COVID-19 has reduced claims for health plans, but changes could be on the horizon

By David Biel, principal, and James Whisler, principal, Deloitte Consulting LLP

While hospitals in some parts of the country are dealing with high volumes of COVID-19 cases, most patients are staying at home. As a result, health plans are paying significantly fewer medical claims than they were just a few months ago as members defer non-essential hospital procedures and avoid doctor offices. Since the crisis began, physician practices have seen revenue decline by an average of 55 percent, with patient volume dropping to 60 percent, according to the results of a recent survey.¹ However, while overall claims have declined, health plans are paying for COVID-19 testing and treatment—usually with no cost sharing. Many plans are beginning to pay for virtual/telehealth visits.

Health-plan members are also having fewer health issues. A decrease in strep throat and flu cases over the past month is likely related to social distancing, increased handwashing, and more people working from home.² Moreover, fewer cars on the road could mean there are fewer accidents and fewer trauma cases for hospital ERs. In California, for example, traffic accidents have been cut in half.³ And with no one playing sports, there are also likely to be fewer sports-related injuries.

Once schools and businesses reopen, car accidents, sports injuries, and elective surgeries will return, but there likely won’t be any more than there were before COVID-19. This is similar to a seat in a restaurant on a Friday night. If that seat doesn’t get filled, that revenue is lost and isn’t made up the next night. Although members will return to hospitals and doctor offices, claims volume is unlikely to offset the lower volume we are seeing now. Some health plans have estimated trend rates might decline 5 percentage points this year, but they don’t expect rates will rebound by as much. Some patients who deferred care might decide not to return. Patients who were scheduled for back surgery, for example, might have healed after six months of rest and (possibly virtual) physical therapy.

However, while some unnecessary procedures have been put on hold, important preventive care—such as mammograms, Pap smears, and PSA screenings—are also likely being deferred. Over the next two years, it’s possible that skipping those services could result in a wave of preventable illnesses that weren’t detected. We see this as a bit of a wild card, but it could have a negative impact on the health of some enrollees and future claims costs.

How will COVID-19 change health plans?

Many of our health plan clients are asking us how we expect the COVID-19 pandemic might impact their business segments. Here’s what we expect:

• Increased M&A activity: There could be more mergers and acquisitions (M&A) as some health plans find themselves in a position to invest while others lose premium revenue. With fewer claims to pay, some health plans might decide to invest in, or partner with, provider groups. Physician groups that are in financial distress could create an opportunity for health plans to improve their vertical integration. Through an acquisition, a health plan might be able to keep providers independent and help preserve their pricing from a network perspective. Health plans might also try to forge closer relationships through tighter risk-sharing arrangements.
• More enrollment in the exchanges and Medicaid: Some state-based exchanges have seen a surge in enrollment since the pandemic began. Nearly 60,000 people signed up for health coverage through Covered California between March 20 and April 10.⁴ Similarly, state exchange in the Northeast said its enrollment grew by 45,000 in the last two months.⁵ We also expect Medicaid enrollment could increase by 15 percent to 20 percent as people lose employer-based health coverage. Although margins in Medicaid managed care tend to be substantially lower than commercial insurance, 15 million new Medicaid members might be worth $70 billion or more. Acquisitions might be one way for health plans to enter that market. States tend to issue requests for proposal (RFPs) every few years. Some health plans might try to enter a Medicaid market by acquiring a smaller health plan that has an existing contract. Some Medicaid plans are owned by health care systems, some of which could be under financial stress.
• Changes to products and prices: As some enrollment shifts from group commercial coverage to Medicaid or individual coverage, health plans might need to assess their product and pricing strategies. They also should consider how to ensure their products are affordable for consumers who might be facing new financial restraints. Pricing assumptions, however, will likely be less certain than usual, which could create a unique opportunity for some health plans to attract market share. The medical loss provision (MLR) provision of the Affordable Care Act (ACA) could also lead to new pricing strategies. The MLR provision requires that fully insured large-group plans spend 85 percent of premium dollars on direct care (80 percent for individual and small-group plans). Health plans are required to rebate premium dollars if they don’t meet that threshold. Rather than rebating money directly to employers or enrollees, some health plans might reprice their 2021 products, or add ancillary and virtual services, to avoid having to pay future rebates. If COVID-19 cases rebound this winter or next, health plans will likely need to make more adjustments to their 2022 products and prices. This pricing will likely begin in the late fall of 2021.
• Significantly more virtual health: In response to the pandemic, some physician groups launched or expanded virtual health/telehealth programs. Some physician offices have seen virtual visits increase by more than 70 percent. Patients and clinicians who have experienced the convenience of virtual health might not want to go back to in-person non-urgent care. Some health plans have launched their own virtual services, or have acquired telehealth companies. Other health plans are paying for more virtual services. In March of 2019, BlueCross BlueShield of Western New York paid health care providers for 135 telehealth visits. In March of 2020, the health plan paid for 20,000 such visits.⁶ Cigna Corp. recently partnered with The TeleDentists to roll out a virtual dental care program to screen patients for dental emergencies and prescribe pain medications or antibiotics. The program, which will be available at no cost through the end of May, connects members to dentists virtually.⁷ Premera Blue Cross offers zero-cost-sharing for virtual mental health care and substance use disorder treatment in response to the unprecedented demand for virtual care during the COVID-19 pandemic. The Blues plan operator has signed agreements with several virtual health groups to deliver video-based services to nearly all of its 2.3 million members through at least June 30, according to a press release.⁸
  
  Health plans also should look at the home as a locus of care (e.g., self-care, telehealth, and remote monitoring). As our colleague Summer Knight noted in her recent blog, the COVID-19 pandemic could generate renewed interest in the hospital-at-home (H@H) concept. H@H combines virtual health and in-person visits to provide patients with a high-level of care in their homes. 

• More investments in technology and innovation: We expect health plans will likely embrace emerging technologies including artificial intelligence, cognitive computing, and machine learning. These tools can help them tap into the wealth of knowledge they possess and develop new business models that move beyond claims processing. A year ago, we predicted this transition would evolve over the next 20 years. The COVID-19 experience, however, will likely accelerate the future of health that we had envisioned. Investments in technology could also help health plans streamline administrative costs by digitizing core systems such as claims processing and enrollment. Health plans, like other business sectors, will likely experience a new work environment where more employees work from home. The scaled disruptors from outside of the sector might also take advantage of this moment to drive innovation.

While the decreased volume of inbound claims is providing some temporary relief for health plans, we expect that this respite is temporary. We are advising our health plan clients to seize the day and move toward a digital/virtual front door that can allow them to more directly manage the care journey for their members. The health plans that prepare now for these near and long-term changes caused by COVID-19 will likely emerge as market leaders.

Endnotes

^{1.        COVID-19 financial impact on medical practices, Medical Group Management Association, April 2020}

^{2.        Remember influenza? Stay-at-home order and other coronavirus precautions seem to have halted a bad flu season and ‘probably saved thousands of lives,’ Chicago Tribune, April 16, 2020}

^{3.        Impact of COVID-19 mitigation numbers and costs of California traffic crashes, Road Ecology Center, UC Davis, April 1, 2020}

^{4.        Covered California Newsroom, April 16, 2020}

^{5.        Sign-ups surge on state’s health exchange, The Daily New of Newburyport, May 4, 2020}

^{6.        Telemedicine keeps patients safe, medical practices going in the age of COVID-19, The Buffalo News, April 24, 2019}

^{7.        Cigna launched dental virtual care to improve access and protect customers in response to COVID-19, Cigna press release, April 14, 2020}

^{8.        Premera Blue Cross offers zero cost share virtual mental health and substance use disorder treatment during COVID-19 pandemic, Premera Blue Cross press release, April 21, 2020}

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