With the coronavirus outbreak gripping the country, every day seems like it is getting more ominous than the last. With suspensions to major sporting events and most Americans affected by stay-at-home guidelines, it is clear that we are living in anxious and uncertain times.
As this unprecedented event continues to unfold, it has become clearer than ever that the consequences from COVID-19 will pose greater implications to U.S. health insurance than other events such as the recently published CMS-ONC interoperability rule or the 2020 election.
First, let’s look at three forces at play:
- A stressed provider system: Multiple provider executives have shared with me that they have already seen a sharp drop in elective procedures since the outbreak began. Many hospitals are outright cancelling them. These procedures, such as hip replacements, are high revenue generators. I’ve also heard of increased absenteeism from clinical staff that depletes capacity to deliver care during a time when it’s needed most. The net effect of this puts many small- and mid-sized hospitals, already operating on razor-thin margins, at severe financial risk. While the projected costs to treat hospitalized patients are in the hundreds of billions, many believe that hospitals will still face losses on treatment even after effects of the recently passed stimulus.
- Member abrasion: Health plans have quickly announced moves to lessen member financial burden for testing and access to care, such as waiving co-pays and expanding telemedicine benefits. That said, nearly 100 million Americans are insured by self-funded employers (meaning the employer bears the risk). These larger employers can opt out of the waivers and still leave members on the hook for paying for the test and physician visit. Compounding this issue are high deductibles, as those in a high-deductible health plan likely have not exhausted their deductible by this time of year. Aetna was the first national plan to go a step further and waive all costs for coronavirus related hospitalizations (and I’d expect by the time this is published, additional plans will follow suit).
- Employer costs: Beyond deductibles, overall healthcare costs for employers have risen to historic levels at a rate that has far outpaced wage growth. Employers across industries have weathered these rising costs through a sustained economic expansion in the past 10-plus years. The virus has ended the bull market and all industries will feel some impact to their top and bottom line, be it from softening demand, employee absenteeism or both.
What consequences could these forces, when considered together, place on health plans?
The strained system could yield multiple effects for providers. First, they may seek significant rate increases with health insurers to offset a harrowing year. We also could see a reigniting of provider consolidation after a year that saw an M&A slowdown in the sector. Finally, hospital closures (especially in rural settings) may accelerate. A chief medical officer (CMO) of a large regional plan told me, “Providers may have significant struggles due to the reimbursement challenges and the mid-stream shift to value-based reimbursement. There likely would be closures and consolidations.”
Initial projections on the impact to health plan rates from COVID-19 suggest that the prospect of a trend-breaking increase is likely. A report from Covered California pegs possible premium increases anywhere from 4% to a staggering 40%. Many health plans (especially those not integrated with a provider) may determine how much of that increase they want to pass on to an employer, or how to shift some of those dollars into alternative payment models to improve quality and outcomes. In markets with few providers (or with new consolidation), they may have less bargaining power than before.
The near-term impact on employer-sponsored insurance could send shockwaves through the system. After years of rate increases, 2021 will likely not be the year when employers can stomach another double-digit step-up. Pricing volatility from health plans could lead to increased turnover, which will negatively impact health plan profitability.
The reality of a sharp uptick in layoffs and unemployment is here—and it will redistribute the lines of health insurance coverage for Americans. Millions will shift from employer coverage to either ACA, Medicaid, or to the pool of uninsured. Some are predicting the number might reach the tens of millions. To partly address this, several states have recently re-opened ACA enrollment to extend coverage.
What should health plans do now amid this crisis? I see three ways that health plans can add value:
1. Take the long view with providers. Continuing to build trust between health plans and providers through reinforcing support to extend a partnership mentality is critical during this time. The same CMO shared with me, “Especially now, it’s critical to improve provider alignment through either ownership, partnership and/or business process simplification (such as automating pre-authorizations).” For instance, health plans could offer appropriate “relief” on value-based contracts that may be disproportionately affected due to the stresses on the provider system. CMS took this step recently by offering relief for reporting requirements for providers participating in Medicare quality programs.
2. Better engage with members and employers. I can’t remember another time when so many members want to be contacted by their health insurer to become as informed as possible on a topic. Health plans can use this as an opportunity for delight and optimize how each member wants to be communicated with. The communications need to be timely, accurate and tailored to the member—especially in the context of COVID-19, which poses different risks both demographically and geographically. For employers, this presents a unique opportunity to engage plan sponsors to assist in setting policy and, in the case of larger employers, implementing creative solutions to address the needs of an employee base.
3. Consider the long-term effects of the many (required) short-term interventions. Consider pharmacy. As health plans remove barriers for members filling scripts early, we may see a significant strain on the pharmacy system and acute shortages of critical medications. With an average industry inventory of just over 30 days, patient stock-ups could lead to shortages, which may create other consequences. Health plans will need to manage this to ensure that their vulnerable members are not impacted.
While we are still uncertain how the COVID-19 pandemic will play out, what’s clear is that all stakeholders in healthcare—including health insurers—need to continue taking decisive action to improve the health of Americans while positioning themselves to succeed in an altered landscape.