Published 11/1/2013
Lalit Puri, MD; Daniel M. Adair, MD

Impact of Health Insurance Exchanges on Orthopaedics

What we know—and don’t know

On Oct. 1, a key component of the Affordable Care Act (ACA) fell into place with the opening of public health insurance exchanges (HIX). The impact of these exchanges will be significant; according to Accenture Consulting, as many as 20 percent of employed Americans will be using an exchange to obtain health insurance by 2017.

The introduction of public exchanges corresponds to what may become an even more significant event—the creation of private exchanges. Private exchange models have been established by major employers such as Walgreens Pharmacy, which recently shifted its employee coverage to a private exchange model. (See “What Is a Health Insurance Exchange?” below.)

Orthopaedic providers navigating this new health system are headed into largely uncharted territory. HIX present a complex new realm of care delivery that will be accompanied by implementation difficulties and early changes. Media reports have already focused on issues such as imperfect information technology, additional rules and regulations, and previously uninsured patients who have pent-up medical needs.

State exchanges
Under the ACA, each state is required to offer an exchange to its residents by creating and running its own exchange (state-based exchanges, or SBEs), by offering a federally run exchange (federally facilitated exchanges, or FFEs), or by partnering with the federal government to offer an exchange (state partnership exchanges, or SPEs). More than half (26) of the states are using FFEs, 17 have SBEs, and 7 have SPEs (
Fig. 1).

State HIX extend health insurance coverage to the uninsured through two key mechanisms—expanding Medicaid eligibility and offering subsidized private insurance for people with income levels between 133 percent and 400 percent of poverty level. Individuals earning up to four times the poverty level will be eligible for federal subsidies in the form of tax credits, while individuals opting out of insurance coverage will face penalties. Coverage under the exchange-based program is scheduled to become effective Jan. 1, 2014.

The ACA imposes strict conditions on insurers who participate in the exchanges, including the following:

  • Individuals can no longer be denied coverage due to preexisting conditions, nor can claims due to preexisting conditions be rescinded or denied.
  • Lifetime and annual limits on coverage have been eliminated.
  • Rates will be dependent on age, geography within a state, smoking history, family composition, and income levels.

In addition, small group employers (those with fewer than 100 employees) will be able to purchase coverage through the Small Business Health Options Program (SHOP).

All plans will cover a set of required benefits, including preventive and wellness services, prescription drugs, and hospital stays (Table 1). However, individuals will be able to choose a plan to fit their health needs and budgets. Plans will be tiered into bronze, silver, gold, and platinum levels, with incremental out-of-pocket costs and monthly premiums depending on the level chosen.

Potential impact
The Congressional Budget Office estimates that as many as 22 million individuals will obtain insurance through the HIX. However, individuals may opt out and choose to pay the mandated penalty, which will likely leave a disproportionate population of higher risk patients in this federally funded program.

Although premiums are designed to be affordable, they will likely vary from state to state and may rise depending on the insurance companies’ exposure to high-risk populations.

The HIX may limit participation by providers and hospitals, resulting in access issues such as long wait times, discontinuity of care, and limited access to specialists. Or providers may opt to not participate in the exchanges, depending on reimbursement rates, resulting in similar access issues for patients. Some research already suggests that California exchanges are seeing these detrimental effects.

Employers may decide not to offer health insurance and to pay the penalties instead. The drop in employer-provided coverage could push a large and unexpected influx of workers into the exchange system, with staggering financial implications.

Private exchanges
Of potentially greater significance for healthcare providers is the concurrent development of private HIX. Walgreens recently joined Sears Holdings, Darden Restaurants, and a growing list of national companies testing this new approach to providing health insurance for their employees.

According to Scott Kiriakos, vice president at Memorial Medical Center in Springfield, Ill., this new approach represents a movement away from the traditional “defined benefit” health plans (under which the company purchases health coverage on behalf of its employees) to a “defined contribution” approach (under which the company gives employees a fixed dollar amount to purchase coverage). This is similar to what many companies did to help control pension costs by replacing defined benefit plans with defined contribution 401K plans. The result is more predictability and efficiency in managing healthcare spending.

Private HIX are run by a private-sector company or nonprofit organization and operate similar to the state HIX. They provide an alternative to the traditional employer-based insurance coverage model. Although employees may select from a variety of coverages, no federal subsidies are available through this process.

Among the benefits attributed to private HIX are standardization of care, utilization review by a third party, private insurance participation. and product simplification. Their popularity continues to grow; recently, Wal-Mart and 17 other large employers partnered with Aon Hewitt Corporate Health Exchange to provide coverage to their employees.

Financial impact of HIX
What impact might HIX have on the finances of orthopaedic practices? Although the potential for new patients is significant, considerable uncertainty exists with regard to reimbursement rates.

In some states, HIX plan reimbursement rates are aligned with Medicaid rates. The few states that have released reimbursement information have shown significant reductions in payments for services under HIX plans compared to private plans. Insurers participating in HIX face significant pressure to reduce costs and may reduce reimbursement rates accordingly.

In Connecticut, for example, early proposals by insurance companies participating in the HIX are 30 percent to 40 percent lower than standard commercial reimbursement rates. But Matthew Katz, MS, executive vice president and CEO of the Connecticut State Medical Society, believes it’s too early to make a judgment: “The jury is still out on whether exchanges will be a good thing or a bad thing for physicians.”

Although the details of individual plans participating in public or private HIX are presently lacking, the following factors will be relevant:

  • Out-of-pocket expenses—Recent data from commercial plans show increased copayments and deductibles. If the same trend applies to private or public HIX, patient copayments and deductibles will increase and providers may find it difficult to collect.
  • Resource allocations—Determining eligibility requirements, insurers’ responsibility, and coverage gaps, and dealing with technology glitches, will require additional time and energy by orthopaedic practice staff.
  • Sicker patients—Previously uninsured individuals may have untreated conditions and be more difficult and expensive to care for. This segment of patients could potentially increase medical expenditures by as much as 60 percent.
  • Patient access—Both the design of the HIX and the costs of treating patients could limit patient access to primary and specialty care.
  • Physician profile—Private HIX may use cost and quality data to create narrow networks of physicians.
  • Service pricing—The recent move by CalPERS (California Public Employees Retirement System) to reference pricing shows that volume will follow low-cost providers. When CalPERS set a limit on how much it would pay for certain surgeries and shifted any excess costs to participants, surgical volumes at low-price hospitals increased, while higher-priced hospitals saw a decrease in use by CalPERS members. Cost will increasingly become a clear driver of patient volume to a practice or hospital.

Next steps
Many experts believe that the rise of a consumer-driven market appears unstoppable. Implications for providers are significant and providers should be prepared to take the following steps:

  • Be ready to compete on cost. Transparency will enable comparison shopping.
  • Commit to continuous quality improvement. Quality improvement requires a team effort; outcomes depend on collaboration and effective patient engagement.
  • Upgrade and improve collections; the ability to collect patient balances will become increasingly important as employers shift costs to employees.
  • Be able to clearly differentiate the practice from the competition, focused in particularly on ways the practice delivers higher value.

HIX—both public and private—present a paradigm shift in the delivery of health care. Insurance companies, notably Blue Cross/Blue Shield, are preparing individual physician score cards and a tiered approach to narrow networks based on quality and costs. As copayments and deductibles rise, patients will assume a stronger role in medical decision making. Physicians must be prepared to partner with them.

Although the orthopaedic community may be rightly concerned about pricing pressures and access issues, the evolution to HIX may allow for some positive changes, including the following:

  • reimbursement for procedures (primarily trauma cases) previously unreimbursed due to lack of insurance coverage
  • a shift to settings other than the emergency department for the delivery of orthopaedic care
  • an increase in the number of insured patients by more than
    20 million people, who will require appropriate care that will be reimbursed at some level, offsetting potential financial burdens
  • a shift in consciousness about the quality of care delivered, which may equate to better outcomes and a more effective healthcare system overall.

Beginning in January 2014, members of the AAOS Health Care Systems Committee will be hosting a series of free webinars on payment reform issues; the first will be on healthcare exchanges. Check the AAOS course calendar and watch AAOS Headline News Now for more complete details.

Lalit Puri, MD, and Daniel M. Adair, MD, are members of the AAOS Health Care Systems Committee.

Bottom Line

  • The emergence of public and private HIX marks a paradigm shift in the way health care is purchased.
  • Although much is not yet known about how the design of HIX will affect orthopaedic practices, they do present opportunities for practitioners willing to engage in efforts to improve cost transparency, deliver quality outcomes, and partner with patients.
  • The impact of private HIX may be even more significant than that of state HIX established under the ACA.

What is a Health Insurance Exchange?
Health insurance exchanges (HIX) established under the Affordable Care Act (ACA) are marketplaces where individuals can go to obtain health insurance coverage from private insurance companies. Each state and the District of Columbia has a public HIX, which offers a set of government-regulated and standardized health care plans from which individuals may purchase health insurance eligible for federal subsidies.

The idea behind the HIX is to increase competition among insurers, thus bringing down the price for health insurance. In addition, the HIX enable small businesses to participate in a group insurance pool with other small businesses, thus enabling them to secure lower costs.

Private HIX are similar in that they are also marketplaces of health insurance. These private exchanges will compete with the federally mandated state-based HIX. However, they are more flexible and can be customized to address the needs of an employer group. Employers purchase health insurance through the private exchange, and then their employees can choose a health plan from those supplied by participating payers.

Private HIX mark a change from defined benefit health plans, under which employees are provided with a specific list of health coverage, to defined contribution health plans, under which employers allot a specific amount to each employee to purchase coverage that suits that employee’s need. This also enables employers to better control healthcare costs.