The COVID-19 pandemic’s postponement of elective surgeries and regular care has created a surplus in revenue for insurers due to lower spending.
Health plans are mandated to spend at least 80% of their revenues on medical care. When they make more than that, they have to give money back to the purchasers.
Insurers are doing this now, rather than later, according to the Advisory Board’s practice manager Rachel Sokol, who spoke during the company’s weekly meeting on the impact of COVID-19 to payers.
Insurers want to create immediate value for members, instead of waiting for 2021, she said.
“That’s why we’re seeing the premium discounts now,” Sokol said.
Among those insurers refunding money, UnitedHealthcare said it would provide more than $1.5 billion in initial assistance, including customer premium credits, because its members have been unable to access routine or planned care due to the COVID-19 pandemic.
UnitedHealthcare has seen a lower volume of medical care being delivered than it anticipated when it set premiums.
Commercial fully insured individual and employer customers will get credits ranging from 5% to 20% – depending upon the specific plan – which will be applied to premium billings in June.
WHY THIS MATTERS
Insurers are mandated to provide refunds, but also they want to motivate members to return for regular care, to prevent more costly and complex outcomes later.
While hospitals have taken a financial hit from COVID-19, the major health insurers have shown minimal impact.
In fact, insurers could see a benefit to earnings in 2020 as medical services decline, according to Moody’s Investors Service.
THE LARGER TREND
Under the Affordable Care Act, insurers are required to rebate some premiums to their customers if medical claims fall short of expectations, based on a three-year average of medical costs.
The Medical Loss Ratio of the Affordable Care Act requires insurance companies that cover individuals and small businesses to spend at least 80% of their premium income on healthcare claims and quality improvement, leaving the remaining 20% for administration, marketing, and profit.
The MLR threshold is higher for large group insured plans, which must spend at least 85% of premium dollars on healthcare and quality improvement, according to the Kaiser Family Foundation.
Insurers may either issue rebates in the form of a premium credit or a check payment and, in the case of people with employer coverage, the rebate may be shared between the employer and the employee, Kaiser said.
Using preliminary data reported by insurers to state regulators and compiled by Market Farrah Associates, Kaiser estimates that insurers will be issuing a total of about $2.7 billion across all markets – nearly doubling the previous record high of $1.4 billion last year.
While health insurers have saved money by the cancellation of elective surgeries and many are currently refunding excess revenue under the Medical Loss Ratio, premiums for the 2021 plan year are still in question.
There is a lot of uncertainty, America’s Health Insurance Plans said. Without comprehensive data, insurers are working to estimate 2021 healthcare costs and must base their rates on projected costs, AHIP explained in an infographic.
It is too soon to know what the real healthcare costs of COVID-19 will be. Also, delayed elective and non-urgent care will likely be delivered – and paid for – later.
That care could be more complex and costly because it was delayed, AHIP said.
WHY THIS MATTERS
Insurers are working to meet state deadlines to file 2021 premiums in the individual market.
THE LARGER TREND
Federal law requires insurers to spend 80-85 cents of every premium dollar on medical services and care. The rest, under the Medical Loss Ratio, may go towards administrative expenses, regulatory costs, federal and state taxes, customer service and other expenses.
The COVID-19 pandemic’s postponement of elective surgeries and regular care has created a surplus in revenue for insurers due to lower spending, which many are refunding now.
ON THE RECORD
“COVID-19 has had a very real impact on the economic, physical, and mental health of millions of Americans,” said Jeanette Thornton, senior vice president of Product, Employer, and Commercial Policy at AHIP. “Our members are working through this uncertainty to strengthen access to affordable care as the fight against the coronavirus continues. COVID-19 dramatically changed the healthcare landscape–in 2020 and for years to come.
UPMC, which operates 40 hospitals in Pennsylvania, New York and Ohio, has been growing steadily in recent years. However, its growth in the first quarter collided head-on with the COVID-19 pandemic.
The system posted a $41 million operating loss on revenues of $5.5 billion, according to the financial report. For the first quarter of 2019, it reported an operating profit of $44 million on revenue of $5.1 billion. The system did not disclose its net numbers.
Investment losses reached nearly $800,000, compared to a gain of more than $224,000 in the prior-year period.
While overall outpatient revenue increased 1% during the quarter, revenue from physician services was down 3% while hospital admissions and observations dropped by 4%.
UPMC is the latest nonprofit healthcare provider to report losses blamed on COVID-19, although its numbers are not as big as those reported by Kaiser Permanente and CommonSpirit Health, both of which reported quarterly losses exceeding $1 billion apiece.
UPMC did note in a statement that its business was moving back toward normal in recent weeks.
“During the COVID-19 crisis, UPMC’s leaders, scientists, clinicians and front-line workers throughout our … system were prepared to care for the potential surge of COVID-positive patients while also safely providing essential, life-saving care to our non-COVID patients,” Edward Karlovich, UPMC’s interim chief financial officer, said in a statement. “However, many patients who had scheduled surgeries and procedures before the crisis postponed their care. With assurances that all our facilities are safe for all patients and staff, we are seeing our patients returning for their essential care that had been postponed and our current volumes are beginning to approach near-normal levels.”
The system also noted that it was sitting on $7 billion in cash and liquid investments. It reported 99 days cash on hand.
UPMC’s insurance division remained in the black, but was under strain. Its operating income was $39 million — compared to $89 million for the first quarter of 2019. However, membership grew by 7% during the quarter to 3.8 million enrollees.
The report echos several others suggesting patients are still cautious about returning to the hospital and other care settings. The Kaiser Family Foundation found that the pandemic has forced nearly half of patients to postpone medical care. About 32% of those who have postponed care said they would get the service in the next three months and 10% said they will do so in four months to a year.
The overall sluggish outlook led Transunion to suggest patient volumes may not be restored to pre-pandemic levels soon enough to both sustain operational and clinical functions and repay advanced Medicare payments that many systems large and small have taken advantage of from CMS.
Because of the demographic trends, systems may have greater success scheduling appointments by checking in first with younger generations, the report suggests.
“We think as providers are beginning to really drive their patient engagement strategies that it’s best if they start reaching out to them, because it’s likely they’ll be willing to re-enter the care setting,” John Yount, vice president for TransUnion Healthcare, told Healthcare Dive.
Providers are taking steps to ease patient fears upon returning to medical settings by implementing temperature checks, spacing out waiting rooms to allow for social distancing and taking other safety measures.
But a sluggish recovery is still likely as patients plan to continue delaying care, especially older adults who are at higher risk for COVID-19 and in some states have been told to continue following stay at home orders.
The slowest return to growth in emergency room visits raises concerns that patients who need emergency care may be avoiding hospital settings due to COVID-19 fears, according to the report.
Older patients are leading the pack in returning to ERs, and they also experienced the largest decline in inpatient volumes from March 1-7 and April 5-11.
Comparatively, younger generations had smaller declines in visit activity overall and are returning to care settings faster, Yount said.
“These deferrals will have implications for both patients and providers — high-acuity and chronically-ill patients risk waiting too long to seek care, and a continued reduction in visit volume will further amplify existing financial challenges for hospitals,” David Wojczynski, president of TransUnion Healthcare, said in a statement.
UPDATE: May 15, 2020: This article has been updated to include information from a Moody’s Investors Service report.
From the Mayo Clinic to Kaiser Permanente, nonprofit hospitals are posting massive losses as the coronavirus pandemic upends their traditional way of doing business.
Fitch Ratings analysts predict a grimmer second quarter: “the worst on record for most,” Kevin Holloran, senior director for Fitch, said during a Tuesday webinar.
Over the past month, Fitch has revised its nonprofit hospital sector outlook from stable to negative. It has yet to change its ratings outlook to negative, though the possibility wasn’t ruled out.
Some have already seen the effects. Mayo estimates up to $3 billion in revenue losses from the onset of the pandemic until late April — given the system is operating “well below” normal capacity. It also announced employee furloughs and pay cuts, as several other hospitals have done.
Data released Tuesday from health cost nonprofit FAIR Health show how steep declines have been for larger hospitals in particular. The report looked at process claims for private insurance plans submitted by more than 60 payers for both nonprofit and for-profit hospitals.
Facilities with more than 250 beds saw average per-facility revenues based on estimated in-network amounts decline from $4.5 million in the first quarter of 2019 to $4.2 million in the first quarter of 2020. The gap was less pronounced in hospitals with 101 to 250 beds and not evident at all in those with 100 beds or fewer.
Funding from federal relief packages has helped offset losses at those larger hospitals to some degree.
Analysts from the ratings agency said those grants could help fill in around 30% to 50% of lost revenues, but won’t solve the issue on their own.
They also warned another surge of COVID-19 cases could happen as hospitals attempt to recover from the steep losses they felt during the first half of the year.
Anthony Fauci, the nation’s top infectious disease expert, warned lawmakers this week that the U.S. doesn’t have the necessary testing and surveillance infrastructure in place to prep for a fall resurgence of the coronavirus, a second wave that’s “entirely conceivable and possible.”
“If some areas, cities, states or what have you, jump over these various checkpoints and prematurely open up … we will start to see little spikes that may turn into outbreaks,” he told a Senate panel.
That could again overwhelm the healthcare system and financially devastate some on the way to recovery.
“Another extended time period without elective procedures would be very difficult for the sector to absorb,” Holloran said, suggesting if another wave occurs, such procedures should be evaluated on a case-by-case basis, not a state-by-state basis.
Hospitals in certain states and markets are better positioned to return to somewhat normal volumes later this year, analysts said, such as those with high growth and other wealth or income indicators. College towns and state capitols will fare best, they said.
Early reports of patients rescheduling postponed elective procedures provide some hope for returning to normal volumes.
“Initial expectations in reopened states have been a bit more positive than expected due to pent up demand,” Holloran said. But he cautioned there’s still a “real, honest fear about returning to a hospital.”
Moody’s Investors Service said this week nonprofit hospitals should expect the see the financial effects of the pandemic into next year and assistance from the federal government is unlikely to fully compensate them.
How quickly facilities are able to ramp up elective procedures will depend on geography, access to rapid testing, supply chains and patient fears about returning to a hospital, among other factors, the ratings agency said.
“There is considerable uncertainty regarding the willingness of patients — especially older patients and those considered high risk — to return to the health system for elective services,” according to the report. “Testing could also play an important role in establishing trust that it is safe to seek medical care, especially for nonemergency and elective services, before a vaccine is widely available.”
Hospitals have avoided major cash flow difficulties thanks to financial aid from the federal government, but will begin to face those issues as they repay Medicare advances. And the overall U.S. economy will be a key factor for hospitals as well, as job losses weaken the payer mix and drive down patient volumes and increase bad debt, Moody’s said.
Like other businesses, hospitals will have to adapt new safety protocols that will further strain resources and slow productivity, according to the report.
Another trend brought by the pandemic is a drop in ER volumes. Patients are still going to emergency rooms, FAIR Health data show, but most often for respiratory illnesses. Admissions for pelvic pain and head injuries, among others declined in March.
“Hospitals may also be losing revenue from a widespread decrease in the number of patients visiting emergency rooms for non-COVID-19 care,” according to the report. “Many patients who would have otherwise gone to the ER have stayed away, presumably out of fear of catching COVID-19.”
Federal relief grants are helping offset major financial losses for some health systems in the short-term, but factors like a second surge causing another total lockdown, rising unemployment and hesitancy from patients as they return to medical settings make long-term prospects unpredictable.
S&P Global Ratings said in a report this week that it took 36 negative actions in health services companies during the pandemic. The most affected sub-sector was dental companies. It also changed outlooks on ambulatory surgery centers given significant volume declines.
Hospitals and home healthcare were rated at moderate to high financial risk, though analysts expect those businesses to recover faster due to the more essential nature of their services, according to the report. And in the short-term, government relief funds will help bolster hospitals’ liquidity as they attempt to return to normal operations and recover from steep losses.
Delayed elective care that’s just restarting in some states led most hospitals to the financial fallout. But even hospitals treating a large number of COVID-19 patients will be hurt, as these patients are expensive to treat due to higher supply and labor costs, the report said.
It also found that nonprofit and for-profit operators could fare differently in their financial recoveries. Non-profit hospitals generally have larger cash reserves than for profit systems, which rely instead almost exclusively on cash flow and borrowings for liquidity.
Providers are relying specifically on the Coronavirus Aid, Relief and Economic Security Act which allocated $100 billion for providers that they don’t have to pay back, though there has been some criticism about how the money was distributed and whether it advantages some providers over others.
A Kaiser Family Foundation report found that CARES funding tends to favor for profit, higher margin hospitals with a higher mix of private payer revenue compared to those that rely on government payers such as Medicare and Medicaid.
Other legislation to help financially struggling health systems include advanced Medicare payments in the form of loans that must be paid back roughly four months after they are received.
The Paycheck Protection and Healthcare Enhancement Act passed in late April gave providers an additional $75 billion, though calculation and distribution methods have yet to be determined.
The U.S. House of Representatives also passed a $3 trillion bill dubbed the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act that allocates $100 billion for provider reimbursement and creates special enrollment periods for Medicare and Affordable Care Act plans, though the Trump administration said it’s too soon for additional relief funding.
Lab companies were put in the moderate risk category, and seeing a “40% decline in lab tests net of COVID testing,” S&P said.
Still, it said despite the drop in overall testing for LabCorp and Quest Diagnostics, S&P predicted “their services to become even more important, and for their services to recover reasonably well as testing related to the pandemic continues to grow and as medical procedures and physician visits ramp-up through the rest of the year and into 2021.”