Is the Affordable Care Act Leading Payers to Lose Profit?

March 16, 2016 - The world of healthcare has often been a struggle between medical providers and the payers with one side looking to offset costs and make a profit while the other side concerns itself with the revenue of their patient care. With the federal government along with payers perturbed over rising medical costs, hospitals and other providers are being hit with reduced reimbursement. For instance, the Affordable Care Act and its focus on value-based care could negatively affect hospital payment.

The American Hospital Association (AHA) reported yesterday that the House Energy and Commerce Committee voted 28-19 in favor of the Common Sense Savings Act, which would essentially eliminate as much as $30 billion from state Medicaid and Children’s Health Insurance Programs in federal funding over the course of 10 years. The federal Prevention and Public Health fund would also be hit with a reduction in assistance.

Approximately $14 billion would be cut from the Prevention and Public Health fund while the reduction in funding from state Medicaid and CHIP programs would vary by region. State Medicaid provider taxes would be lowered from 6 percent to 5.5 percent with regard to the revenue of patient services. This process would begin on January 1, 2017.

The Federal Medical Assistance Percentage for CHIP would be cancelled from fiscal years 2016 throughout 2019. Non-disabled and non-elderly beneficiaries would also be required to have “lottery winnings and irregular lump-sum income” to be accounted when it comes to their healthcare coverage.

In addition, states will not be allowed to claim Medicaid matching funds when it comes to providing inpatient care for prisoners who are Medicaid beneficiaries and have been admitted to a non-prison hospital or facility for one or more days, AHA explained.

When the Democratic side offered amendments to the bill, it did not make it through to the final ruling. While this law is affecting the overall revenue of hospitals and medical providers, the Affordable Care Act may have led to money loss on the health payer side, argues Merrill Matthews, a Resident Scholar at the Institute for Policy Innovation.

For example, Humana reports that it will likely lose about $176 million in 2016 due to the Affordable Care Act and the health insurance exchanges. In addition to Humana, the major insurer Aetna has also reported that it lost $140 million in 2015 when selling health plans on the federal exchange.

About $1.3 billion was also lost across three Blue Cross health plans last year while Harvard Pilgrim lost $79 million. Another major health payer UnitedHealthcare reported a general profit loss of $720 million due to selling health insurance plans through the marketplace. In fact, UnitedHealthcare announced toward the end of last year that it is considering leaving the health insurance exchanges. This news shows how the Affordable Care Act may not have been favorable for health payers and insurers.

“Several insurers came out and said that they’re still committed to being here, but it might indicate the death spiral that we’re concerned about in the exchanges,” Matthews told HealthPayerIntelligence.com in an exclusive interview about UnitedHealthcare’s plans. “There’s been a long-running concern that what the exchanges will ultimately be is the place where the people who are the sickest and need subsidies from the federal government will reside.”

“The question comes about – would even some of those people be able to buy cheaper insurance, even considering the subsidies, outside of the exchange if a death spiral initiates. If so, does that ultimately make the exchanges unworkable?”

“The biggest factor keeping the exchanges alive is the fact that subsidies are there. If I remember right, about 85 percent of the people in the exchanges get subsidies. I think you will see that other 15 percent begin to migrate outside of the exchanges because I think the exchanges are going to become very expensive in the near future,” he concluded.

Matthews also asserted that selling plans through the health insurance exchanges initially had a failing rollout and has recently led to higher premiums. The Resident Scholar from the Institute for Policy Innovation predicts that more health insurers will leave the health insurance exchanges in the coming years.

While the Affordable Care Act may not have had the best interests in mind for health insurers, the legislation was meant to benefit patients and consumers. The healthcare law has clearly increased medical coverage for large sects of the American population including through Medicaid expansion and the tax subsidies offered via the exchanges.

The state of Texas, which has previously had abysmal health insured rates, has seen a rise in coverage among its residents due to the Affordable Care Act. Obamacare has also enabled free preventive care including wellness checks and screenings.

“The biggest benefit [of the Affordable Care Act] from my perspective, being a provider for the last 13 years, is increasing access to care for people who have never had insurance – these are the same people that go to emergency care and urgent care centers for their care. It is still taxpayer dollar taking care of these populations,” Prof. Prabjot (Jodie) Sandhu, MSN, FNP-C, PA-C, CNL, DNP(c), FNP-C at the University of San Francisco, told HealthPayerIntelligence.com.

“Expanding healthcare access and providing free preventative care – wellness checks, physicals, screenings, and mental healthcare – these are all mandatory obligations now under the Affordable Care Act for a basic healthcare plan to provide these things and necessary components of medical care, not an option or luxury.”

“If we can do this at a population level and start to offer more of the preventative screenings, we’re looking at the far end of the spectrum of reducing chronic disease and other health issues that ultimately cost the economy and insurance companies more,” she mentioned.

In addition to these benefits, young adults under 26 years of age are allowed to remain on their parents’ health insurance plans while those with preexisting conditions will no longer be denied coverage due to the Affordable Care Act.

As the future of Obamacare rolls out in future years, history will tell whether it is truly a successful piece of legislation or will need more revision.