Moody's warns exchanges could carry more short-term risk than benefit

A credit analyst for not-for-profit healthcare providers is cautioning that the new state health insurance exchanges may introduce more short-term risk than benefit.

Moody's Investors Service said in a report Friday that while the exchanges may lead to a bump in the number of insured patients, the larger unknowns will be what happens with insurance contract terms; the potential migration of patients who currently have private insurance to exchange plans; and bad debt for patients.

Because the exchange plans have to offer affordable premiums while still providing mandated levels of coverage, Moody's anticipates that reimbursement levels to providers will be lower than in standard commercial plans. The exchange plans are also likely to feature more cost-sharing, particularly for bronze-tier plans, which only pay for an average of 60% of subscribers' medical costs and thus will have high deductibles and co-insurance.

Moody's predicts that the least financially secure individuals are most likely to choose a bronze plan. It therefore expects a rise in bad debt, which will offset the financial benefit to providers of having more patients with a payment source.

In addition, Moody's said it expects some adverse selection in exchange plans in 2014, as healthier people may opt to pay the tax penalty for not buying insurance. At the same time, some employers are electing to end their health benefit programs and directing employees to the exchanges—where they may or may not choose to buy coverage.

It cites companies like Home Depot, which is dropping coverage for part-time employees and sending them to the exchanges.

Moody's also cites a “timing mismatch” between when hospitals see fewer uninsured patients and the phase-in of cuts to disproportionate-share hospital payments. The first $1.1 billion in DSH reductions began on Oct. 1 and will be spread out over two years.

Meanwhile, HCA, Nashville, and Tenet Healthcare Corp., Dallas, have seen their share prices rise 6.8% and 11.4%, respectively, since the start of open enrollment. That's in part due to optimism around the rollout of the state insurance exchanges.

Follow Beth Kutscher on Twitter: @MHbkutscher