Reverse reinsurance for COVID-19 treatment

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The case for the federal government picking up the cost of all COVID-19 treatment for everyone, not just the uninsured, is compelling.* Benefits include:

• Eliminating inhibitions about seeking treatment, thereby helping to contain contagion as well as saving lives. 
• Avoiding a major channel of financial harm at a time when tens of millions are likely to suffer extensive financial harm.
• Establishing a unified database of treatment/results.
• Paying providers swiftly while eliminating price-gouging via balance billing (which enacted COVID-19 legislation has so far enabled at providers' behest).

At the same time, as we pile on trillions in federal debt with abandon, there's no reason that private insurers and self-funded health plans shouldn't pay their fair share.

A mechanism already exists to calibrate what constitutes such a "fair share." It's the statutory Medical Loss Ratio (MLR) that health plans are required to maintain. MLR is the percentage of premiums a plan spends on medical care for enrollees. The ACA-mandated minimum MLR is 80% for individual and small group plans and 85% for large group plans. If a plan spends below those thresholds on claims, it's required to rebate the employer (in group plans) or the enrollees (in individual market plans).

Health plan actuaries are in Guess-ville when it comes to anticipating claims costs while the pandemic rages. Hospitalizations for COVID-19 will cost tens of thousands. Virtually ever other kind of care is radically curtailed for the present. Excluding COVID-19 treatment costs, MLRs are likely to plummet.

Therefore, why not have the federal government front the cost of all COVID-19 treatment -- at Medicare payment rates, or perhaps a bump-up if providers extract their usual pound of flesh -- and require health plans to rebate any amounts below their MLRs to the federal government?

Under such a plan, every constituency might gain while every constituency contributes. Government must deficit-spend on a wartime footing -- that's already a given.  Insurers and employers contribute their current statutorily required share. Individuals get guaranteed free treatment for the disease but give up their potential MLR rebates (as do employers) -- a random and often trivial benefit to begin with.

One huge caveat: self-funded plans, which cover over 60% of employees insured through their employers, are not subject to MLR requirements. Legislation would have to subject them, or create a similar mechanism for them to rebate a share of members' COVID-19 treatment costs.

Second caveat: MLR rebates are currently calculated on the basis of a 3-year average. Perhaps that would have to be changed if a program like this implemented.

I'll confess too that this is a top-of-the-head proposal. The benefits seem compelling to me at first blush, but there may well be reasons the plan is unworkable -- beyond the usual caveat that the federal government is unlikely to implement a bold, relatively simple, logical solution (assuming for the moment that this proposal is logical) to a compelling problem. That's true for Congress, and immeasurably more true for the Trump administration.  Still, ideas will occur...

UPDATE: Loren Adler at Brookings sees complications. More than the norm for a major spending program? More comment invited.

P.S. As the post title indicates, this proposal is mirror image of reinsurance for private plans coupled with reduced out-of-pocket costs for plan members who get COVID-19 treatment.

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*A Washington Post op-ed made this case maybe 2-3 weeks ago. As soon as I locate it, I'll link.