The political division over Medicaid expansion and a nearly $400 million shortfall tied to the Affordable Care Act's risk-corridor program ate into the bottom line last year at Intermountain Healthcare, the integrated system that dominates Utah.
Intermountain, a 22-hospital network that also owns SelectHealth, an insurance company, posted a 3.8% operating margin in 2015, according to its latest financial filings (PDF) released Monday. That was down from the 5.5% margin recorded in 2014.
Several factors played into Intermountain's lower margin. SelectHealth sells ACA health plans on the exchange in Utah, and like other insurers, it faced severe challenges stemming from extremely sick members. Major problems with government funding likewise hammered SelectHealth.
The ACA established three programs to mitigate the risk of the new insurance markets and limit the losses of insurers in the early stages. The risk-corridor program, however, has left many insurers out in the cold. Under that program, the federal government reimburses companies if medical claims from exchange members come in higher than expected.
Congress permitted the CMS to pay out only 12.6% of requested risk-corridor payments for 2014. Congress limited the program again for 2015, but a final payment rate has not been released. Intermountain collected just $11.9 million in risk-corridor payments by the end of last year, and the system said it suffered $392.5 million in losses tied to the risk-corridor program for 2014 and 2015.
“Management intends to aggressively pursue all available means to collect any risk-corridor receivables that it believes are fully valid under existing law,” Intermountain executives wrote in the financial documents.
Republican-led Utah, along with 16 other states, also has not expanded Medicaid eligibility to low-income residents under the ACA. Hospitals hoped that Medicaid expansion would reduce the number of uninsured who walk through their doors, thereby lowering the number of unpaid medical bills.
But Intermountain's bad debt rose by 41% in 2015, totaling more than $215 million. That figure was actually down from 2013, when Intermountain's bad debt hit almost $232 million. Bad debt was about $153 million in 2014.
Intermountain's total revenue jumped 9.6% in 2015 to $6.06 billion, but higher amounts of hospital and doctor visits did not account for most of that increase. Instead, SelectHealth's revenue climbed 21% to $2.21 billion, representing about 36% of Intermountain's revenue. Just two years prior, by the end of 2013, SelectHealth contributed 30% of Intermountain's revenue.
The insurance arm likely will continue its momentum. This year, SelectHealth launched an experiment with large employers in which the insurer has promised a 4% annual growth rate in costs over a three-year contract. If medical costs climb faster than that rate, SelectHealth will absorb them, but it also will keep any savings that fall below the 4% threshold.