Some health systems more dependent on ACA marketplace

Patients with marketplace coverage through the Affordable Care Act (ACA) have reached the point where they contribute substantial health system revenue, raising concerns the plans may get scaled back.

Marketplace enrollment hit a new record high in 2024 when more than 21 million people enrolled. That was an increase from 16 million enrollees in 2023 and 11 million enrollees in 2020.

The enrollment surge was attributed to enhanced federal subsidies to reduce premiums and out-of-pocket costs through the American Rescue Plan Act (ARPA) in 2021, which were extended to 2025 by the 2022 Inflation Reduction Act (IRA). Extending those subsidies after 2025 would cost $23 billion to $46 billion annually over the next 10 years, according to estimates by the Congressional Budget Office.

Further adding to marketplace enrollments was the 2023 discontinuation of the unprecedented suspension in Medicaid eligibility checks during the COVID-19 pandemic. After Medicaid eligibility checks resumed, millions of enrollees are believed to have switched to marketplace plans.

Growing patient share

The financial effect of those marketplace enrollees on health systems has increased since the 2021 start of the additional subsidies.

Marketplace enrollee revenue became a material aspect of Tenet’s business in 2024, according to the health system’s executives, since it reached 6% to 7% of revenue.

“It’s also no secret that, from a reimbursement basis, it’s very similar to commercial,” Sun Park, executive vice president and CFO of Tenet, said at a September conference. “So, [it is] obviously a big driver, compared to Medicaid rates.”

Tenet Healthcare saw its exchange patient volume increase 59%in the third quarter of 2024 compared to the same quarter in 2023. Such patients use somewhat more cardiovascular services than other commercial patients, Park said about one of the few differences in the two populations.

Similarly, marketplace enrollee patients now comprise about 7% of revenue for Community Health Systems (CHS), Kevin Hammons, president and CFO, said at a September healthcare conference.

Saum Sutaria, MD, CEO and chairman of the board for Tenet, said medical and surgical admissions in 2024 have been strong for exchange enrollees.

“Of course, that raises questions for both the exchange growth impact but also some utilization benefit from new exchange participants picking up more attractive coverage,” Sutaria said.

Advocacy push

Sutaria, who also serves as chair of the board of the Federation of American Hospitals (FAH), said renewing the expanded exchange subsidies before they expire at the end of 2025 was the leading priority of FAH and the American Hospital Association.

“On principle, it is not a good idea to take away coverage from people that rely on that coverage for the healthcare they have,” Sutaria said. “They’re still in the young-to-middle-aged voter American citizen category, to be blunt about it. And therefore, these are highly relevant individuals, whether you are in a blue state or a red state.”

Sutaria described plans to “educate the politicians about what is going on with these exchanges, [and] we’re likely to see a softening of perspectives here that help maintain coverage this population.”

The  expanded subsidies have helped reduce the number of uninsured showing up for hospital care, said Brian Tanquilut, an analyst at Jefferies. He said 7 million to 8 million exchange enrollees could become uninsured if the expanded subsidies are not extended.

“That’s one of the things that will be closely watched by investors,” he said.

The expanded ACA marketplace enrollment also effects hospitals in some states much more than others. For example, from 2020 to 2024, enrollments in the Texas ACA marketplace have increased 212%, while enrollments in the District of Columbia have decreased 16%, according to a Kaiser Family Foundation report.

Exchange coverage changing

The historic enrollment and looming subsidies battle come amid an ongoing evolution of the types of plans offered in the exchanges.

Marketplace plan offerings have changed from consisting mostly of open-network preferred provider organizations (PPOs) to narrow network health maintenance organizations, according to report by OliverWyman.

HMOs and exclusive provider organization plans have increased from 42% of offerings when the exchanges launched in 2014 to 79% of offerings in 2024. Conversely, less restrictive plans and PPOs decreased from 58% in 2014 to just 21% this year.

“Smaller networks can also generate more bargaining power in terms of pricing with health systems and physician practices,” said the report. “Additionally, by acting as gatekeepers, HMOs and EPOs tend to drive down utilization of high-cost specialists and direct members to more appropriate sites of care if that’s clinically appropriate.”

Tenet specifically linked exchange patient financial benefits to the system’s efforts to join exchange plans’ narrow networks.

“It’s been a benefit to the business all year, especially because of our contracting strategy of being inclusive in the networks,” Sutaria said.

Strict federal coverage requirements and limitations on medical loss ratios (MLR) have made network size one of the few cost control levers left to payers offering exchange plans, said the OliverWyman report.

And the national averages can obscure the fact that all plans in some markets are narrow networks, including DeKalb, Georgia and Leavenworth, Kan., as identified by the report.

Payers’ strategies in the individual health insurance segment resulted in the lowest MLR — 80.4% — of any health insurance segment in the second quarter of 2024, according to an analysis of insurance filings by Mark Farrah Associates. Among the leading payers in the individual market, the MLRs fell as low as 71.5% for UnitedHealth plans.

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