The End Of Doctor Medicaid Pay Raise Could Hurt Health Plans

At a time when health insurance stocks are on an impressive run due in part to more paying customers under the Affordable Care Act, better known as Obamacare, a potential hurdle could be on the horizon for plans if more doctors exit the Medicaid health insurance program for the poor due to the end of a special payment increase.

Health insurance companies that contract with Medicaid programs need more doctors than ever in their provider networks given the health law expands coverage to millions of Americans in states that went along with the expansion.

Health insurers like Humana (HUM -1.77%), Centene (CNC -2.22%), and Molina (MOH -2.86%) are seeing solid growth in their Medicaid businesses thanks to the health law, which gave states the choice as to whether they wanted to expand the program. Since the beginning of last October's open enrollment period to sign up for coverage under the law, an additional 6 million people signed up for Medicaid on top of the 8 million Americans who selected private plans on exchanges, according to the U.S. Department of Health and Human Services.

But a payment increase under the health law for primary care doctors that raised their payments for two years beginning in 2013 from the level of state-run Medicaid health insurance programs for the poor to the level of the federal Medicare health insurance program for the elderly runs out at the end of the year.

And that has doctors alarmed. More than 20 doctor and health care provider groups last week urged federal lawmakers to continue the pay raise in a letter this week in to key members of Congress who hold federal purse strings when it comes to money to finance health care.

"The rate of Medicaid reimbursement can affect a physician's ability to accept new Medicaid patients into his or her practice," more than 20 doctor and health care provider groups including the American Academy of Family Physicians, the American Academy of Pediatrics and the Urgent Care Association wrote Congressional leaders on the Senate Finance and House Energy and Commerce Committees last week.

The end of this Medicaid funding would also impact Medicaid rates directly paid to health plans because certain states have worked the extra money into a bundled payment to doctors and clinics with primary care providers over the last two years. Payments to health plans vary by plan and state depending on how contracts are structured between insurers and Medicaid programs.

Under the Affordable Care Act, primary care doctors – family physicians, pediatricians and internists – saw their average pay jump last year by more than 70 % on average though the rates vary from state to state, according to a Henry J. Kaiser Family Foundation study. Doctors in some states saw pay from Medicaid jump 100% or more.

"The purpose of the increase in Medicaid physician fees for primary care is to encourage greater Medicaid participation among physicians as the program expands in 2014 and demand for care increases," Kaiser said in its December 2012 report.

Doctors don't typically accept Medicaid patients like they do patients covered by Medicare or private insurance.

In their letter to the congressional committees, the doctor groups said about two-thirds or 67% of primary care physicians typically accept Medicaid compared to 75% of doctors willing to add new Medicare patients and 85 percent of doctors willing to accept new privately insured patients.

"Our goal is to ensure that Medicaid patients have access to a primary-care physician," the doctor and provider groups wrote the congressional committees.

Given the primary care doctor shortage, patients and health plans will need all of the doctors they can get.

Though 26 states decide against going along with the Medicaid expansion, more are expected to expand. In addition, more than 35 states and the District of Columbia contract with health insurance companies to help manage their insurance programs for the poor so private health plans have a large stake in having ample doctor networks.

How much should investors worry about the potential reduction in Medicaid funds for primary care doctors?

For the time being, it's not a huge threat to health plan bottom lines. But if political winds change and more states expand Medicaid programs under the Affordable Care Act, it could hamper health plans' growth to serve more Medicaid patients.

The American Academy of Family Physicians said Medicaid finances health services for more than 60 million Americans. Any cut could impact access as well as participation in Medicaid. And that wouldn't be good for health plans, and potentially, their stock prices.