Milliman released a report today that projects the COVID-19 pandemic will reduce U.S. nationwide healthcare expenditures by at least $75 billion and by as much as $575 billion in 2020. The report, “Estimating the financial impact of COVID-19 on 2020 healthcare costs,” models 18 different scenarios with varying infection rates and durations of care deferral.
Key findings of the report include:
- If COVID-19 results in deferred care through the end of June, the net reduction of 2020 healthcare costs through June would be between $140 billion and $375 billion nationally. The net reduction at year-end would depend on pent-up demand as care resumed in the second half of the year.
- If COVID-19 results in deferred care through the end of the year, either because of a “second wave” or elongated first wave of infections, the net reduction of 2020 costs will be between $75 billion and $575 billion nationwide.
- While commercial insurance and Medicare are likely to see net decreases in costs, state Medicaid programs could experience a net cost increase as more people who have lost their jobs enroll in Medicaid.
- Milliman expects an increase in costs after the pandemic due to deferred care and pent-up demand for healthcare services, because a portion of deferred care will be rescheduled and individuals with ongoing healthcare needs will seek care.
- Almost all of the country faces a net decline in health expenditures, though most COVID-19 hot spots see less of a decline, because they are treating more COVID-19 patients. Some of the areas with the least decline include New York City, New Orleans, and Nassau and Suffolk counties on Long Island.
“While the testing and treatment of COVID-19
patients is increasing healthcare costs across the country, these expenses are
dwarfed by the cost reductions resulting from the deferral of nearly all
elective care and other care that can be delayed,” said Doug Norris, principal
and consulting actuary.
“Ultimately, the magnitude of cost reductions
will depend on how long care is deferred,” said Matt Kramer, consulting
actuary. “If there is a second wave of infections, or if the first wave is
elongated and lasts into the fall, some amount will be offset, but regardless
of the scenario, we expect COVID-19 will actually reduce U.S. healthcare
expenditures in 2020.”
“Deferral of care will have a significant short- to medium-termed effect on health expenditures, but some of that will boomerang back when patients can access care normally and proceed with services that were delayed,” said Charlie Mills, principal and consulting actuary.
To view the complete report, click here.
Milliman will host a public webinar to discuss the analysis and findings on April 29, 2020, at 11:00 a.m. EDT. Interested parties may register for the webinar here.
The 2015 Kaiser Employer Health Benefits Survey found that a majority of employers said controlling the rising cost of healthcare and other employee benefits is one of their most important concerns. Medical trend has consistently outpaced inflation, which is expected to result in an unsustainable situation that will require across-the-board changes in the industry. The implementation of the excise tax on high-cost health plans, effective for plan years after 2017, has created even more incentive for managing costs, because any healthcare costs above the excise tax thresholds will be taxed at 40%. In the past, one of the ways an employer could control costs was by increasing member cost-sharing through deductibles, copayments, and coinsurance. However, because an employer needs to maintain at least minimum value (60% actuarial value, approximately equivalent to a bronze plan) in order to avoid paying penalties, increasing member cost-sharing is, at best, a temporary solution, as the excise tax thresholds only increase by inflation. Additionally, for a typical gold plan (approximately 80% actuarial value), the impact of the excise tax will be felt even sooner. As a result, managing healthcare costs beyond cost-shifting will become the main focus of employer-sponsored insurance.
Given the greater emphasis on improving the quality of care in employer-sponsored insurance, employers and their consultants need to work together to implement cost containment programs into their medical and prescription drug plans. A cost containment program can be defined as any action by the plan, excluding increasing broad-based member cost-sharing that results in savings on total plan costs. Cost containment programs encourage the utilization of necessary services and avoidance of unnecessary services, and generally fall into one of the following categories:
• Prescription drug management
• Medical management
• Provider programs
Employers can utilize these programs in order to attempt to control plan costs and provide members with the most cost-efficient services that promote wellness and the improvement of overall health.
Employers looking to manage the cost of their healthcare plans should think about the value of conducting a claims audit. In this Employee Benefits News article (subscription required), Milliman consultants Brian Anderson and David Cusick consider how routine audits can detect flaws in a plan’s design, leading to better claims handling procedures and reductions in plan costs.
Here is an excerpt:
If feasible, it is a good idea to have claims audited every one or two years. At least as important, however, is the implementation audit. An implementation audit takes place shortly after a plan has been set up. A good time frame is 90 days after beginning work with a new vendor or any substantially new contract. Implementation audits are akin to taking off the training wheels. They help ensure that a plan has been set up correctly and that the plan sponsor is getting all of the benefits it contracted for during the implementation process. They happen after enough time has passed to gain a body of experience data but still soon enough to head off a major course change requiring extensive retroactive corrections.
Expect an audit to take three to six months. After that the recovery effort begins, in twofold fashion: recovering any money that the plan may have overpaid, and the equally important work of correcting errors in the system that were identified in the audit. Plan sponsors may engage an overpayment recovery vendor, or choose to handle it in-house.
The benefits of proactive auditing for the plan sponsor should be evident: to verify the integrity of vendor contracts and to meet fiduciary responsibilities. As with anything, there is no guarantee an audit will pay for itself every time. But it is not unusual for an audit to have findings about 3% to 5% of paid claims costs, with recoveries of about 1% to 2%. Today, for many reasons, claims audits are more effective than ever. They can be relied on to uncover something in the working of a plan that can be improved, isolated issues as well as systemic and redundant errors, contractual compliance questions, or basic data entry problems.
Healthcare reform will provide employers several cost-saving measures without requiring adjustments to their current utilization or provider access. The potential savings, or discounts, will vary based on the group’s mix of markets and services, so a medical repricing study can help quantify the differences.
In a new paper, Liz Myers covers the most frequently asked questions about the calculation and evaluation of medical discounts, highlights various methods for estimating discount differences, and discusses how discount differences impact the overall medical cost to the employer.
To read the entire paper, click here.
The Council for Economic Advisers issued a report today making an economic argument for healthcare reform. The report uses the proposed 1.5% cost trend deceleration as a basis for calculating eventual savings to American families. Quoting from the report:
For a typical family of four, the increases in income would be substantial…For the case of a reduction in cost growth of 1.5 percentage points per year, the projections imply that the family’s income would be higher (in 2009 dollars) by roughly $2,600 in 2020, $10,000 in 2030, and a remarkable $24,300 in 2040. Even with a cost reduction of 0.5 percentage point per year, the projected effect is still almost $900 in 2020, over $3,500 in 2030, and almost $9,000 in 2040.
Last week, we presented our estimates of proposed savings–$3,095–from the proposed 1.5% deceleration, though our estimates are retrospective and look at combined savings to both families and the employers paying for their coverage.
As we’ve said before, healthcare cost inflation is more than a percentage. Just to keep all this in perspective, here is how costs for American families have been growing over the last five years in terms of dollars…
The New York Times reported today about the growing cost problem in Massachusetts as the commonwealth looks to rein in the expense of their universal healthcare program. Milliman principal Cathy Murphy-Barron discusses the cost challenges posed by healthcare reform in an article published in November.
Of particular interest is the Massachusetts plan to use prevention and other value-based measures to fight costs. Quoting the Times article:
They want a new payment method that rewards prevention and the effective control of chronic disease, instead of the current system, which pays according to the quantity of care provided. By late spring, the commission is expected to recommend such a system to the legislature.
This sounds reasonable, and most people can agree on the need for preventive care; many believe the fee-for-service payment system is flawed. But will a commitment to prevention result in savings? Cathy addresses this point in her article:
Wellness. Disease management. Consumer-driven health plans. Value-based insurance design. There has been no lack of effort on the part of the healthcare and insurance industries in recent years to tackle the problem of spiraling costs, and the work to date holds much promise. Yet every time we look at these innovations, we find ourselves unsure of the one thing we most want to know—their effect on cost. Most innovations show at least modest potential for cost savings but the long-term effect on costs is not yet clear.
Time will certainly tell whether what the Times calls ” perhaps the boldest state health care experiment in American history” will have as much early success tackling the cost problem as it has had tackling the access problem.