Borsch said.

Meanwhile, the election’s impact on enrollments remains “not clear,” he said.

If enrollments fall 20 percent to 30 percent, then publicly traded insurance companies could see the marketplaces as worsening “and then you have a snowballing of exits,” Borsch said. “I say ‘snowball of exits’ because there is a fear of being the last plan standing in these markets.”

The only good news from such a “complete unwind” would be that it would increase pressure for a solution from the federal government, Borsch said.

Sheryl Skolnick, director of research for Mizuho Securities USA, agreed that a marketplace collapse might put more of an onus on Republicans, who have vowed to repeal the ACA, to produce a marketplace replacement plan.

“There’s no question that the exchanges are deeply flawed for a number of reasons,” Skolnick said.

Defining a Replacement Plan

Borsch said a Republican replacement plan for the ACA marketplaces could include several elements, including “significantly more product flexibility,” tax credits instead of premium subsidies, wider age-rating bands, and additional risk pools. 

“You just could end up with a solution there that actually enlarges the individual market from its current size of 17 million because you bring in the healthy segments of the population,” Borsch said, referring to a tally of both on- and off-exchange enrollees.

Gupte agreed that the ACA’s individual mandate has failed to spur large shares of healthy people to enroll, noting that the share of young invincibles has remained at 28 percent of enrollees for three years—despite actuarial requirements that they comprise 40 percent of enrollees to stabilize the marketplaces.

For new GOP-backed insurance markets to work, necessary elements would include some type of requirement for continuous coverage to replace the individual mandate and stricter limits on SEPs, Borsch said.

Skolnick doubted that Republicans will find enough unity to implement such a replacement model or that some in the GOP would be able to successfully work with Democrats to enact it. But she urged Congress and the incoming administration to quickly resolve the marketplace replacement issue.

“Whatever plan they are going to come up with, it is going to be as good or as bad as any other plan because the problem is complex and difficult to solve,” Skolnick said. “So pick one and get on with it. It doesn’t matter what the replacement is, just give it to us.”

Medicaid Hope?

For hospitals, one of the most significant financial impacts from repealing the ACA is expected to come from the elimination of the Medicaid expansion. A recent study found that in 2014, hospitals in states where Medicaid expanded had an average uncompensated care reduction of $2.8 million and an average Medicaid revenue increase of $3.2 million. A loss of such revenue from repeal would have major consequences.

“Clearly, the one source of identifiable benefit in exchange for $155 billion in cuts over 10 years to pay for [the ACA] has been the Medicaid expansion impact on hospitals,” Skolnick said.

However, Republicans have not said what they will do with the newly covered Medicaid population. And some Republicans have pushed for retaining expansion in some form because some Republican-led states have embraced it.

Greater Medicaid expansion could come from moving Medicaid to a block-grant program, which bases funding on a per-beneficiary ratio, Skolnick said. In that scenario, Republican state leaders may realize they will get more money to run Medicaid programs newly unencumbered by federal rule if they first go ahead and expand enrollment.

“So you could actually see that benefiting hospitals,” Skolnick said. “That would be one ray of hope that I would hand out there for the hospitals.”

Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare 

Publication Date: Tuesday, November 15, 2016