Moody's: Health Insurance Exchange Uncertainties Hurt Nonprofit Hospitals

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As the health insurance exchanges continue to ramp up enrollment of newly insured Americans, the uncertainties surrounding exchange plan reimbursement are likely to increase pressure on the revenues of nonprofit hospitals, according to a report from Moody's Investors Service.

The exchanges went live about two weeks ago, despite the partial shutdown of the federal government, and they encountered several technical problems due to high traffic. The exchanges, a key part of the Patient Protection and Affordable Care Act, are expected to provide health insurance to 16 million people in 2014.

However, the added bonus of more insured patients is becoming more of a credit negative for hospitals due to several exchange-related risks, according to Moody's. For example, many commercially insured patients may shift to exchange plans, which are expected to have lower reimbursement rates than larger commercial plans offered through employers. In addition, hospitals will still have to face reductions to Medicare and Medicaid disproportionate share hospital payments amidst the trial run of exchange reimbursement.

Moody's analysts said the opening of the exchanges will not lead to hospital credit downgrades alone. However, as more employers shift to high-deductible health plans or discontinue healthcare coverage for employees in favor of exchange plans — a trend Moody's expects to increase — hospitals will be on the hook for lower reimbursement rates and perhaps higher rates of bad debt.

"We expect hospital revenue growth rates will come under pressure in 2014 and beyond as enrollment gains traction and exchange plans take a sharpened pencil to hospital reimbursement rates to ensure their profitability going forward," Moody's report read. "Budgeting and financial planning will be more difficult for hospitals and their boards going forward. Management teams that execute sustainable expense reductions that offset lower revenue growth will see stability or even improvement in their credit ratings."

More Articles on Moody's Reports:
Despite Pungo Hospital Closure, Moody's Affirms Vidant Health's "Strong" Position
Moody's: ASCs to Benefit From Declining Hospital Inpatient Surgeries
Moody's: 132 Statistics on Nonprofit Hospital Medians

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