Like all companies in the healthcare space, health plans have been financially impacted by COVID-19 — but not in the way most would expect. To preserve hospital resources and PPE for COVID-19 patients and reduce the risk of unnecessary exposure to the virus, most elective and non-essential care was cancelled or delayed beginning in mid-March. Additionally, some patients opted to delay necessary care due to fear of entering healthcare facilities.
While the cost of COVID-related testing and treatment has somewhat offset these impacts, the net result has been a significant reduction in medical claims paid by health plans during the first half of 2020. In fact, John Rex, CFO of UnitedHealthcare, estimates that at its lowest point in April, use of hospital services was about 75% of baseline, and use of outpatient and physician services fell to 60% of baseline.
While some uncertainty remains on the impact of pent-up demand for care, Milliman anticipates the financial impact to be a net reduction of healthcare spending by as much as $575 Billion for the full year of 2020, leaving health plans with an unexpected surplus of funds in 2020. Compounding matters, industry leaders project above-average demand for services during the second half of 2020. As a result, health plans now find themselves facing two realities:
- Plans must find a way to maintain their medical loss ratios (MLRs), or face an undesirable rebate.
- As members have delayed or foregone care during the first half of 2020 — including essential or preventative care — plans must develop strategies to anticipate and address potential increases in healthcare spending for plan year 2021.
Let’s explore strategies that plans can implement to use this financial surplus to their advantage both now and in the coming year.
With the significant decrease in expected revenues during 1H 2020, many hospitals and providers are struggling financially and may face a need to consolidate or shut down, an undesirable outcome for all involved. Health plans can support these providers right now by providing financial assistance such as increased reimbursements, relaxed prior authorization and making advance payments. In return, plans can then ask providers and hospitals to join their premier network and/or switch to their value-based care model — a strategy that has been utilized by BCBS North Carolina. This strategy is a win-win situation in the near-term — but it doesn’t address the medium-term issue of future increases in medical spending driven by pent-up demand, as well as increased utilization driven by delayed care.
Crucially, health plans need a strategy to proactively address the medium-term health implications of members’ delayed care. Members that have foregone preventative care service or routine outpatient visits will likely face unanticipated health outcomes in the coming year. Thus, how plans manage the effects of this eliminated and deferred care will be just as important to their long-term success as supporting their providers.
ACP: Investing in members, planning for care
Since the positive financial impacts of advance care planning (ACP) are most pronounced 6-12 months after implementation, investing in ACP now allows health plans to utilize their current excess funds to reduce unnecessary care for members now and throughout plan year 2021.
This proactive approach is uniquely suited to help plans navigate the uncertain future implications of 2020’s delayed care. During 2Q, diagnosis for major serious illnesses decreased, a phenomenon that is most likely explained by patients avoiding necessary care, rather than actual improvements in the underlying health of the population. If a member is diagnosed with a serious illness in the coming year that was missed due to delayed care, ACP ensures the member’s care goals are already decided and documented beforehand.
ACP provides a clearer course of action for providers, gives peace of mind for members that their wishes will be respected and ultimately reduces large volumes of unnecessary care. This can lead to substantial savings for plans; in fact, some ACP programs have resulted in an ROI of over 160%.
Creating a better strategy to handle your financial surplus
For health plans, COVID-19 has created a unique opportunity to invest in services and partnerships that will reduce utilization both now and in the future and support members and providers through these uncertain times.
In addition to investing in smaller, independent providers, plans should also take this opportunity to invest in robust ACP to help prepare for the medium-term effects of COVID-19. While no one can tell what the future will bring, this critical service is a small step that can benefit plans, members and providers for years to come.