United States: More Risk For All And "Free" Care?

While the Supreme Court continues to debate the outcome of King v. Burwell in their chambers, stakeholders must be prepared for the potential fallout the nine justices' ruling may have. Two weeks ago, we summarized the underpinnings of the case (read about it here) and last week, we reviewed the impact of a ruling against the government on individuals (read about it here). Today, we will take aim at two other groups of stakeholders who are sure to be impacted by a ruling against the government: (i) healthcare providers; and (ii) third party payors. These two groups have seen a significant benefit in the form of new patients/enrollees from the exchanges and are likely to take the most significant hit to their businesses if the Supreme Court rules against the government and limits tax subsidies under the Affordable Care Act ("ACA") currently available to consumers on both federal exchanges and state run exchanges to only those consumers on the state run exchanges.

Impact on Healthcare Providers

Healthcare providers are likely to see an impact on their finances if the tax subsidies are limited solely to consumers on state run exchanges.

First, those providers who have contracted with payors to participate in exchange products may have been counting on the increased patient volume that would be steered to their institutions/practices from exchanges. If there is a drop in that volume, these providers' estimates could be far off the mark and any investments made in infrastructure, provider recruitment, etc. could end up as liabilities due to a lack of increased revenue.

Second, as discussed in a prior blog post, the ACA contains a grace period for exchange consumers who receive an advance premium tax credit and fail to timely pay their premium payments. This mechanism involves many technicalities, but essentially permits exchange consumers to make up delinquent payments up to 90 days after the first missed payment (i.e., to capture three months of missed payments). During the three month period, third party payors are generally prohibited from dis-enrolling consumers, and the consumers are entitled to receive care from participating providers. However, payors are permitted to pend claims during the last 60 days of the period until a consumer makes the delinquent premium payments. As a result, healthcare providers could be in a position where they are required to provide care for which there could be delay in reimbursement. If an exchange consumer fails to make reconciliation premium payments after the 90th day, payors are generally permitted to disenroll the consumers with providers left holding the bill with the meager possibility of collecting owed charges directly from patients. This would amount to potentially months of services being provided for 'free' with the impact seen in the extra red on a provider's balance sheet.

Third, some sophisticated providers may have even agreed to take on some downside risk associated with the care of exchange consumers (e.g., monthly fixed capitation payments to provide comprehensive care for a population of exchange consumers). If the predictions of many doomsayers come true, there will be an exodus of healthy people from the exchanges if tax subsidies are unavailable, leaving only a high risk patient population with those persons who are willing to pay higher premiums due to the seriousness of their medical conditions. This could spell disaster for providers subject to downside risk. Such providers may be relying on the relatively low cost of a significant percentage of their assigned consumer population to balance the higher cost individuals they are also responsible for. If their patient population is suddenly only composed of high risk and high cost individuals, they could face significant losses and may terminate participation in exchange products.

In sum, if tax subsidies are denied to federal exchange consumers, there may be a significant financial impact on those providers that have signed up as participating providers for exchange product in terms of total revenue generated, exposure to risk and a requirement to provide 'free' care.

Impact on Third Party Payors

Like healthcare providers above, many third party payors have placed large bets based on exchange consumers. Specifically, many third party payors have been: (i) counting on additional revenue stemming from a significant volume of health exchange consumers and the diversified nature of exchange populations, and (ii) may have structured premiums around the availability of tax credits.

Many payors have seen their enrollee populations jump significantly as a result of the healthcare exchanges. If subsidies are unavailable on the market, those payors may experience a reduction in their enrollee populations. Not only volume, but exchange consumer population diversity is likely to be impacted by the lack of federal subsidies. As we discussed last week, many exchange consumers might no longer be bound by the individual mandate without the tax subsidy and thus many healthy individuals may forego coverage. Payors could then be left with far higher risk and sick populations who are willing to pay the premiums without the subsidy and whose care they have to manage with a smaller pool of premium payments.

Second, payors may have little latitude to change premium payments for the remainder of the current year due to state and federal restrictions on premium adjustments. Furthermore, due to the ACA's prohibition on discriminatory premiums, payors would likely not be able to reduce premiums for healthy individuals in order to entice them back into the exchanges.

As we summarized with providers above, third party payors are also likely to see a significant impact on their business if the Supreme Court eliminates tax subsidies for consumers on federal exchanges from reduced population size to increasingly high cost populations. While we have only examined these groups generally, the impacts to various providers/suppliers and payors could vary drastically based on the size of the entity, the proportionate value of exchange consumers to their business and the specific niche(s) occupied by the entity.

Next week, we will discuss the impact on employers in our series of blogposts on King v. Burwell with predictions on outcomes of the case and associated fallout from members of the Sheppard Mullin healthcare team and other U.S. healthcare legal and policy thought leaders.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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