Sunday, April 05, 2020

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.

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

1 comment:

  1. Andrew
    two points
    1) On MLR and administrative costs: An MCO could make a case, say if its administtrative costs increase 5% due to expertise required (consultants) to work through the complicated COVID claims, its not business as usual. Many workstreams will be required to get the job done and how to categorize as "emergency related" is fair game. Just think of NY state and Cuomo deputizing DOH to take over every hospital. With patients and staff transfers, OON moves, etc, you are going to have a hell of a time making sense of it all. Double it if transfers happen out of state if things get bad. MCO MLRs will be a big fat scramble.

    2) File this under ruggged individulism and cognitive dissonance. For all the individuals who COULD afford insurance pre-COVID but chose not too out of personal belief--what to do? Not a 100% theoretical argument once the crisis settles. As in all emergency situations--EMTALA--anyone who needs care should be treated. ER visits are going to happen for mod to severe complaings. Social distancing for mild. Uninsured in latter category will get by. But for former case, insurance meant for expensive, unforeseen, and catastrophic event--and whether its an $80K ICU bill for motor vehicle accident or COVID, same principle applies. Regardless of root cause, you are financially ruined.

    So in view of above, when this settles, I wish to see the rugged individualists still claim they wish to go bareback. Like Uwe said, when the going gets tough, the tough run to the govt. This crisis should extinguish any and all claims for individuals to remove themselves for our system. Dont like what happened during COVID and you should be covered. Well get with the program and sign on the dotted line.