COVID-19 has brought quick and dramatic changes to our healthcare system. When the pandemic passes, some things will go back to normal: patients will seek out preventative and primary care, hospitals will make money from elective procedures, etc. But an event like COVID-19 is sure to leave a mark. For our latest webinar, we interviewed half a dozen healthcare experts to look into the long-term effects of COVID-19 on employer-sponsored healthcare costs.
Here are a few things we expect to see over the next few year.
Hospital revenues are down dramatically as elective procedures are cancelled or postponed. At the same time, many of them are facing extra expenses for things like personal protective equipment or COVID-19 response tents. Hospitals are financial institutions just like any other business, and as we move forward they’ll be looking to recoup these losses.
This will likely involve price increases, and those increases will be concentrated in the rates paid by commercial insurers. Why? Hospitals get paid by three main groups: privately insured patients, patients on Medicare or Medicaid, and patients paying cash prices. Medicare and Medicaid rates are largely fixed; hospitals may be able to lobby the government to change them, but they don’t have any short-term negotiating power. And while they can certainly raise cash prices for people without insurance, that doesn’t mean uninsured people will actually be able to pay those increased amounts, so their actual collections don’t necessarily go up.
This leaves commercial rates, where hospitals are able to renegotiate payment rates every few years, and where many systems have significant leverage (especially those without much local competition). Since privately insured payors are the only ones who hospitals can practically charge more, they should be ready for upward pressure on their hospital rates over the next few years.
By one estimate, adoption of virtual care has jumped forward by 10-20 years during the COVID-19 crisis. But the driver here isn’t the sort of telemedicine that health plans and benefits advisors typically talk about, where members use services such as Teladoc to connect with a doctor they don’t know over the phone over the phone instead of going to an urgent care clinic or other primary care site.
The current driver of telemedicine adoption is patients seeing the doctors they already have relationships with, and just doing so over phone or video chat instead of going into the office.
This begs two questions. First, will these providers continue to offer virtual care options after people become comfortable leaving their homes again? And if so, will they charge less for virtual care that physical office visits, since virtual care should theoretically cost less to provide?
The answers to these two questions will have a significant impact on what the virtual care trend means for healthcare costs, but as a rule of thumb we’d expect increased telemedicine adoption to put at least some downward pressure on prices.
A plan sponsors costs are fundamentally driven by two factors: the cost of claims and the volume of claims. We’ve discussed potential factors influencing the cost of claims, but what will the volume look like over the next couple years?
One way to think about this is in terms of deferred demand versus destroyed demand. Deferred demand is healthcare that people would have received over the past few months, but have put off until they feel comfortable going to the doctor (or the doctor is accepting patients. Destroyed demand, on the other hand, is care that was simply cancelled and won’t be rescheduled. For example, if I usually get my teeth cleaned twice a year, but cancelled my spring visit because of social distancing, at this point I might just wait until the fall and only have one cleaning in 2020.
We expect that a significant majority of care being avoided right now is deferred demand; one estimate we received is 70-80%. That means that most of the claims that aren’t being filed right now will come back around, which has important implications for plan sponsors. We’ll explore those in the next two sections.
If you’re fully insured, chances are your healthcare costs aren’t going to go up a whole lot this year. The money your insurance carrier is paying out for COVID-19 testing and treatment is more than outweighed by what they’re saving on postponed elective procedures, so they don’t have much justification for raising premiums, especially since the Affordable Care Act regulates how much of every premium dollar insurance companies can keep for themselves.
But it’s important that employers don’t get too comfortable after a flat renewal—it’s not the new normal. All that deferred demand we discussed will come back around at some point, and it will dramatically increase the number of claims insurance companies have to pay out. Where there are spikes in claim spend, you can expect premium increases to follow.
Claims spend could also be driven up by the consequences of people currently not getting the care they need. We know that when small health issues aren’t properly addressed, they can balloon into larger, much more expensive issues, so there’s some reason to be concerned about people not utilizing primary or preventative care while they’re staying home. Instead of having a bill for a relatively inexpensive visit today, insurance companies could be looking at much larger bills down the road for issues that fell through the cracks, which would also drive up premiums.
For self-funded employers, the same dynamics are at play in terms of claim spend. The difference is that it’s playing out in real time, instead of the effects coming at a lag during renewal season.
If you’re a self-funded employer, things may be looking really good right now. Claims are way down, which means there’s a bunch of extra cash sitting in your claims fund. But it’s important to emphasize that this isn’t savings; it’s just expenses that haven’t come around yet. When the deferred demand and the health issues from delayed treatment come around, you’re going to need that money, so we strongly recommend keeping it set aside for healthcare costs.
In terms of stop-loss insurance, we’re expecting a moderate increase in employers’ stop-loss expenses, but nothing catastrophic. Our prediction is a 5-7% increase in aggregate attachment points, and a nominal increase in premiums. The good news is that, from the perspective of stop-loss carriers, COVID-19 treatment isn’t that expensive. They’re worried about million dollar claims, and that’s not what we’re dealing with here.
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