Why Health Insurance Exchanges Unnerve CFOs

Karen Minich-Pourshadi, for HealthLeaders Media , October 1, 2012

Once these exchange plans are established, some financial leaders believe they could cause area employers to stop offering their sponsored programs altogether, forcing employees to opt for the new plans instead.

A McKinsey & Company report says, "30% of employers will definitely or probably stop offering ESI [employer-sponsored insurance] in the years after 2014 and at least 30% of employers would gain economically from dropping coverage even if they completely compensated employees for the change through other benefit offerings or higher salaries." It also noted that "Contrary to what many employers assume, more than 85% of employees would remain at their jobs even if their employer stopped offering ESI, although about 60% would expect increased compensation."

Aaron Coley, vice president of decision support for MemorialCare Heath System, a six-hospital system based in Southern California, says "We did some modeling around what would happen if our commercial rates went just halfway between where they are now and Medicare, and what does that do in terms of revenue here? It will be $200 million for us a year that comes out of our system on a total net revenue base of about $2 billion. And that's just if the rate goes halfway to Medicare [rate]; that's not even getting to Medicare rates."

Freas adds, "In many ways, exchanges are worse than losing [inpatient] volume, because now we're taking care of all those patients, perhaps even more patients than before, and that's going to drive up the competition for [clinical] labor and the need for more staff, and we'll have to deliver care at a much lower cost. I just don't know how this is going to work out for us."

Trying to get a handle on which employers and industries might forgo offering insurance in favor of HIX is causing a great deal of financial uncertainty, as CFOs try to analyze how much of their patient base may be at risk to leave higher-reimbursing, employer-sponsored plans for the likely lower-reimbursing exchange plans.

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3 comments on "Why Health Insurance Exchanges Unnerve CFOs"

joe davis (10/2/2012 at 7:46 PM)
Sorry, I misquoted a number in an earlier post that has not yet been posted. CBO did assume that 6 million people would enroll in the HIX by 2019 who previously had insurance. This is 6 million out of 24 million expected enrollees. 3,5 of the 6 would be the result of employer "dumping." 1.5 would have employer insurance but would meet the income limits to make them eligible. And, another 1 million would drop their non- group coverage. In any event, while some few analysts are throwing out very high estimates of likely employer dumping into the HIX or just termination of coverage, (which has been a slow but steady trend) there is no good evidence or a clear logic to the alarm. Did not happen in Massachusetts. Pretty hypothetical fear.

Joe Davis (10/2/2012 at 2:46 PM)
With all respect to the CFOs and experts quoted, one of whom is a friend, where is the evidence? Massachusetts did not experience a high rate of employer dumping. The CBO original estimates were higher and assumed that half of all currently insured people would come from employers who dropped coverage. But, that is about six of twelve million people. 30% of ALL CURRENTLY insured employers. I don't think so. And the industry is absolutely scared about being paid less in the future. From everyone. There may be a few states that create an environment for restricted price negotiation...but they will be the BIG exception. It's all about negotiation. That is why the idea of narrow networks and tiered networks are resurfacing. And homegrown ACOs will feed into this, Fewer credible observers expect HIX to lead to Medicare or medicaid rates unless the provider is in that range already with commercial insurers. When you run the numbers, many systems are clearly better off in relation to HIX. And, there will be some interesting opportunities. But, the fog of uncertainty about the future has to create fear.

Drew Joyce (10/2/2012 at 10:15 AM)
Have I missed a development? Why would CFO's believe that individual insurance sold through the exchange will be contracted at Medicaid or Medicare rates? I think everyone expects difficult reimbursement discussions but wouldn't such a major step require more legislative action? There will be more care reimbursed at Medicaid rates in States that opt in, but there should also be a great increase in commercial reimbursement due to expanded enrollment in subsidized individual coverage.




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