Former NAIC Exec on Medicaid Rollback: Hospitals Say it's a 'Nightmare Scenario'

A former US representative and ex-president of the National Association of Insurance Commissioners expects financial turmoil in the healthcare industry as Obamacare repeal-and-replace legislation lurches through Congress.

The intersection of healthcare finance and politics features an assortment of twists and turns. Earl Pomeroy knows the terrain as well as the back of his hand.

Pomeroy served as state insurance commissioner in North Dakota from 1985 to 1992. From 1990 to 1991, he was president of the National Association of Insurance Commissioners.

From 1993 to 2011, the Democrat represented his state in the US House of Representatives and served on the Ways and Means committee. Now, he is working in Washington as senior counsel at Atlanta-based law firm Alston & Bird LLP.

Last week, HealthLeaders quizzed Pomeroy on efforts in Washington to repeal and replace the Patient Protection and Affordable Care Act, including his forecast for the financial impacts on healthcare providers and payers.

The transcript below has been lightly edited.

HLM: Before the ACA, there was no functioning individual insurance market. The individual market created through the ACA-spawned exchanges is losing carriers and teetering perilously. Gauge the fate of the individual market.

Pomeroy: The individual insurance market has long been troubled. [When] I was North Dakota insurance commissioner, we had nothing but trouble in that area.

One company, Blue Cross Blue Shield, essentially made the individual market available. So, pre-ACA, there were an awful lot of jurisdictions that did not have competitive markets.

The exchanges have had a variety of problems, and there were missteps by the Obama administration in the implementation of the Affordable Care Act that compounded some of the difficulties for insurers trying to operate on the exchanges.

However, the Trump administration has not taken the steps to signal to insurers whether the administration is committed to maintaining viable exchanges until they get a new law in place.

There is a very uncertain outlook for insurance exchanges because insurance companies don't know what the rules are going to be or what the reimbursements are likely to be. So, they are very reluctant to participate.

HLM: If there is a HIX meltdown before ACA replacement legislation is in place, what would be the primary financial impact on healthcare providers?

Pomeroy: For the healthcare delivery system—ranging from the hospitals to the doctors to the ambulance drivers—there is a substantial financial consequence for those providing healthcare when patients move from having insurance to not having insurance.

As the number of uninsured balloons, operating margins slide into the negative. 

HLM: Medicaid Expansion under the ACA is under assault on several fronts, including President Trump's proposed budget, the House version of the American Health Care Act, and regulatory shifting at the Centers for Medicare & Medicaid Services. How would a Medicaid rollback financially impact healthcare providers?

Pomeroy: Hospitals have told me it's the nightmare scenario. They lose the newly covered lives, and they don't gain back some of the cuts they took in the ACA anticipating they were not going to have to deal with a large uninsured population.

The deal with the ACA was that some of your inflation adjustments going forward would be reduced, but you would have many more insured patients and your number of uninsured patients would drop significantly.

Now, they want to take the coverage away and leave the cuts in place. This would force the closure of at least hundreds of very low-margin nonprofit providers.

I used to represent North Dakota in Congress, and I know this will fall particularly hard on rural providers. It will drive a lot of rural hospitals out of business.

HLM: How would a Medicaid rollback affect commercial payers? For example, Arkansas Blue Cross Blue Shield could lose a quarter million beneficiaries who gained relatively generous Medicaid coverage through Arkansas' private-option expansion of the program.

Pomeroy: It would hurt two ways.

First, you lose some of the margin. In running an insurance company, some of the margin comes from the administrative functions they perform. They pay claims and make some margin for the administrative work that they do.

Losing lives means they are losing business.

Secondly, because the bad debt in hospitals would go up from treating uninsured patients, part of that cost would be shifted to patients who are insured.

Related: Trump Budget, Revised AHCA, Credit Negatives for NFP Hospitals

So, suddenly health insurers are going to be paying higher medical bills. When insurance companies have to pay more, they have to get rate increases, so this would not be an isolated problem for those losing coverage.

This would be a problem for those with coverage, even at their place of employment, because the rates would go up.