Insurance Exchanges Might Pose Hidden Risks

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The Patient Protection and Affordable Care Act has created a seemingly endless list of “what-ifs” for hospitals and other health-care providers to consider. And while it’s the job of Dan Nash and his team at Zurich in North America to anticipate the needs of their customers in Zurich’s Healthcare Practice, sometimes the best course of action is cautious speculation based on a lifetime in risk management.

As the leader of Zurich’s Healthcare Practice, Nash spends considerable time and effort pondering imponderables, among them the impact of transitional reinsurance programs on hospitals. More commonly referred to as insurance exchanges, these programs are the mechanism by which the currently uninsured will gain access to healthcare. “There’s a lot we don’t know yet,” says Nash. “The exchanges aren’t formed yet, so we don’t know the scope of the plans and the amount they will cover. But you have to think about those things, and plan for them the best you can.”

The rules issued so far by the U.S. Department of Health and Human Services (HHS) that pertain to insurance exchanges are straightforward, and impact all businesses of over 50 employees who are enrolled in major medical programs. Over the course of three years, starting in 2014, employers will have to pay a tax of $63 per employee to fund the administration of the insurance exchanges. The annual per-employee amounts will dip slightly in 2015 and 2016 (to $42 and $26, it is estimated), with the end total being $25 billion, some of which will go toward partially reimbursing commercial insurers for writing discounted policies on individuals with high healthcare costs.

Nash sees how hospitals might think that insurance exchanges might be good for business and add to revenues, but there’s a risk in counting those unhatched chickens. “The hospitals think this is great because, in theory, 25 to 50 million uninsured people can get coverage through exchanges—and the hospitals will finally get paid. That would seem to mean a lot of new business. But there’s a problem with the assumption that just because everyone has access to an exchange, they are going to use them. The assumption is that behavior is going to change based on healthcare reform, but we don’t know that. That’s the missing element. You can’t control people’s behavior with regard to their own health. Someone who is unemployed and uninsured, and who habitually avoids going to see a doctor or going to a wellness center—are they suddenly going to start going to the doctor? There’s a chance that it’s very unlikely.

“In short,” Nash continues, “anticipated increases in revenue may not be realized, and then the hospital is back to waiting 173 days to be reimbursed by Medicare or Medicaid.”

Insurance exchanges will compete directly with insurance companies and health savings plans. The exchanges, in theory, should cost less for individuals, but the coverage might not be as good as with major medical coverage from a commercial insurer. “The risk for the individual there is really what isn’t being covered,” says Nash. “A possible long-term consequence might be that employers stop providing health insurance as a benefit, and push everyone to an exchange,” thus reducing an expense but leaving employees with potentially weaker coverage. “That will be a difference-maker for bigger and better employers in the future when recruiting talent,” says Nash. “It’s a real selling point: ‘We still offer solid insurance benefits.’”

Were this scenario to come to pass, hospitals may also see an uptick in patients who have lower maximum benefits for major surgery. “Suppose employers gravitate toward the exchanges rather than having separate plans, and that results in lower maximums for major medical coverage,” says Nash. “If a surgery or series of surgeries costs $3 million, and the patient is only insured for $2 million, where is that $1 million going to come from? Nowhere.”

All food for thought—and planning—for those impacted by the Affordable Care Act. And that, in the end, is nearly every person and business in the U.S.