Are You Ready for Health Exchanges to Impact Your Revenue?

Looming behind the initial phase of reform initiatives is the introduction of state health exchanges. There are many public misconceptions about health exchanges, and some states were previously reluctant to develop them because of the uncertainty around the potential repeal of the Affordable Care Act (ACA). Health exchanges are intended to increase competition and choice by providing transparency on price, coverage, and quality-of-care information for small businesses and individuals who need to purchase insurance. Despite the potential advantages for patients, health exchanges can have negative consequences for providers. Many forward-thinking organizations are evaluating the introduction of health exchanges in their markets to understand the potential impact and prepare a suitable strategic response

Your organization can successfully integrate health exchange-based patients into your managed care contracts through focused preparation and planning. Key considerations include the following:

• As mandated by the ACA in 2010, health exchanges will become active on January 1, 2014.
• Health exchanges will fundamentally impact the way individuals, smalls groups, and some families obtain health insurance coverage.
• The introduction of health exchanges will coincide with several other federal statutes in the ACA, including:
  • The federal mandate for coverage.
  • Individual fines and small business tax regulations related to health insurance.
  • The expansion of Medicaid eligibility (the Supreme Court of the United States ruling allows states to forgo expansion of Medicaid if they desire).
  • A change in the disproportionate share (DSH) payment calculation.
• Health exchanges will offer an array of plans with varying levels of coverage (bronze, silver, gold, and platinum) and benefits within the federally mandated parameters (10 categories of care benefits must be fulfilled).¹

Implications

The introduction of health exchanges will have far-reaching implications from a financial, operational, and strategic perspective. Health plans are positioning themselves to improve their market share and profitability with lower reimbursement proposals to providers for the exchange population within their commercially insured business. The key to adequately preparing for health exchanges is to assess the potential vulnerabilities of your organization and take specific action to prevent negative consequences to both financial and operational performance. There are a number of specific areas where providers should focus to prevent or mitigate a potential reduction in managed care contract rates for health exchange patients.

Payer Mix Change Example

As shown in the table below, the introduction of health exchanges to an example hospital’s market is expected to significantly reduce the number of patients covered under commercial insurance. In addition, the number of Medicaid beneficiaries will go up, and the number of self-pay patients will go down. Ultimately, this hospital will shift from a profit of $2.1 million to a loss of approximately $1.3 million, a change of $3.4 million. Analyzing the potential financial impact for your organization within a likely range of both reimbursement rates and payer mix shift will be a key component of your strategic planning for health exchanges.

Be aware of the potential utilization and cost-of-care risks of health exchange-covered patients. You will need to determine if the care for any given patient population is manageable based upon likely rates of reimbursement. Preparing for health exchanges will require significant due diligence to analyze the potential impact and develop a proactive negotiation approach to secure network agreements that place your organization in a positive financial position.

Published August 5, 2012