COVID-19 Healthcare Spending Forces Difficult Choices for Payers

Evolving policies heighten premium-setting uncertainty for private payers

Healthcare costs for private payers will depend largely on three factors:

• Emergency regulations
• The severity of the outbreak
• The effect of pent up demand for elective procedures

Payers are under a lot of pressure to predict what costs will be next year, as 2021 premiums will be locked in by the end of the summer.

Pointing to past situations in which the costs for the coming year were highly uncertain, KFF experts noted that payers have a tendency to pull out of exchanges, leaving bare counties.

The stakes are high and long-ranging. If payers that do not raise their rates are wrong, the effects could ripple into 2022 with high premiums and even payers exiting marketplaces, KFF experts shared.

Policymakers have a significant role to play in all of this.

If lawmakers were to fall back on the ACA’s market stabilization programs as models for risk mitigation, they could help protect payers and members. The models are reinsurance and risk corridors.

Implementing a strategy similar to reinsurance would reimburse payers for some patients’ healthcare costs when their claims costs exceed an established threshold. Currently, the threshold is $45,000—which fails to encompass most coronavirus patients whose treatments tend to cost around $20,000—but this could be adjusted to help ease payers’ 2020 healthcare spending.

Adjusting risk corridors would address 2021 premium-setting risks. The federal government would shoulder some of the risk associated with setting premiums incorrectly. Insurers that set premiums too low would pay the program and those that set premiums too high would be partially reimbursed through the program; those that set the premium accurately would not have to engage with the program at all.

Based on current, limited information, private payers are not anticipating having to raise premiums in 2021, according to a recent eHealth survey. Over 80 percent of the payers surveyed did not expect to raise 2021 premiums, while the remainder responded that they may raise rates by as much as five percent.

The experts recommended watching private payer earnings calls and quarterly cost data to see how the outbreak is impacting healthcare costs for next year.

Medicare Advantage payments may increase in 2021

Medicare spending could be higher than expected, leading to higher beneficiary deductibles, premiums, and cost-sharing. Like private payers, however, Medicare costs may be offset by the delay of elective procedures. Medicare Advantage payments could be higher in 2021.

Medicare Advantage plans’ payment rates would rise based on a combination of both this year’s costs and predictions for next year.

Medicare Advantage plans should watch traditional Medicare spending levels as an indicator of whether the plans will likely receive higher payments in 2021.

Several factors will determine traditional Medicare spending, such as:

• Coronavirus hospitalizations
• Treatment costs, including the 20 percent increase in Medicare payments for coronavirus patients
• Demand for post-acute skilled nursing facility or home health care
• Outpatient medication costs
• Coronavirus vaccine costs, when one is developed
• Demand for coronavirus testing

However, two elements could work to offset these costs: telehealth usage and delayed elective procedures.

Policymakers have gone to great lengths to support telehealth utilization in Medicare, both on the state and federal levels.

Medicare beneficiaries are at risk of seeing out-of-pocket healthcare costs for coronavirus treatments based on whether or not they have supplemental coverage or Medicare Advantage plans that are waiving treatment costs.

Medicaid programs face novel challenges in cutting healthcare spending

Medicaid spending will be impacted heavily by the unemployment rate, which is currently skyrocketing. Furthermore, methods that states rely on to cut spending might not be possible during the crisis.

While Medicaid spending relies on many of the same factors that Medicare and private payers face, Medicaid is different than its public and private payer peers in that a high percentage of its regular healthcare spending goes towards low-income elderly and disabled populations and these costs will not be delayed as “elective procedures.”

Thus, while Medicare and private payers may be able to offset costs through delayed elective procedures, a significant portion of Medicaid spending will continue as usual.

On top of this continuous flow of expenses, typical Medicaid cost-cutting measures are handicapped by the pressures of this particular crisis. In response to a typical recession, Medicaid can freeze or cut down provider rates to reduce spending.

However, with healthcare providers operating on drained resources and sacrificing their lives to care for coronavirus victims, cutting provider fees would not only be unlikely to produce significant results but would also be sorely demoralizing.

A couple of key questions will determine 2020 healthcare spending is: how much will the dip in elective procedures offset coronavirus costs? Also, will that balancing act be eliminated if these procedures spike when the public health emergency lifts, placing greater pressure on healthcare spending in 2021?

Unfortunately, these questions cannot be answered definitively in advance.