“The Great Pause” Brings Unyielding Uncertainty to Medical Loss Ratios but Also Opportunity

Oct 10, 2020

Are better-than-expected medical loss ratios in 2020 setting up payers to take a severe hit on profit margins in 2021? Go on offense by making moves that feature these 4 risk-mitigating hallmarks.

Six months into the novel coronavirus pandemic in the U.S., the crisis has affected the healthcare industry unevenly. While providers have been hit hard financially, health plans have experienced record profits due to a significant drop in medical expenses. But while they come under scrutiny for the current medical loss ratios, health plans argue this is a situation that cannot last. They expect a pent-up demand for healthcare coming in 2021 that will more than make up for this year’s health plan profit margins.

None of us can predict the future. But we can still find a path forward for payers. One that helps you successfully navigate the short-term uncertainty around healthcare claims costs and poises you for long-term success. The “great pause”– as the initial lockdown period of 2020 is sometimes referred to – has changed our economy and the way health plans think about business operations for the long term.

Will COVID-19 Delay the Payer Financial Impact?

The Affordable Care Act mandated health plans spend at a minimum 80-85% of premiums on healthcare or quality improvements. The result is a medical loss ratio (MLR) calculated as follows:

MLR = Healthcare Claims + Quality Improvement Expenses / Premiums – Taxes, Licensing & Regulatory Fees

With the onset of the COVID-19 pandemic, as consumers avoided or deferred care, the “healthcare claims” portion of that equation shifted dramatically. This downward trend was most significant in the second quarter. A recent study found that in April 2020, total hospital admissions declined 34%, including COVID admissions. At the same time, visits to ambulatory practices declined 60%, and emergency room visits dropped off 42%.

This lower-than-expected use of healthcare services has reduced medical expenses billions of dollars across commercial health plans leading to, in some cases, doubling of profits. But, what does the future bring?

The “bad”

Especially at the onset of the pandemic, several experts predicted catastrophic healthcare costs would accompany COVID-19 and severely hit payers’ bottom lines. That worst-case scenario hasn’t materialized, though some worry that higher costs are on the horizon as a result of early care delays.

Of particular concern are decreased rates of screenings, vaccinations and other preventive care. At least 40% of individuals surveyed reported delaying care due to COVID-19 through the end of June. This article cites studies that note a 46% decline in cancer diagnoses and an 85% drop in common cancer screenings. CMS data revealed 22% fewer vaccinations administered, 44% fewer screenings for physical and cognitive development, and 69% fewer dental procedures among children between March and May of 2020.

A predicted future spike in elective procedures is also worrisome. By some estimates, they make up 37% of health plans’ hospital admissions spending. Some of those 40% mentioned above who delayed care undoubtedly fall into this category. As of July, though, procedures had rebounded to 16% below baseline levels. And a September survey found 60% of patients are open to rescheduling their elective procedures this year, a figure that jumps to 71% among those whose needs are more urgent.

The “good”

When COVID-19 forced consumers and providers to re-think healthcare encounters, it yielded a few moves that may lower costs in the short-term and the long-term:

Embrace of telehealth and virtual care: The adoption of remote patient monitoring, virtual visits and more has jumped forward and may help better manage chronic conditions, including behavioral health. By improving access to care, it might also help redirect the non-emergent visits that have historically ended up in the emergency department. As a PwC report noted, “Even if telehealth increases utilization, many payers see the platform as an opportunity to get members the right care at the right time in the right place while also saving the member and the employer money.”

Creative healthcare solutions: From at-home dialysis and other home health treatments to reassessing the usual cancer treatment protocols, the hyper-focus on effectiveness has started to chip away at the “more equals better” healthcare idea.

Alternative payment models: Those providers participating in contracts that prioritize value fared better financially than their fee-for-service counterparts – and achieve improved outcomes for their patients. Combined with modern payer initiatives that focus on social determinants of health, coordinated care, population health and the transparent data sharing that supports these moves, the current environment might signal a sea change in this shift.

The “wait and see”

Because we are still very much in the middle of this healthcare crisis, these outcomes – the “bad” and the “good” – are far from a foregone conclusion. In fact, the latest estimates – from the Willis Towers Watson actuarial analysis of employer healthcare cost – project 2020 totals to come in 3.3 – 9.9% lower and 0.5 – 5% higher in 2021 for a combined cost reduction of 2.8 – 3.8% from non-pandemic levels. Even still, the analysts warn about volatility around these costs.

With this uncertainty comes risk for health plans. Uncertainty around when and where elective procedures will resume, the total COVID-19 testing and treatment costs, and how ongoing unemployment will affect insurance coverage rates all make it difficult to act with conviction. In response to this lack of assuredness in the market, some health plans have gambled on suspending long-planned strategic projects.

However, while the novel coronavirus is our collective reality for the time being, it will pass eventually. With that in mind, does it make sense to make relatively short-term moves that may prove costly in the long run?

4 Hallmarks of Win-Win Strategic Moves for Payers to Implement Now

We might feel the impact of COVID-19 on healthcare through 2022. And especially in the face of potential healthcare cost volatility in 2021, health plans have to extend their long-term visioning. What strategic moves both mitigate risk now and move the needle on your competitive advantage in the future?

Consider decisions that make sense, no matter what the future brings regarding medical loss ratios. Look for these four characteristics of moves that promise to propel your health plan past the risk-averse reactive mode that can result in inaction and unwanted setbacks.

1. Easy to implement

When you think of plans that are easy to implement, policies and processes that are already in place may come to mind. For instance, when CMS provided payers flexibility on medical loss ratio reporting and rebates this year, health plans didn’t hesitate to exercise their options. Many had already taken it on themselves to provide direct support to consumers. This relief came in the form of waiving COVID-19 cost sharing, extending premium payment grace periods, and offering premium rebates and discounts.

By the same turn, if your health plan is already in the process of pursuing an enterprise technology platform, consider how quickly you could realize savings from that decision. And how difficult it would be to get back on track if you abandoned that process. Emphasize your potential speed-to-value when you encounter these roadblocks, and it won’t steer you wrong.

2. Build empathy with stakeholders

As COVID-19 ravages your consumers, network providers and employer clients, any strategic move that shores up these relationships holds promise for long-term benefit. For example, extending telehealth benefits and continuing member engagement campaigns for consumer satisfaction. Evolving provider engagement programs to further ease their claims burden. And offering creative solutions to keep employer healthcare costs down.

Some of these strategies build on the positive outcomes realized thus far into the pandemic, which also make them easy to implement. And they include policies that mitigate healthcare delays and may even lower healthcare costs, making them a good match for today’s challenges and tomorrow’s opportunities.

3. Improve efficiency

No matter how healthcare costs impact medical loss ratios next year and the next, it pales in comparison to one perennial challenge. Administrative complexity makes up at least 10% of annual healthcare spending in the U.S. Reducing your administrative burden holds the greatest potential to increasing your profit margins.

For that reason, prioritize decisions that will yield the greatest return on investment. Times like these increase the stakes greatly. And you simply can’t afford not to invest in solutions that could double or triple your recoveries while improving efficiency.

4. Reduce team frustrations

What issues did the pandemic bring to the forefront for your team’s day-to-day? For most of us, work flexibility and communication have become more important than ever. Work cultures that depend largely on face-to-face interactions have had to adapt quickly to maintain productivity. And your email inboxes may have taken a hit as their limitations as workflow tools have been tested.

As a result, teams across all industries have quickly adopted virtual meeting solutions that may already have been in place. You may also consider secure, cloud-based collaborative technology platforms. Especially ones developed specifically for the healthcare industry can help you extend a work-from-anywhere posture and invite key external stakeholders into the workflow.

Set Yourself Up for Success – No Matter What Medical Loss Ratios Bring

While there continues to be talk about “getting back to normal,” we may have to recognize that the new normal equals uncertainty. We have to become agile enough to succeed under those circumstances. Take this opportunity to implement solutions that address inefficient processes. Innovate your way through broken relationships with stakeholders. A scalable technology platform like Pareo can help you transform your payment integrity function, which better positions you to successfully navigate unpredictable medical loss ratios and their impact on profit margins.

Now’s the time for total payment integrity

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