Jim’s Take

The Coming COVID Claims Calamity

The Wuhan virus, aka COVID-19 has been with us for about six months now. First pooh-poohed by the “experts” after which it has been hijacked by the over-cautious and the politically motivated, it has monopolized our attention … at least until the civil disruption now occurring.

Don’t get me wrong – it’s serious, and it’s “life-threatening.” If not to you or almost anyone under age 65, then almost certainly to your business. Or it could be.

What’s Happened, and What Will Happen

Let me describe how I envision the next couple of years’ premium trends. Here are the five steps that will occur and the approximate timetable I see.

  1. Currently, carriers are being put in the position of paying MLR (Minimum Loss Ratio) refunds, as they must under the Accountable Care Act when claims fall below 80 or 85% of premiums collected. This will result in some low renewals — and a false sense of confidence among business managements.
  2. Because of the media-generated fear in which most Americans now exist, particularly in areas like Massachusetts, people have avoided getting the care they need. Nobody wants to go to the doctor’s office or walk-in center or hospital … they fear getting COVID.
  3. Hospital systems are particularly starving. Recently the Mayo Clinic, one of the finest health care institutions in the world, found that bed utilization at only 65% of typical levels. Operating rooms were 70% unutilized. Smaller, particularly rural hospitals are facing bankruptcy.
  4. It will therefore be necessary for them to increase prices above and beyond the already-high levels we’ve seen for the last 20 years, i.e. price increases approximately three times current inflation rates.
  5. Insurance companies know this is happening, so at your next renewal (1/1/21 and later), you’ll see the carriers coming to you saying “We need to give significant increases for three reasons:
    • Yes, 2020 claims were low (COVID doesn’t cost nearly as much as some of the traditional illnesses that people avoided getting), but next year we’re going to see all the treatments that weren’t done this year come back in for the treatment they needed in 2020.
    • And in addition, all the normal illnesses that were going to occur in 2021 will hit at about the same time.
    • And furthermore, many of the conditions where care was deferred will have complications, expensive complications.
    • So, sorry, but we’re going to tack on an extra increase this year.

Those aren’t lies … but they’re painful nonetheless.

So, What Can You Do?

There are really three choices.

First, save your cash so that you can afford what’s going to happen.

Second, you can go back to cheapening up your plan with higher deductibles, higher copays and introduce coinsurance (rare in Massachusetts).

Third, you can do what you do with virtually every other supply chain challenge your company faces: you can manage the damned thing.

Carriers don’t manage claims … they pay them. Using your money. Actually managing claims means paying out less money to providers. And paying less to providers means they have to charge lower premiums (the ACA again).

Lower premiums mean lower margins and lower profits. And you certainly don’t expect any self-respecting health care executive to willingly let his or her margins and profits drop, do you?

If you chose to actually manage claims, i.e. help your employees get the best possible care at the best possible time in the best possible facility and for the best possible price, here’s what you can see.

The chart below shows the actual total health care costs for a Massachusetts company with 40-42 employees on the plan. The timeframe covers 2017 – 2020 (projected).

The blue line is the premium they actually paid in 2016. For the following years we assumed the carrier premiums would have gone up by 5% per year (fat chance of that happening!!)

The orange line is the cost that actuaries predicted was most likely to occur, and the gray line was the worst-case scenario (i.e. claims were far worse than projected)

The green line shows what the employer and his employees actually spent. Please note that the 2019 total cost was $28,000 less than the premium they paid to the carrier three years earlier!! And the plan in 2019 had richer benefits than the 2016 plan that they left.

Better benefits and lower costs … it sounds like nirvana. And it was.

However, tt was a different way of doing things. It required modifications in employee behavior … but the employer rewarded appropriate behavior — and employees jumped on board.

But from the management perspective, the most difficult part of the plan was embracing the fact that they had the ability to proactively take steps before claims arose that would keep costs in line.

So, renewal was “more challenging.” It wasn’t what it had been – the carrier jacking up the prices, the broker shopping the case and the employer selecting the least painful choice.

Remember, this is a group of 40 employees. The management team was nervous because they take good care of their employees, but they also said at one point, “If we keep doing what we’ve been doing, we’re going to keep getting what we’ve been getting.”

Wise words. If they sound like words you might like to think about and act on,  drop me an email: jedholm@bbibenefits.com

Call my cell: 978-886-9058

Try my office: 978-474-4730

If this small Massachusetts company can do it, perhaps you can, too. What have you got to lose?