Taking Stock of the Grand Experiment in Health Care
The holidays always make me nostalgic. The other day, in fact, I was reminiscing about one of my all-time favorite holiday gifts: the Mad Scientist’s Beginner Chemistry Set. The official-looking box I received at age 11 contained assorted vials of colored powders and liquids, dozens of test tubes, and a crude Bunsen burner. Although the kit came with scholarly directions, my friends and I ignored them and quickly went to work combining ingredients to see what new substances we could concoct and what solutions would explode.
I hesitate to say that I feel nostalgic about the rollout of Obamacare, but we’ve come a remarkably long way since December 2013. That said, it certainly is clear that coverage expansion has become something of a mad scientist’s chemistry set―full of both stable and volatile ingredients. Sg2 members over the course of the year have shared with us both positive and negative experiences with coverage expansion. As we wrap up 2014, it’s worth taking stock of what we’ve got and where this grand experiment goes from here.
At the national level, compelling evidence suggests that a nascent, competitive individual insurance market is starting to bubble up. Ten million formerly uninsured Americans have gained coverage this year, and the proportion of uninsured adults has fallen by nearly 4 percentage points since Q4 2013. The various exchanges are now offering more than 20,000 unique insurance products, many of which come from new payer entrants offering a wide array of narrow network provider plans. More ominously, premiums will increase for about 70% of last year’s silver plan enrollees. The amount of that increase will vary widely and confusingly across states, local markets, payers and enrollee subsidy levels.
At the local level, the story is much more complex and reflects many of the scenarios we built into the Sg2 Impact of exChange™ model in 2013. Our members, on average, report that exchange enrollees now account for about 2% of net revenue. Yet that percentage varies dramatically depending on the local uninsured rate and how providers used (or did not use) contracting strategy to attract new business. In one market, an Sg2 member saw strong gains from public exchange patients because its network was the only option offered in the largest payer’s silver plans. In another, a health system’s leaders told us the new volume they expected did not materialize due to the prices local payers set for the premiums of bronze and silver plans. If that sounds confusing to you, you’re not alone.
Moving forward, providers must do their homework on the alchemy that will shape today’s public exchange market and ultimately the private exchange market that will emerge in 2016. That means spending time on pricing strategy and learning how payers are shaping insurance products with different price points, benefit designs, provider networks and geographic coverage. This is uncharted territory for most health systems. As one health system CFO told us, “The next two years give us time to experiment with payers on exactly how tomorrow’s narrow network, price-driven market is going to work.”
How about patient volume? Beyond the numerous headlines on insurance enrollment, Sg2 members are much more curious about the health care services that new enrollees have used. Although some early data indicated exchange enrollees were much more likely to have a “serious health issue,” we still know very little about how those health issues are translating into utilization. One Sg2 member system who operates a private label insurance exchange product reported a spike in emergency department visits and prescription use from new enrollees; other utilization was consistent with a commercial population. Another system noted that new enrollees seeking services were predominantly male and demonstrated strong pent-up demand for elective surgery. That same system still views the state exchange as an excellent way to attract new business and increase share in a very competitive market. We advise our members to have the same outlook in 2015.
We would be remiss in not talking about the revenue cycle impact of coverage expansion and broader changes in the insurance market. Sg2 members in states that expanded Medicaid have been pleasantly surprised by double-digit reductions in their bad debt headaches. In fact, bad debt may be down by more than $5 billion this year across all US hospitals, specifically because of 8 million new Medicaid enrollees. Locally, however, a mixture of factors may be pushing bad debt up. High-deductible public exchange plans and ever-growing out-of-pocket costs in employer-based plans are creating new challenges for health systems. As one CEO described it to us, “We face two nasty problems. Our patients don’t realize how much they actually have to pay, and we don’t know how to collect that money.” Bah humbug!
Let’s get back to nostalgia. There was a time when hospital CEOs could rely on a scholarly instruction manual: build capacity, recruit physicians and sign payer contracts. It was never easy, but it sort of worked. Those days are largely over. Your job in the next few years is to find and shape the new chemistry in your market. Growth and success will depend on your ability to construct and operate a health care product that meets rapidly evolving consumer demands for price, experience and access. Our job and our privilege at Sg2 are to help you achieve that goal.