Obamacare may be growing the number of unpaid medical bills

From Scott Gottlieb of CEI.

"A big hospital chain’s surprise decision to write off a slug of bad debt may be a signal of much deeper consumer healthcare strains being caused by ObamaCare.

Community Health Systems surprised analysts this week, announcing that among other things, the company would take a $169 million provision for bad debt. The write off was a big part of Community’s dismal fourth quarter earnings report, leading to a 22% drop in the company’s stock on Tuesday.

In the lexicon of hospital finance, bad debt is another word for unpaid bills. In this case, Community Health said that the charge was largely a result of lower-than-expected collections on deductibles and co-pays that consumers owed. The hospital chain was recording a higher amount of cash from these co-pays than it now expects to collect, so it needed to take a write off to account for its lowered expectations.

The rising amount of uncollected co-pays and deductibles may be an early sign of consumer stress as the economy weakens. But more likely, it also reflects changes in the healthcare market that are saddling consumers with a much bigger share of their medical costs. For this, ObamaCare is playing a big role.

The structure of the insurance products offered under ObamaCare was deliberately skewed toward hollowed-out health plans. These plans sport large out-of-pocket limits and often skimpy or no co-insurance on drugs and doctors purchased outside a health plan’s increasingly narrow drug formularies andprovider networks.

As consumers face a higher proportion of their medical bills, more are finding it hard to pay the tab. Some analysts are starting to bake in expectations for rising bad debt across the hospital sector. The issue isn’t just the ObamaCare plans. By adopting these structures in ObamaCare, the feds effectively popularized these constructs, or at least made them politically suitable. So health plans are starting to incorporate the same insurance designs across their products, even among the employer-sponsored plans that they offer in their commercial segments.

ObamaCare didn’t invent the idea of a high-deductible health plans. There was a growing prevalence of these arrangements long before the Affordable Care Act. Conservatives made a big push in the 2000s for “consumer directed health plans” that coupled health savings accounts with plans that insured against catastrophic medical costs. The idea was to empower consumers to pay for routine care out of their own tax-free savings. But ObamaCare created something entirely different.

In the case of ObamaCare plans, a lot of routine medical expenses are covered in full as part of the scheme’s “essential health benefits” — a politically crafted list of favored medical services that Washington mandates. To accommodate full coverage of these routine costs, the plans skimp on access to doctors and drugs, and saddle consumers with high out of pocket costs on mostly catastrophic medical bills.

This isn’t what’s usually meant by the concept of a high deductible health plan. The idea of a high deductible plan was to make consumers more cost conscious by exposing them to more of their routine medical costs, but covering them more fully when they confront a serious illness, and don’t have as much medical discretion.

In this way, ObamaCare inverts the traditional notion of a high deductible health plan. The ObamaCare plans have closed drug formularies that leave important specialty medicines completely uncovered. They adopt doctor networks that exclude a lot of medical specialists. When patients try to go outside ObamaCare’s narrow doctor networks or shop outside their skimpy drug formularies, consumers typically have little or no co-insurance. In many ways, ObamaCare reinvented what was traditionally meant by the term “high deductible health plan.”

Moreover, in the case of the ACA, what consumers spend outside narrow doctor networks and closed drug formularies often don’t count against their deductible or their out-of-pocket maximum. I conducted an analysis of ObamaCare silver plans to see how they covered drugs for multiple sclerosis. I surveyed more than 30 plans across five states. All of the plans sported closed drug formularies, meaning that they didn’t provide any coverage for drugs that didn’t make their formulary lists. But more worrisome, all of the plans also excluded many important medicines.

Now that these cost-saving constructs have been rendered politically appropriate by the ACA, they’re becoming the new standard across the market. This year, 86% of employers will offer plans with very high deductibles as an option, up from 54% five years ago, according to Towers Watson. Around 25% of companies offer these high deductible plans as the only option.

What’s happening is that the “average” insurance product in the marketplace is beingn degraded. Over a short period of time, there has been a dramatic and secular shift in the structure of health coverage, toward these more hollowed-out constructs. Spread across millions of consumers, in aggregate, Americans are now less insured for medical costs.

The earnings report from Community Health was an early financial harbinger of this trend. Collecting on these rising out of pocket costs will get more difficult for healthcare providers as the ObamaCare insurance designs become the new market standard. This will be ObamaCare’s legacy – a new standard for hollow health coverage."