Blog Post

How Covid-19 will impact payer mix

    Millions of Americans have already lost their jobs from the economic downturn caused by the novel coronavirus pandemic. As social distancing continues, the Congressional Budget Office has projected unemployment rates to reach 12% in 2020.

    Advisory Board analyzed the number of Americans losing their employer-sponsored insurance (ESI) to project the impact on enrollment in Medicaid and individual products, as well as the number of uninsured.


    The pre-Covid-19 reality

    Before Covid-19, the U.S. unemployment rate was 3.5%, the lowest since 1969. The unemployment rate had steadily decreased since the last unemployment peak of 10% in October 2009.

    At last year’s extremely low unemployment rate, most Americans received health insurance from their employers. Specifically, 73M adults had large group ESI, 28M adults had small group ESI, 19M adults had Medicaid, 15M adults had individual insurance, and 25M adults were uninsured. The uninsured rate varied by state, as shown in the map below.

    U.S. uninsured rate by state, according to the U.S. Census Bureau

    Our take

    As social distancing to prevent the spread of Covid-19 lowers demand and causes business closures, more and more people are claiming unemployment. Unemployment insurance claims have hit unprecedented spikes, as shown in the graph below. By the end of March 2020, the unemployment rate had already risen to 4.4%.

    New unemployment insurance claims by week, seasonally adjusted

    As people lose their jobs and move off employer sponsored insurance, some people will be looking for new insurance. Additionally, some uninsured people will now want to be covered because of the pandemic.

    Our analysis projects if the U.S. unemployment rate reaches 12% by the end of 2020, 4 million adults will leave large group ESI, 2 million adults will leave small group ESI, 3 million adults will enter Medicaid, 0.5 million adults will enter the individual market, and 1 million adults will become uninsured.

    Projected changes in payer mix for U.S. adults (18+) from Covid-19

    Methods

    1. We sized the number of individuals likely to be unemployed and lose their employer-sponsored insurance based on an unemployment rate of 12% as projected by the Congressional Budget Office and a worst-case scenario of 32%.
    2. We then estimated how many of those individuals who previously had employer-sponsored or individual market health insurance would move to a different line of business or become uninsured.
    3. For the currently uninsured population, we also estimated who would choose to enroll in Medicaid or the individual market because of the Covid-19 epidemic.

    Notes

    1. This analysis is for adults 18+ only and doesn’t include other insurance sources like short-term health plans, TRICARE, or COBRA.
    2. The analysis does not include Americans who were furloughed or had their wages cut but did not become unemployed.
    3. The analysis is based on the number of people who would want to enroll in insurance now because of coronavirus rather than the number of people who were successful and have enrolled in insurance.
    4. The national analysis takes into account the fact that industries have been disproportionately impacted by layoffs since Covid-19 while the state analyses do not.

    Three key implications

    A change in payer mix has implications for health plans, employers, hospitals, and patients. Below are three key implications for these groups:

    1. Health plans will need to actively attract individual and Medicaid members.

    As health plans inevitably lose membership in ESI, they will need to promote their products to Americans who start shopping on the individual market. It’s important to note that members shopping on the individual market are highly price-sensitive, so plans should make sure consumers know about any applicable subsidies. Even for health plans that are not in one of the 11 states that have re-opened their exchanges, people can still enroll in individual market plans if they have lost their job.

    While marketing might seem less important in Medicaid, it is extremely important for states that allow individual to choose a managed care organization (MCO). These formerly commercial members are used to actively choosing a health plan. Furthermore, these members face barriers such as lack of awareness of their Medicaid eligibility, limited access to computers, and a complicated enrollment process that could prevent members from enrolling.

    2. Employers will look for ways to save on benefit costs.

    In 2019, employers were eager to invest in new and comprehensive health insurance benefits for their employees because of the low unemployment rate. But with the economic downturn, many employers will need to consider alternatives such as less generous benefits or more restrictive networks.

    Coming out of the 2008 recession, employers primarily implemented high-deductible health plans (HDHPs) that kept their contribution steady but pushed cost growth to employees. It is unlikely that employers will be able to do this again because deductibles are already high. Instead, they might consider individual coverage health reimbursement arrangements (ICHRAs), reference-based pricing, or care navigators.

    Regardless, employers and employees are likely to face high costs as premiums increase from the Covid-19 pandemic. Plans should already be preparing for how they can adjust products accordingly for budget-constrained employers. In addition, plans should be proactively recommending solutions to employers, to keep as many members in ESI as possible.

    3. Hospitals will face downward margin pressure as a result of fewer commercially insured patients.

    Impending payer mix shifts will exacerbate the financial pressures already facing hospitals as they grapple with substantial revenue losses because of canceled elective procedures during the Covid-19 crisis. These shifts will also intensify competition for remaining commercial business as elective volumes return later in the year. And it’s important to note that hospitals may struggle to secure that business in the face of more nimble, focused competitors.

    Hospitals should be modeling the impact of such shifts on revenue. They should create a multi-phased plan for resuming elective procedures later in the year. They should also advocate or apply for any federally funded opportunities to make up shortfalls.

    Commercial health plans may also be open to creative solutions in how to support their network providers. Some health plans have already begun to deploy advance payments to help providers withstand the short-term financial impact of the pandemic. But plans will increasingly need to think about how to support key provider partners after the outbreak subsides.


    Parting thoughts

    Organizations should focus their near-term efforts on modeling the effect of a dramatic payer mix shift and start scenario planning.

    Questions for health plans:

    • How will you approach forecasting the shift in enrollees from employer-sponsored insurance to Medicaid and individual plans?
    • How are you planning for churn in each line of business as eligibility changes? How do those vary with potential spikes in unemployment in the ensuing weeks?
    • What options will you offer employers coming to you to adjust their benefits? Have you included that impact in your scenario plans?

    Questions for providers:

    • How are you going to forecast the impact of an increase in Medicaid, uninsured, and underinsured as a share of your payer portfolio?
    • What role do you have in making sure patients are aware of their insurance options?
    • Should you consider adjusting benefits for your own employee and family population?

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