The next two years will be decisive in determining the financial impact of the government-operated health insurance exchanges, says Moody's Investors Service.
There is light at the end of the financial-outlook tunnel for nonprofit hospitals as the performance of the Patient Protection and Affordable Care Act's health plan exchanges matures, according to Moody's Investors Service.
The financial uncertainty unleashed by the launch of the PPACA exchanges in 2014 should ease significantly over the next two years, Moody's says.
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"Since their introduction in 2014, health insurance exchanges have benefited hospitals by facilitating gains in insurance coverage, particularly in states that did not expand Medicaid coverage," the report says.
"However, despite the improved insurance coverage, the long-term credit impact of the exchanges is not yet settled. A significant share of insurance gains nationally is due to people obtaining coverage under expanded Medicaid eligibility while the exchanges themselves have experienced stress with most insurers losing money on exchange-sold plans."
The report, released last week, identifies three factors that Moody's says will determine whether the public exchanges will have a net positive or net negative financial impact on nonprofit hospitals:
- The profitability of HIX health plans: "Insurer losses on the exchanges are credit negative for not-for-profit and public hospitals because they threaten the long-term viability of the exchanges by reducing the number of insurers that are willing to participate."
- The impact of HIX health plans on the financial operating margins and market share of nonprofit hospitals: "The exchanges present hospitals with the opportunity to gain market share, but also present risk through lower reimbursement or growing bad debt."
- The status of Medicaid expansion under the PPACA in the state where nonprofit hospitals are based: "The exchanges have a more important role in states that did not expand Medicaid such as Texas and Florida."
Several factors are cited as contributing to uncertainty over whether commercial insurers can manage HIX health plans profitably:
"Most insurers have incurred losses selling individual insurance products on health exchanges owing to a number of reasons. These include last-minute rule changes which allowed individuals to maintain pre-Affordable Care Act polices, thereby removing a large component of healthier individuals from the risk pool, the non-payment of the risk corridor funds due to insurers (these payments were intended to protect insurers from excessive losses in the first three years of the exchange's operation), as well leniency that allowed individuals to obtain coverage mid-year without providing evidence of qualified life events."
The ability of nonprofit hospitals to consistently achieve a net-positive operating margin on medical services provided to HIX health plan beneficiaries has yet to be determined, the Moody's report says.
"Hospitals' ability to maintain adequate profitability through their reimbursement contracts with insurers under the exchange products is a key credit factor when assessing the overall impact of the exchanges; lower payment levels on these contracts would result in lower profitability and be credit negative. Although the contracts are currently profitable, not all contracts are as profitable as hospitals' existing commercial contracts, putting pressure on margins."
Moody's reports that uncertainty persists regarding the HIX impact on the market share of nonprofit hospitals.
"An additional factor we will monitor is what effect high deductibles have on patient behavior. Having greater financial responsibility may lead patients to shop for value, which would benefit high performing hospitals that could gain market share."
Finally, market conditions at the state level, such as whether a state has expanded Medicaid under the PPACA also are playing a determinative role in the HIX impact on nonprofit hospitals.
"Medicaid expansion is responsible for a larger share of the reduction in the national uninsured rate. However, in non-expansion states, increases in insurance coverage are due to people purchasing coverage on the exchange."