Shifting burdens

Plenty of unknown financial challenges await Carolinas HealthCare System with the rollout of health reform provisions next year. What's not uncertain is whether more of Carolinas' patients will have high-deductible insurance plans with cost-sharing provisions they often cannot afford.

Since 2008, the system has seen a steady increase in its bad debt because of patients unable to pay their deductibles and copayments, says Michael Tarwater, CEO of the Charlotte, N.C.-based system. Such payments account for a full percentage-point increase in the 11% share of Carolinas' budget attributed to uncompensated care and cash payments during the past 12 months. “We haven't seen it flatten out,” Tarwater says.

Hospital executives are watching to see whether the net financial gains from next year's coverage expansion under the Patient Protection and Affordable Care Act surpass losses from the law's looming reimbursement cuts. They have focused their fears on an expected surge in high-deductible health plans next year, worrying that any wide availability of such plans through the health insurance exchanges set to begin enrollment in October in every state will mirror what has been a surging trend among employers.

The exchanges allow a sliding scale of benefits and cost-sharing by their plans. The plans will range from the least comprehensive and cheapest “bronze plans” to the most comprehensive and costliest, categorized as “platinum plans.” Income-based subsidies will be available to help cover premiums, deductibles and copays on a sliding scale for individuals and families earning up to 400% of the federal poverty level. Premiums are generally lower for high-deductible plans, which are typically paired with health savings accounts.

According to the Kaiser Family Foundation, bronze level coverage will have much higher cost-sharing than typical employer-based coverage. With a standard 20% co-insurance requirement, a bronze plan would have an estimated deductible of $4,375 for an individual and double that for a family. By comparison, single deductibles averaged $675 in employer-sponsored PPOs in 2011.

“So what we're going to see is people are going to have coverage with big copays and deductibles,” says Kenneth Raske, president of the Greater New York Hospital Association. And healthcare providers are likely to have a lower probability of collecting them, Raske says.

High-deductible plans are among a growing number of financial concerns that hospital administrators say could tip the scales between planned federal reimbursement cuts and an increase in the number of insured customers. Hospitals agreed to $155 billion in cuts to Medicare and Medicaid over 10 years under the reform law in return for provisions providing healthcare coverage for 32 million uninsured.

It was never certain that the fiscal tradeoff would work out, hospital advocates have said. But developments since passage of the law have increased the odds that it will not.

Some of the developments undermining the outlook for hospitals have been high-profile, such as the refusal by leaders of about half the states to expand their Medicaid programs. States were given the option to decline Medicaid expansion as part of the U.S. Supreme Court's 2012 decision upholding the Affordable Care Act. If every state expanded Medicaid eligibility, hospitals could net $180 billion more in revenue over the next 10 years, according to an Urban Institute study published in March.

But no similar public analysis has looked at hospitals' financial impacts under various scenarios in the health insurance exchanges, which are expected to begin enrollment in less than four months. The coverage provided by plans through the exchanges—in tandem with the Medicaid expansion—was expected to help eliminate most of hospitals' uncompensated-care costs stemming from uninsured patients.

Now hospitals are increasingly worried that large numbers of low-income exchange enrollees could opt for the highest cost-sharing plans, because they will have the lowest monthly premiums. The numbers of patients who opt for high-deductible plans will not be known for months after the Oct. 1 start of open enrollment. But some health policy experts see an increasing likelihood that many low-income patients will gravitate toward those plans because federal subsidies will cover most or all of the premiums. Subsidies will cover much less of the deductibles or copays.

A growing number of surveys seem to support the notion that the high-deductible exchange plans could attract significant numbers of exchange enrollees because of their lower upfront premium charges. For instance, 2011 surveys by the Cicero Group of the population expected to seek exchange plan coverage in Mississippi found that 59% listed monthly cost as a top concern when weighing plans. By comparison, only 47% listed “services offered” as a major factor in choosing a plan.

High-deductible plans paired with HSAs were offered by 66% of companies with at least 1,000 employees, according to an annual survey sponsored by the National Business Group on Health. That figure is expected to grow to nearly 80% in 2014. Also, nearly 15% of the larger companies offered those plans as the only insurance option. Exchange enrollees who purchase coverage that meets IRS standards as high-deductible plans will be able to pair them with HSAs, which they can fund with tax-free contributions to cover their healthcare costs.

Smaller companies are also turning to the high-deductible option. Almost a quarter of workers at companies with fewer than 200 employees were covered by such plans last year, according to the Kaiser Family Foundation's annual employer health benefits survey.

Widespread selection of high-deductible plans could exacerbate the increased uncompensated-care costs that Carolinas HealthCare and other hospitals are reporting.

“If you get sick and go to the hospital, you may have to pay the first $5,000 or $6,000 out of pocket” under such plans, says Stan Dorn, a senior fellow at the Urban Institute. “I wouldn't blame hospitals for being nervous.”

Hospitals have found that patients with high-deductible plans offered through their employers are more likely than those with traditional plans to have unpaid deductibles and copays, says Xiaoyi Huang, assistant vice president for policy at the National Association of Public Hospitals and Health Systems.

The attractiveness of high-deductible plans to low-income exchange enrollees could increase further in states that do not expand their Medicaid program, Dorn says. Exchanges in states not expanding Medicaid will offer subsidized coverage to many low-income residents who would otherwise be required to enroll in Medicaid.

Nationally, hospitals' uncompensated-care costs have risen from $3.9 billion in 1980 to $41.1 billion in 2011, the last year reported in American Hospital Association figures released in January. However, uncompensated-care costs as a share of hospitals' total costs have remained fairly stable during that period, varying between 5.1% and 6.4% of total expenses, according to the AHA survey. In 2011, uncompensated care accounted for 5.9% of hospitals' costs.

But AHA officials are “very concerned” about the potential for high-deductible plans driving uncompensated-care costs and are tracking such costs through their members, an official says.

“Historically, we have found that about a quarter of uncompensated care relates to unpaid copays and deductibles, and we expect that could rise if more people enroll in high-deductible plans,” says Marie Watteau, an AHA spokeswoman.

Such plans were allowed in the Massachusetts exchange. Despite that, uncompensated-care payments declined by almost 40% in the first full year under the 2006 law, according to analysis by the state budget office. The primary difference from Massachusetts that could produce much worse outcomes nationally, according to hospital advocates, is that providers in that state were not trying to compensate for state and federal cuts in uncompensated-care assistance.

Most of those cuts will come through reduced disproportionate-share hospital payments, which reimburse hospitals for large numbers of low-income patients. The first phase of Medicaid DSH cuts are set to begin in the next fiscal year, which starts Oct. 1. Calls for delaying or eliminating the DSH cuts are one way hospitals are responding to concerns about rising costs, including the increasing impact of cost-sharing.

Hospitals have rallied behind the Obama administration's proposal to delay the Medicaid DSH cuts for a year, but the only related legislation is a two-year delay sponsored by Rep. John Lewis (D-Ga.). The bill has garnered only 20 co-sponsors. Absent legislative intervention, the administration is moving forward with implementing the Medicaid DSH cuts as mandated under the 2010 healthcare overhaul.

In addition to their legislative push, hospitals are asking the CMS to tweak Medicaid DSH rules to account for the anticipated effect of unpaid cost-sharing from patients with high-deductible health plans.

“Based on our hospitals' experience, what we're arguing to the CMS is that these people may have insurance in that they have third-party coverage, but the third-party coverage is so skimpy it's almost as if they are uninsured because they have no financial ability to meet the high cost-sharing,” Huang says of the deductibles that must be paid before assistance is provided. Hospitals also are pushing back on state and local efforts to reduce uncompensated-care assistance to hospitals with the expectation that providers will need less help with fewer uninsured people seeking care. States are moving at different speeds to collect some of the coverage expansion's expected savings, which include a total of $18 billion less in state uncompensated-care assistance, according to a June analysis by the RAND Corp.

The highest-profile effort to reduce such state-provided assistance is California Gov. Jerry Brown's proposal to shift $2.5 billion over three years from county-based indigent care to Medicaid. The funding transfer would cover the state's cost of insuring some of the 2.5 million people currently eligible but not yet enrolled in Medi-Cal, the state's Medicaid program. The California shift has sparked concerns from hospital officials worried that the county money provided by the state will be cut before the target population moves to Medi-Cal.

“We certainly do have concerns over how much funding will be left in the counties depending on their individual responsibilities for the remaining indigent population,” says Anne McLeod, senior vice president for health policy at the California Hospital Association.

Hospitals aren't likely to avert all of the cuts planned at various levels of government, but they hope to at least mitigate the adverse financial effects of high-deductible plans. For instance, the Healthcare Financial Management Association is urging hospitals to educate their exchange-eligible patients on the shortcomings of such plans.

“Especially for folks who may never have had insurance before, they are going to buy the product on the exchange and think that they are covered, not really realizing it's not first-dollar coverage,” says Chad Mulvany, technical director on regulatory and reimbursement issues for the HFMA.

Follow Rich Daly on Twitter: @MHrdaly