How COVID-19 Disrupts the National Health Insurance Industry

How COVID-19 Disrupts the National Health Insurance Industry

LDI Virtual Seminar Explores a Topsy Turvy Reality Leaving Insurers Cash Rich and Actuaries Guessing About Future Risks

Virtual Seminar: Health Insurance Coverage in the Aftermath of COVID-19

The Leonard Davis Institute of Health Economics' ninth virtual seminar convened top experts to discuss the many and unusual ways the COVID-19 crisis is disrupting the health insurance field.


 

Strange anomalies abound in the new COVID-shaped world of health insurance. Patients cease getting treatment or submitting claims. Insurers fat with cash burst past their medical loss ratio limits. Employers furlough millions of workers but continue to pay their health benefits. States brace for massive overloads on their Medicaid and ACA marketplaces even as their economies collapse. Actuaries have no idea what's coming next. Uncertainty and confusion reign.

U.S. HEALTH INSURANCE

The U.S. health insurance field is a confusing patchwork of different programs with different eligibility and financial requirements. Before the pandemic, about 294 million people were covered by some form of health insurance and about 29 million had no insurance, according to the Congressional Research Service.

The majority of people (55%) who had health insurance got their coverage through their employers. If they lose their jobs, they lose their job-based insurance, though some can extend that coverage for 18 months by paying for it directly through the COBRA program.

Individuals 65 or over are insured through the federal Medicare program (18%). Two safety net programs — Medicaid (21%) and ACA exchanges (3%) offer various levels of subsidized insurance to lower income people. Insurance offered by exchanges also provides an option for those in the upper middle class who do not get job-based insurance or buy from other sources. Private commercial insurance or the U.S. military's TRICARE and VA Care cover the rest of the insured population.

This is the backdrop against which the University of Pennsylvania's Leonard Davis Institute of Health Economics (LDI) convened its ninth virtual "Experts at Home" seminar on June 12 entitled Health Insurance Coverage in the Aftermath of COVID-19.

Adequate safety net?
Moderator David Grande, MD, MPA, LDI Director of Policy, kicked off the session with a synopsis. "The country is facing unprecedented job loss as millions of Americans are losing health insurance. The Robert Wood Johnson Foundation and Urban Institute recently estimated somewhere between 25 and 43 million people are likely to lose their employer-sponsored health insurance. This raises enormous questions about whether the nation has an adequate safety net to ensure that people can obtain alternative coverage, whether they can access the care they need, and do so without facing catastrophic financial hardship."

The four panelists included a world-renowned Wharton School economist, a top executive from the National Governors Association (NGA), an executive vice president from the Kaiser Family Foundation, and a director of health care reform at the Century Foundation.

Surprising outcomes
So far, the two most surprising outcomes of the COVID-scrambled situation are how insurance companies are benefiting since so many patients have ceased seeking medical care, and how large numbers of workers pushed out of their jobs by company closings are still getting job-based health insurance benefits.

In that upside-down COVID-19 reality, insurers may be the only ones seeing a bright side — they are piling up money as their payout on claims has gone down dramatically. This is because as hospitals pivoted their operational focus toward coronavirus treatment, most ceased or significantly curtailed their normal elective and other routine treatments and surgeries. Non-COVID patients were not able to schedule treatments or procedures at the same time patients in general across the nation declined to seek care for fear of contracting coronavirus inside a medical facility.

Upending health insurance
"We saw a huge drop in health care use and revenues in late March, April and May," said panelist Larry Levitt, MPP, Executive Vice President for Health Policy at the Kaiser Family Foundation. "That has had the unexpected effect of insurers being flush with money, as insurers are not paying claims. Insurers are talking about premium rebates to avoid some of the rebates they'll be required to provide to consumers and businesses under the Affordable Care Act medical loss ratio provisions. So this combination of a pubic health crisis and economic crisis has really upended health insurance."

The medical loss ratio refers to a rule imposed by the ACA on insurers requiring them, depending on their size, to spend either 80% or 85% of their total premiums on health care services. The remaining cash — 20% or 15% — is all that can be used for other administrative costs and profits. At year's end, if an insurer has spent less than 80% or 85% on actual medical expenses, it must return the revenue overage to customers in the form of tax-free rebates.

The other surprising outcome during in the first three months since COVID-driven business shutdowns pushed tens of millions of workers out of their jobs is the lack of a predicted mass rush of unemployed people applying to the COBRA or Medicaid programs.

Employers continuing benefits
"We estimated 27 million would be losing job-based insurance, but it's pretty clear that has not happened yet," said Levitt. "The job losses were so fast and so big employers just really didn't know how quickly the recovery was going to come. In many cases, they wanted to keep a relationship with these workers so they could reopen quickly. In other cases, the government is helping to pay salaries and benefits of workers through the Payroll Protection Program. In many places, employers have furloughed workers who are getting unemployment, but the employers are still providing health benefits. It's all anecdotal but I think it's pretty widespread that employers are continuing benefits. That was true in May. It was true in June. This month, if employers are not calling workers back, we're going to start to see those benefits disappear; and as we get further into the summer, if unemployment remains high we will see big decreases in job-based insurance."

Panelist Mark Pauly, PhD, LDI Senior Fellow and Wharton School health economist, pointed out that COBRA may not be well understood by some workers likely to suffer "sticker shock" when they explore signing up. "They think they know what they were paying for family coverage, which might have been around $4,000 annually but they didn't know the other 80% was being paid by the employer. So, for many of them, not only did they lose their job, but they have to pay around $20,000 to maintain the health coverage they had. That's quite a hit."

There was keen interest on the virtual seminar audience Q&A channel about whether the states that have not expanded Medicaid might now think about doing so in light of the massive job losses and increased need their populations are experiencing. The panel was asked, "Any chance Congress will boost federal funding for expansion to 100% for remaining states? Are we seeing any state government conversations about revisiting the Medicaid expansion issue?"

No moves toward Medicaid expansion
"Unfortunately no," said panelist Hemi Tewarson, JD, MPH, Director of the Health Division of the National Governors Association (NGA) Center for Best Practices. NGA is a 112-year-old non-partisan organization that serves as a public policy liaison between state government and the federal government.

"We see some action where (states) are going in a different direction," said Tewarson. "Oklahoma for example, had a proposal to expand its Medicaid program which they are now withdrawing. Unfortunately with the budget pressures they're facing and the anticipation of the increase in the Medicaid rolls, we are not hearing from our state leaders about real interest or momentum toward Medicaid expansion."

Panelist Jamila Taylor, PhD, Director of Health Care Reform at the highly-respected Century Foundation, a 100-year-old non-partisan think tank focused on education, health care and worker rights, agreed.

'Pretty grim picture'
"We have a pretty grim picture in terms of the situation with Medicaid," Taylor said. "States are having budgetary issues at the same time more American workers have to rely on Medicaid for health care. We've been advocating for states to expand Medicaid coverage at this critical moment. We'd like to see an automatic stabilizer ensuring that the federal share of Medicaid costs goes up when the state economies go down."

The NGA last week called on Congress to allocate $500 billion for states to make up budget shortfalls caused by the COVID-19 crisis. "It's important to point out that that is across all governors, conservative and progressives alike," said the NGA's Tewarson. "There are some predictions that it will take some of these states three to five years to get back to where they were before COVID-19. It's a really significant concern."

The two largest drivers of state spending are education and health care — areas that tend to be the primary targets when a state has to find cuts to cover a budget shortfall. But this time around, states' shortfalls are as sudden as they are enormous, and the pandemic crisis itself demands more spending on health care-related services.

Governors' weekly meetings
"Every conversation governors are having in weekly NGA meetings is about budgets and the public health crisis," said Tewarson. "States have to balance their budgets. They are not the federal government. We're talking about states that had millions and millions of dollars in surpluses and are now going to have millions and millions of dollars in deficits in this next year. They expect their Medicaid rolls will increase significantly and their ACA exchange population to increase significantly with through-the-state subsidies."

Another topic of great interest in the health services research community and among many policymakers is how the Affordable Care Act marketplaces will be affected by the the pandemic's economic/unemployment impact. The ACA was not in place during the 2007-2009 recession. 

"You can't overstate the power of the ACA as a safety net in a recession like this," said Kaiser's Levitt. "We recently did an estimate showing 79% of people expected to lose their job-based insurance will be eligible for help under the ACA either through Medicaid or the ACA marketplaces. That's an enormous cushion that was not there before. But there are gaps. Twenty-one percent — that's millions of people — are not eligible."

Low insurance literacy
But neither Medicaid nor the ACA marketplace is a panacea, Levitt points out. "Things like the marketplace's Silver Plans can carry a pretty substantial premium for low-income people that may feel unaffordable even after the cost-sharing deduction," he said. "There's also a real lack of awareness and understanding of these programs. Many people losing their jobs to COVID-19 have never had to rely on Medicaid or the ACA and may not even know or understand their options. And the Trump administration has reduced ACA (educational) outreach by 90% and reduced grants to community based navigators by 84%. So the application process, which can be complex, could be really hard for some people to navigate."

As the unemployment numbers have increased rapidly, both media pundits and academic experts have speculated about how the crisis might lead to transformative change in national health insurance policies or practices after the pandemic is over.

Wharton's Pauly doesn't think much will change. "The latest forecast I've seen is that unemployment will be around 10% by the end of the year, so we're not talking about Great Depression (1930s) numbers," said Pauly. "We're talking about Great Recession (2007-2009) numbers, which were also more like 10%. One message past history gives us is that the Great Recession did not provoke a dramatic change in job-based insurance. My punch line is that if we have a Great Recession-style downturn, I don't see a strong rationale for changes."

Spotlighting vulnerable populations
Looking at the larger implications of what's happening, Kaiser's Levitt said, "the pandemic and economic crisis teach us that we need to pay more attention to people who are particularly vulnerable in our health system and employment system. These dual crises have been almost perfectly designed to spotlight those vulnerabilities. Look at who is most vulnerable; it's low-income people, people of color, people with preexisting conditions. And those are people who are most vulnerable to losing their health insurance as well. That's our lesson. We need to focus on the most vulnerable among us in any policy changes we consider."