With participant numbers yet to be disclosed, it's unclear what the benefit will be for hospitals via enrollment in plans offered on the state health insurance exchanges that started this month. But as enrollment rises, hospitals' ability to reduce bad debt also will rise - and that clearly would be a credit positive, Fitch Ratings reports.
The U.S. Department of Health and Human Services has not said how many individuals have submitted applications in the 36 states where the federal government is running the exchanges. Some states that are running their own exchanges, including Kentucky and Nevada, have provided preliminary numbers on applications that indicate early demand for the products is strong.
Fitch Ratings reports this is a positive - albeit early - development for hospitals.
Bad hospital debt expense could drop, given the assumption that a certain amount of people signing up for coverage in the exchange were previously uninsured. The Congressional Budget Office estimates a net gain of 13 million in the insured population in 2014: more than 9 million through Medicaid, more than 7 million through the exchanges, and negative 3 million in migration of people who have employer sponsored-coverage or buy insurance in the non-group market and move to either the exchanges or Medicaid.
Because of an uncertainty surrounding enrollment, it is unclear which types of plans are garnering the most interest. If there is high demand for plans with the cheapest premiums that also carry higher co-payments and deductibles (generally, the bronze medal level) this could imply less reduction in hospital bad debt, as a good portion of bad debt expense is related to co-pays and deductibles of people with health insurance.
It is logical, Fitch Ratings reports, to assume that early adopters of the exchange products may be people with more acute/severe medical problems seeking to take advantage of the guaranteed coverage of people with pre-existing conditions. Under the Affordable Care Act, insurers cannot charge a premium rate for patients who are already ill.
If the strong early demand for the health exchange products is weighted toward a relatively sicker patient population, it could complicate the Republican congressional attempt to delay the individual mandate.
For the economics of the individual mandate to work, a critical mass of relatively healthy people needs to enroll in the plans. Otherwise, health insurers might experience increased pressure, as the risk pool will be weighted toward individuals with more acute medical needs.