Employers are understandably confused when it comes to trying to predict how the coronavirus epidemic will impact their group health plans. Utilization is way down for preventive, elective, and non-emergent services, while expenses directly relating to the testing and treatment of COVID-19 are way up.
Employers aren't the only ones who are perplexed; many employee benefits experts are also in disagreement as to how all this will play out. Willis Towers Watson estimates that employer health care costs might increase by 4 to 7 percent for calendar year 2020, while Gallagher is predicting just the opposite, suggesting that a 15% decrease in medical expenses is possible. Others, as you'll read about later, are suggesting the potential for a staggering 40 percent increase in premiums next year.
Employers, most notably those with self-funded group health plans, must be mindful of these wide swings in predictions. Regardless of which way things play out, they need to take careful steps to ensure the financial viability of their health plans during this crisis.
So how can employers forecast and prepare for these shifts in cost? It's especially difficult because the impacts of this pandemic are highly dependent on the geographic, demographic, and economic risks which impact every employer quite differently.
Here are some steps self-funded employers should take, along with some predictions on what might happen to various cost-drivers of medical plans.
IMMEDIATE STEPS TO TAKE
Amend Plan Documents Such as SPDs and SBCs
If an employer has changed their coverages for COVID-19 related services, they should amend their plan documents to reflect these changes immediately.
As background, the Families First Coronavirus Response Act (FFCRA), enacted March 18, and the Coronavirus Aid, Relief and Economic Security (CARES) Act, enacted March 27, expanded coverage requirements for all health plans, including employer-sponsored group plans, whether self-insured or fully insured.
Most of the major health insurance carriers, including Aetna, Cigna, Humana and United HealthCare, as well as Blue Cross/Blue Shield in many states, announced they would go beyond the requirements of this new legislation and waive cost-sharing (e.g. deductibles, co-insurance, and co-pays) for hospitalizations related to COVID-19 treatment for fully insured plan members. The carriers gave self-funded plans for which they serve as third-party administrators the option to do the same.
Discuss Changes with Stop-Loss Carriers
While most stop-loss carriers are agreeing to such plan changes without any impact to their contracted premiums or attachment factors, employers need to first check with them before making any changes.
Most stop-loss carriers have been quick to respond to the pandemic. Several carriers have already put in place measures to honor current policy aggregate factors and/or premiums amidst plan changes associated with COVID-19. These include;
- Waiving deductible and/or out-of-pocket charges for COVID-19 testing and telemedicine visits
- Waiving prior-authorization requirements on diagnostic testing or treatment of COVID-19 that may otherwise be applied
- Paying for out-of-network COVID-19 testing as in-network COVID-19 testing, if access for in-network COVID-19 testing is unavailable
- Allowing early refills for prescription medication
Stop-loss carriers are also responding to eligibility inquiries regarding employees on leave or furloughed during the pandemic. In general, stop-loss carriers will not decline a stop-loss reimbursement so long as the employee is otherwise eligible under the plan document, and the policyholder continues to pay full premium.
If the plan document currently does not allow eligibility for employees on leave or furloughed, stop-loss carriers are also allowing retroactive plan document amendments to eligibility provisions.
Looking forward, the pandemic's impact on individual stop-loss renewals will depend on the number of individuals hospitalized for an extended period with severe systems from the virus. Aggregate stop-loss attachment factor rating will depend on the overall population morbidity impact from COVID-19.
Continue Accruing Funds
While the net effect of stay-at-home orders may be a short-term drop in health care costs (as plan members delay routine medical appointments or procedures), this won't last forever. In fact, it likely will bring about an uptick in healthcare costs, with pent-up demand for care and/or larger claim cost due to delayed care or a lack of chronic condition management.
In addition, most healthcare providers anticipate that both the economic shutdown and shelter-in-place orders will lead to an increase in behavioral health claims. These will most likely stem from issues such as stress, anxiety, and depression caused by financial hardship, loneliness, loss of employment, and relationship difficulties as families shelter together.
Healthcare costs may also rise because of shifts in supply and demand, both in terms of providers and medical supplies.
Resist Reducing IBNR (or Claim Reserves)
Any cost savings realized as a result of delays in elective and non-emergent procedures will ultimately be paid by the plan, and for reasons cited above, they could actually cost more than they would today. Talk to your benefits advisor about establishing a special COVID-19 reserve to explicitly pay for pent-up demand in the next fiscal year.
Reevaluate Your Group's Risk Level Characteristics
If an employer's population suddenly has characteristics that could negatively impact a health plan, they should reassess the financial impact. For example, frontline retail and restaurant workers, or skilled nurses and other non-emergency healthcare professionals who interact with the public may be more susceptible to high infection rates (combined with a higher mortality rate upon infection) than ever thought possible.
Furthermore, employers who are laying off or furloughing employees should keep in mind that claims volatility increases when the number of covered employees decreases. They should, therefore, evaluate fully-insured premium equivalent estimates, IBNR, adverse selection due to increased COBRA enrollment, stop-loss insurance, and funding strategies as appropriate.
Consider Adding Telemedicine
To reduce the risk of transmission and the avoidance of care, employers may want to consider adding telemedicine. While utilization of this benefit has historically been rather low, due to lack of consumer awareness and a preference for traditional in-person care, its appeal has grown exponentially during this pandemic. The popularity of this format is likely to sustain itself post-pandemic.
PREDICTIONS ON WHAT MIGHT HAPPEN TO PLAN UTILIZATION
It should be reemphasized again that when anticipating potential cost impacts, employers need to take into account their specific workforce population and workplace policies and conditions. Thus far, epidemiological studies have consistently shown that the virus is far more serious for older workers, smokers, and those with underlying health conditions.
The same goes for employers who; are in located in densely populated regions, require travel to geographic hotspots, interface with the public in close quarters, or collaborate with fellow employees in tight spaces. These employers simply face higher risks.
With that in mind, here are some general predictions on what might happen to various cost-drivers of medical plans.
Elective and Non-Emergent Procedures (Possibly Up, Possibly Down)
Many hospitals, some at the direction of state mandates, canceled or postponed elective and non-emergent procedures in an effort to preserve resources for a surge of critically ill patients and/or to improve social distancing to prevent cross-contamination.
While earlier in this post we mentioned several reasons theses costs may boomerang back, stronger than ever, there is also some historical evidence to suggest that the current reduction in expenses relating to postponed care won't rematerialize post-pandemic. In similar crisis, such as natural disasters, close to 50% of what are considered "variable claims" never showed back up in the healthcare system.
Net, a dollar-for-dollar pent-up need for care may not emerge when the U.S. gets back to business. With that in mind, this one is a toss-up.
Diagnostic Laboratory (Up)
With the Federal government mandating that health plans waive member cost-sharing associated with COVID-19 testing, diagnostic laboratory utilization is likely to increase in 2020. While the COVID-19 tests are relatively inexpensive ($50-150), health plans may see an uptick in costs as the number of people tested ramps up.
What's also unclear is how often someone will need to be retested, either as a function of the frequency of risk to exposure or the length of time those infected may be immune. Antibody testing is also a complete unknown at this point.
As mentioned earlier, the utilization of telemedicine has been historically low due to lack of consumer awareness and a higher comfort level with traditional in-office care methods. In fact, just 10% of healthcare consumers have used telemedicine services nationwide. As healthcare systems rapidly expand the technical capacity for telemedicine, utilization may increase substantially in 2020. This trend is likely to continue post-pandemic.
Mental Health (Up)
Mental health services utilization may increase as individuals struggle to cope with difficult social, economic, and health situations.
Inpatient Hospital (Up)
Inpatient utilization may increase as more individuals are hospitalized with severe and critical illness due to COVID-19. According to Hub International, the cost of admission and treatment of COVID-19 in a hospital is $10,000 per day, with an average stay of 10 days.
While there are no FDA-approved therapeutics or drugs to treat, cure, or prevent COVID-19 at this time, clinical trials with experimental drugs are underway across the globe. Just yesterday it was reported that the FDA will authorize the use of Remdesivir after trials showed a positive effect on recovery. With an anticipated surge in inpatient hospitalizations repeating itself in the Fall, the reliance on supportive drug therapies may increase.
It's really still too early to assess the financial impact of COVID-19 on employer-sponsored group health plans. For fully-insured plans, rates are locked-in for the current year, so coronavirus-related health care costs aren't going to impact plans...until they come up for renewal.
Regardless, both fully-insured and self-insured employers have every right to be concerned. A recent analysis commissioned by Covered California suggests the potential for a staggering 40 percent increase in premiums next year for private plans.
While that figure would scare anyone, eHealth, another California company, just published the results of a poll that indicate that most health insurers are predicting that COVID-19 will have little effect on 2021 health insurance premiums. In fact, 83% of insurer respondents said that they do not anticipate raising rates.
Confused? You're not alone.
What seems clear at the moment is that the size of next year's healthcare premium increases and underlying medical costs will likely depend on three or four major things; the amount of pent-up demand in the system, the effectiveness of policies to mitigate the spread of the virus, the effectiveness of therapeutic agents to minimize hospitalizations and fatalities, and speed and cost of developing antibody testing and a vaccine.