While the final toll is still a long way from being counted, we already know there will be a financial impact to plan sponsors and insurers resulting from the identification and treatment of COVID-19. As testing rates catch up with the actual spread of the infection, we are beginning to understand the extent and severity of the crisis, along with the actual rates of hospitalization and high-cost cases.
Aside from the direct costs associated with COVID-19, there will be additional secondary cost implications that will need to be included when measuring COVID-19’s ultimate financial impact on a business’s healthcare spend. We have compiled a summary of several of these secondary considerations, as well as recommended solutions for plan sponsors to consider.
A Slowing Economy and Increased Utilization
In the near and long-term, there have been and may continue to be a reduction in hours worked, as COVID-19’s impact slows the economy. As businesses respond, many have been forced to reduce their workforce and furlough employees. While the construction segment seems to be weathering the storm now, a lingering economic contraction could result in a slow down with projects. A reduction in hours and/or workforce is typically met with an increase in claims utilization. This occurs for a variety of reasons but usually is the result of a fear of the unknown, a “use it before lose it” mentality, and having time due to not being actively at work. At times, even the expectation of potential workforce cuts can cause an increase in claims utilization for similar reasons. With fewer members on the plan, this increase in cost coincides with a reduction in funding, putting a strain on any plan offering.
Delayed Elective Procedures
Another factor driving potential future cost inflation is a delay in non-COVID related procedures as a result of our current crisis environment. This delay in care will likely result in a “rush on” or an anomalous spike in these types of procedures once normal operations resume. The potential worst-case scenario is the peak occurring, with significant increases in plan costs, while simultaneously a reduction in hours has resulted in lower funding for the plan.
- In an op-ed for US Today from March 26, the US Surgeon General Dr. Jerome Adams called for a delay on nonessential elective procedures with the hope that it would minimize any potential harm to patients.
- As of April 3, 33 states have released official statements regarding the issue of elective procedures.
- These nonessential elective procedures have been expanded to include dental procedures
Chronic Care Deficit
This will likely result in a short-term reduction in costs due to some nonessential services being delayed, and others being redirected to less costly settings such as telehealth. However, many of these services will likely be delayed rather than outright eliminated. It is important to plan now for this anticipated wave of claims after life returns to a new normal. Finally, there will likely be unintended consequences from delayed chronic care due to stay-at-home orders and shortages of access to care. This includes potential delays in the diagnosis of currently unknown conditions that could result in later diagnoses and potentially higher severity, ultimately paired with an increase in treatment costs.
As we navigate the current crisis, it is not too soon to begin exploring solutions to help ease these powerful headwinds that will be pushing plan spend higher in the months that follow this crisis.
What you can do now
- Your plan may see surplus funding versus claims over the near-term – if at all possible, bank these funds in reserve.
- Consider increasing your Incurred But Not Reported (IBNR ) assumption.
- Consult with your financial advisor to understand your options in terms of liquidity and access to reserve funds in a worst-case scenario.
- Be strategic in your decision-making surrounding reductions in force. While many business decisions apply, the viability of your health plan should be considered.
- Drawn out reductions in force can more negatively impact a plan than a larger one-time reduction.
- Communicate clearly to employees to minimize uncertainty and a “use it or lose it” response. The more certain employees are that they will retain their benefits, the less likely they’ll be to rush out to utilize services while they still have coverage.
- Ensure your Summary Plan Description (SPD) appropriately reflects any changes in eligibility and confirm with your stop-loss insurer that those provisions will be covered.
- Ensure plan changes are appropriately amended in the SPD
- Plan now for renewal increases
- Track the impact of COVID-19 on your population, so when renewal increases come, you can proactively understand if COVID-19 claims, which likely shouldn’t continue in future years, are inappropriately impacting your renewal.
- Consider, implement, and promote cost containment solutions, such as:
- Telemedicine
- Technology-based care management solutions
- Centers of Excellence and other surgery center bundled pricing solutions
- When the “moratorium” on elective procedures lifts, and there is a spike in demand for delayed procedures, employers may find it helpful to have this solution already available for employees.
- Promote your EAP and other mental wellbeing resources as the CDC has reported that the outbreak of COVID-19 could cause increased levels of stress and anxiety.
- Request a mid-year review of funding to ensure that you are proactively prepared should it be necessary to increase funding, tap into reserves, or apply any other adjustments.
While no one knows what the future of this pandemic holds, taking steps now to prepare for future impacts is key to managing the outcome. By remaining informed regarding the current and projected state of your plan and it’s funding, you will be well-positioned to be strategic and active in managing your plan through this crisis.
