Strengthening Self-Funded Plans Against Potential Damages of COVID-19

No one in the United States was prepared for a crisis of the scope of the COVID-19 pandemic.

It’s one of the big issues with which human resource leaders and their benefits teams must grapple as they work to help their employers and employees alike through this transition. With everyone’s physical and financial health at stake, self-funded health plans must be strong enough to weather the storm.

The starting point is knowing the estimated costs of key treatments associated with COVID-19. Analyzing these in conjunction with employee demographics, geographies, and claims histories for risk characteristics will provide a good overview of potential costs. From there, certain measures will help strengthen the plan against the pandemic’s impact.

Costs associated with diagnosis and treatment of the coronavirus include:

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  • Diagnosis (SARS-CoV-2 test): $50 to $95.
  • Test administration (with regional variations): $100/doctor’s office; up to $1,000/emergency room.
  • Additional outpatient tests/care: averaging $4,000; many recover at home without incurring additional costs.
  • Hospital admission/treatment: $10,000/day with 10-day stays on average. More intense and expensive care is likely for members with underlying co-morbidities.

It’s not just measures that should be taken to protect self-insured plans that are important. Some practices should not be dropped, even though circumstances might suggest otherwise. Here are guidelines:

  1. Amend Plan Documents now. Plans covering the associated costs of testing for COVID-19 at 100% should immediately be amended. Most stop-loss carriers are agreeing to such changes revising their contracted premiums or attachment factors. Plan advisors can ascertain this.
  2. Do not stop accruing funds. There may be a temporary drop in healthcare costs as plan members delay routine medical appointments or procedures while stay-at-home orders are in place. Healthcare costs will likely move back up along with demand for care when orders are lifted. Medical trend and supply chain issues also may push up costs of some of those delayed procedures.
  3. Do not reduce the plan’s IBNR (or claims reserve) or use it for capital expenditures, if possible. Any cost savings realized as a result of the prioritization of treating the virus over routine or non-emergency care will ultimately be paid by the plan (and could ultimately cost more). Consideration could also be given to setting up a specific COVID-19 reserve explicitly to pay for pent-up demand in the next fiscal year.
  4. Evaluate the group’s risk level. Plan advisors should be called on to help assess the financial impact of employee populations with characteristics that could negatively affect the health plan.  One example: a skilled nursing facility with densely populated and older plan members who are therefore more susceptible to high infection rates (and higher mortality rates upon infection).
  5. Consider adding telemedicine to drive cost savings and reduce the risk of virus transmission.
  6. Move to 90-day mail order for prescriptions. It’s a cost savings and a safe way for plan members to be assured they will have necessary medications.
  7. If circumstances force a workforce reduction… The plan advisor should be consulted on the decision of whether COBRA coverage should be subsidized or benefits extended as part of the severance package. The potential for unintended consequences here is considerable.
  8. Encourage members to seek needed care. Healthcare providers are still open for business and providing vital healthcare services for individuals unrelated to COVID-19. Members with chronic conditions or needing emergency assistance, especially, should not hesitate to reach out to a healthcare professional as they would absent the epidemic. Not doing so could result in tragic consequences.

The impact of the COVID-19 pandemic is likely to reverberate for some time. The sooner and the better that HR leaders and their teams are able to act to shore up the necessary support systems for their people, the stronger their organizations will emerge from it all in the end.

Steve Purkapile, GBA, is Regional Director of Financial Consulting for global employee benefits insurance brokerage Hub International. He has been in the insurance industry for 30 years. He has expertise with self-funded plans and stop loss insurance. His focus in recent years has been on data analytics, which he uses to recommend and assist in implementing measurable health plan management and pharmacy solutions. Steve has been able to share this research through speaking engagements and articles and has also written several articles on the financial impact and challenges facing employers related to healthcare reform.

Steve obtained a liberal arts degree from Ambassador University in Pasadena, California and earned his GBA certificate from IFEBP as well as his FMLI certificate from LOMA.

Terry Reams, REBC, is president of the West Region employee benefits for global EB insurance brokerage Hub International. He has 25 years of senior leadership experience within the insurance industry with a primary focus on the continuously evolving Employee Benefits marketplace.  He has held a variety of senior management roles with various insurance carriers, financial institutions, third party administrators and regional insurance agencies.  Terry's expertise includes traditional, consumer-driven and exchange-related health insurance solutions along with ancillary, voluntary and wellness-related programs.  He also has extensive knowledge of the complex healthcare reform environment and provides consulting and risk advisory services to large agency clients.

He earned a Bachelor of Science in Biology from Iowa State University.  His professional affiliations include membership in the National Association of Health Underwriters, Colorado Group Insurance Association, Wellness Council of America along with work on various industry and insurance carrier regional and national advisory boards. He holds the Registered Employee Benefit Consultant (REBC) designation through NAHU.

Mark Guajardo, ASA, FCA, MAAA, is a consulting actuary and director of analytics for global employee benefits insurance brokerage Hub International.

He is instrumental in driving both thought leadership and content for key client engagements, emphasizing targeting bottom line impact of healthcare arrangements burdened by wasteful spend.

Mark has 20 years of experience working in the defined benefit actuarial space with extensive expertise in accounting/funding valuations for retiree welfare plans under the Financial Accounting Standards Board (FASB), Governmental Accounting Standards Board (GASB), and International Accounting Standards (IASB).

Before joining HUB International (IPS Advisors), Mark led efforts at both Milliman and Mercer within their respective Dallas offices to manage internal and external relationships in the retiree welfare benefit plan arena. He earned a Bachelor of Science degree in mathematics from The University of Texas at Austin. He is an associate in the Society of Actuaries and holds a Group 1 Life and Health License.

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