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COVID-19: What Will Happen to Future Private Health Insurance Premiums?

As of April 6, COVID-19 cases have surpassed 1.35 million globally, with more than 75,000 fatalities…and counting. The U.S. accounted for 367,000 infections and almost 11,000 deaths. The world economy is spiraling disastrously downward with no clear consensus when the bottom will be reached.

While watching the evening news recently, my wife asked me how insurance companies will remain financially sound if the scenarios of COVID-19 cases and fatalities reach doomsday projections. This is a logical, yet difficult, question worth some exploration.

In the U.S., most healthcare is privately provided – except for the elderly (Medicare) and for the poor (Medicaid). The key issue in the U.S. and most countries is to enable rapid testing of people in vulnerable populations, such as the elderly and individuals with health conditions who may have compromised immune systems.

Overview on Treatment Cost, etc.

Most countries, thanks to government-directed health systems, will provide free testing and treatment, but in the U.S., when appropriate tests are available, it is largely dependent on whether each private insurer (and self-insured employers) will cover COVID-19 testing and treatment. However, the Families First Coronavirus Response Act that was recently passed by Congress mandates that Medicare, Medicaid, other government plans, and most private plans cover the entire COVID-19 testing.  It must be noted that ‘surprise’ billing issues could develop under some scenarios.  There are no curative treatments for the COVID-19 virus itself, so the treatment mentioned in this blog addresses the complications from COVID-19-related illnesses.

According to the Peterson-Kaiser Family Foundation Health System Tracker, the potential costs of COVID-19 treatment for Americans covered by employer health plans will vary greatly by location and insurance plans – in addition to complications and comorbidities. The average hospital stay for admissions due to pneumonia, a relatively similar comparison to treating COVID-19, with or without complications or comorbidities is 3.2 days – with a median total cost of treatment being about $13,000. Patients with respiratory conditions who require a ventilator (requiring less than 96 hours) will average 5.8 days – with a median cost of over $34,223. Finally, patients on ventilators for more than 96 hours will average 22.6 days – with a total median cost of over $88,000.

It is important to note that the actual number of patients and the medical efforts required will ultimately determine the true medical costs, both in Iowa and across the country. Medical costs in Iowa tend to dip below national average costs mentioned earlier.

As of April 5, a research center at the University of Washington estimated that 420 Iowans will die of COVID-19 by August 4. This figure is based on a moving target of assumptions, as it will be greatly dependent on a number of variables such as stay-at-home adherence by Iowans practicing social distancing, number of Iowans affected by the virus, healthcare workforce capacity and availability of medical supplies, adequate number of ventilators, etc. Just three days earlier (April 2), this Iowa estimate was 1,488 fatalities. Facts and assumptions are clearly very fluid at this time. The number of Iowa residents testing positive in the upcoming weeks is expected to peak in late April or early May. The Iowa Department of Public Health provides the latest update on the COVID-19 cases, including the number of Iowans currently hospitalized, discharged and recovering, never hospitalized and deceased.

The majority of people with COVID-19 can be managed at home, but as the cases in China have demonstrated, about 15 percent required hospitalization and another five percent ended up in critical care.

Postponed Medical Visits and Elective Surgeries

Hoping to free up more hospital beds and staff to deal with the COVID-19 surge of patients, many Iowa and U.S. hospitals have postponed elective surgeries and procedures. It is important to note that these ‘elective’ procedures cover many different areas, and in some cases, are still considered urgent, such as cancer, organ transplants and heart conditions, while other procedures, like joint replacements, are not considered to be a medical ‘priority.’ Elective surgery is any surgery that is scheduled.

Certain types of elective surgeries may be postponed for a long time – such as hip and knee replacements – but sometime later this year, or in 2021, there will be a pent-up demand for those types of surgeries. In fact, some procedures could develop into more serious medical conditions, including compromised mental well-being of having prolonged pain and discomfort.

Insurance Companies – Wellmark Blue Cross and Blue Shield of Iowa

On March 20, Wellmark Blue Cross and Blue Shield of Iowa, the state’s largest private insurance company, indicated that it is offering virtual healthcare visits for all appropriate medical and behavioral health visits at no cost to members until June 16. Additionally, Wellmark is covering diagnostic testing for COVID-19 at no cost-share to members. Early refills of prescription drugs are also permitted.

Wellmark then announced on April 1 they will retroactively waive members’ cost-share related to the treatment of COVID-19 – including copays, coinsurance and deductibles – when members seek care from an in-network provider, effective February 4 through at least June 16. By eliminating cost barriers to their fully-insured business and Medicare Supplement members, the desire is to ensure members seek the necessary testing and care regarding COVID-19. Self-funded employers that are administered through Wellmark will decide separately whether to replicate Wellmark’s policy or implement something different.

What Will COVID-19 Mean to Future Private Premium Costs?

How the COVID-19 medical costs will impact private Iowa medical insurance premiums is unknown at this time. Insurance companies, such as Wellmark, establish a ‘reserve’ for claims that are incurred but not yet paid. Additionally, certain statutory requirements for reserves are set aside to help cover unique medical situations that we are currently experiencing. If the COVID-19 claims erode the reserves, insurers may actually have a legal obligation to increase rates to build up those reserves for the next ‘emergency’ sometime later. This is a sound actuarial practice.

Insurers may need to price their 2021 premium rates upward to anticipate a surge in elective surgeries because people have delayed less urgent medical services. On the other hand, the decrease of elective procedures this year may help insurers financially weather the COVID-19 medical costs; their reserves may hopefully be stronger than expected when heading into 2021. A new report from Covered California, the Affordable Care Act marketplace in that state, projects that commercial carriers and employers could face between a $34 billion to $251 billion bill for COVID-19 testing and treatment in 2020, requiring insurers to increase premiums between four percent to 40 percent. Whether the federal government would help mitigate premium growth due to this pandemic is too soon to speculate.

All of this will largely depend on controlling the pandemic as soon as possible. If insurers have to dig deep into their capital reserves, then all bets are off on just how much higher health insurance premiums will need to be in 2021.

As one insurance professional mentioned to me last week, “Reserve adequacy is a function of rate adequacy.” In other words, rates will need to be adjusted upward to ensure the claims and reserves are adequate for future emergencies.

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DOL Releases FFCRA Regulations on April 1

On April 1, the U.S. Department of Labor (DOL) issued temporary regulations for the Families First Coronavirus Response Act (FFCRA), providing confirmation that employees must give notice to their employers of the need to take leave and provide documentation to support paid sick leave and emergency family and medical leave. This rule is effective from April 1, 2020, through December 31, 2020. Initial background discussion about FFCRA was found in our March 25 blog.

In addition, the Internal Revenue Service provides guidance on needed documentation for FFCRA.

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The Families First Coronavirus Response Act + A Churchillian Quote

Since my last blog on March 16, thanks to the coronavirus pandemic, much has changed in the world, let alone Iowa. Listing the changes here would be futile, so I will not attempt to do so.

I will, however, share new federal legislation. The Families First Coronavirus Response Act (FFCRA) that was signed into law on March 18, provides paid emergency family leave in limited circumstances, in addition to paid sick leave for people affected by COVID-19.

According to the Kaiser Family Foundation, the relatively quick overview of the FFCRA includes the following:

  • The emergency paid-leave provision applies to businesses with fewer than 500 employees. However, there are some exceptions available for small organizations that employ health care workers. These provisions take effect April 2 and are set to expire on December 31.
  • As for Paid Family Leave, the legislation updates the Family and Medical Leave Act (FMLA) to provide employees with up to 12 weeks of job-protected leave when they cannot work – either onsite or remotely – because their minor son’s or daughter’s school or child care service is closed due to a public health emergency.
  • The first 10 days of leave can be unpaid. It appears, however, than an employee can opt to substitute accrued vacation, personal or sick leave during this time, but an employer may not require an employee to do so.
  • For the remaining 10 weeks, eligible employees must receive two-thirds of their regular rate of pay, which is capped at $200 a day – $10,000 total.
  • For Paid Sick Leave, many employers will have to provide up to 80 hours of paid sick-leave benefits if an employee:
    1. Has been ordered by the government to quarantine or isolate because of COVID-19.
    2. Has been advised by a healthcare provider to self-quarantine because of COVID-19.
    3. Has symptoms of COVID-19 and is seeking a medical diagnosis.
    4. Is caring for someone who is subject to a government quarantine or isolation order or has been advised by a healthcare provider to quarantine or self-isolate.
    5. Needs to care for a son or daughter whose school or child care service is closed due to COVID-19 precautions.
    6. Is experiencing substantially similar conditions as specified by the secretary of health and human services, in consultation with the secretaries of labor and treasury.
  • Paid Sick Leave must be paid at the employee’s regular rate-of-pay, or minimum wage, whichever is greater, for leaves taken for reasons 1-3 above.
  • Employees taking leave for reasons 4-6 may be compensated at two-thirds their regular pay rate, or minimum wage, whichever is greater.
  • Part-time employees are eligible to take the number of hours they would normally work during a two-week period.

It is important to note that employers cannot:

  • Require an employee to use other paid leave before using the paid sick time provided by this new legislation.
  • Require an employee to find a replacement to cover his or her scheduled work hours.
  • Retaliate against any employee who takes leave in accordance with the act.
  • Retaliate against an employee who files a complaint or participates in a proceeding related to the act – including a proceeding that seeks to enforce the act.

The Department of Labor issued guidance on this new law, which can be found here.

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Since our blog this past week, a handful of organizations responded to our invitation to share their workplace practices due to the COVID-19 pandemic.  A quick summary follows:

“As with others, CV-19 has wiped out a robust schedule of events and programs we had planned over the next 30 days. A small workplace of six employees, four were offered the option of working from home, with the other two “splitting time” in the office to cover business. Closed the office physically, but still working in it, and remotely. Our priorities in order are to: 1) Protect the staff’s well-being, 2) Protect our donor well-being (many being in the 65 and over category), and 3) Preserve the Foundation’s resources.” 

  • A healthcare & social services organization shared the following:
    1. We have carefully assessed which administrative employees are able to telework and still provide essential business function support. These employees were engaged in telework effective March 16 (2020).
    2. For those administrative employees who are not able to provide essential business function support from home, they continue to work in one of our administrative locations, practicing strict social distancing, hygiene, and workplace cleanliness guidelines.
    3. All administrative locations have been closed to unscheduled guests.
    4. All team meetings have either been cancelled, postponed, or moved to a virtual environment.
    5. All non-essential travel has been cancelled through April 30.
    6. Visitor restrictions at our service locations have been put in place.
    7. Daytime services have been closed per governor’s order.
    8. Active task force groups have been implemented for problem solving and strategic action moving forward with all information funneled for review by our Executive Leadership Team.
    9. Regularly updated inward-facing and outward-facing communications have been put in place.
  • A few other organizations mentioned similar protocols to those mentioned above.

Because organizations are now a week or two into the changes being made due to the COVID-19 pandemic, and measures taken have been shared through local and national media, we will discontinue our invitation to share the practices of Iowa organizations. Thank you to each organization that shared their practices with us!

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This past week, my Mom (age 88) emailed her numerous grandchildren sharing her experiences growing up during the Great Depression and the hardships that she and others encountered. She ended her message with the following:

“Now we are faced with another crisis. You/we have tasted a good life and now you/we are experiencing some of the difficult times that we (my generation) have experienced many years ago. This is what life is all about, and by working together like a family, we too, shall conquer!”

Mom, Winston Churchill could not have framed our ‘new world’ any better than you have.

To each of you, be safe during this unprecedented and challenging time.

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