1. Clear (but slow) downward progress on mortality rates, and nationwide testing criteria now meet the federal criteria for reopening economies (and hospitals).
Across the United States in aggregate, testing rates are up, positivity levels are down, and positivity rates finally fell into the single digits. Over the past week, nearly all states heretofore resistant to reopening their economies announced Phase 1 plans to do so, driven by encouraging news in testing. Nearly every state has made substantial progress in all three criteria outlined by the White House for reopening, and so nearly all will lift some social-distancing restrictions starting next week. However, public health experts caution that even with criteria met, any reopening without a vaccine will result in greater mortality.
2. Hospitals, for their part, have already begun reopening for procedures, and most C-suite officers tell us the level of demand is higher than expected—though that is by no means true nationwide.
Our conversations with hospital leaders indicate a slightly faster-than-expected return in demand as providers work through a two-month backlog of procedures. But that trend is by no means true everywhere, especially in areas hit harder by Covid-19 surges than others. Across the board, however, hospital and medical group leaders have expressed concern about the top-of-funnel—that is, the continuing reluctance of new patients to seek out care—and worry that volumes will once again dip once most backlogged cases have been worked through.
3. Encouraging progress on a coronavirus vaccine—but let's not pop the champagne just yet.
Moderna released Phase I results on its new mRNA-based vaccine, which saw eight participants develop Covid-19 antibodies akin to patients who had recovered from the virus. The company is now cleared for Phase II trials. The Trump administration has agreed to invest in "at-risk" manufacturing for top vaccine candidates before they're even approved, with the goal of having 300 million doses available by January. Other companies' vaccine trials should announce results soon—all of which indicates faster-than-expected progress on vaccine development. But producing effective vaccines at scale is notoriously tricky, so we recommend cautious optimism rather than sighs of relief.
4. Health plans are using their current surplus to support members and providers with immediate cash (where possible), in addition to hedging against uncertainty.
Delayed and deferred care has left plans with unexpected surplus on their books. While they could wait until the end of the year to rebate much of this (as required by the ACA's medical loss ratio), many are taking action now. Some plans are waiving cost sharing for primary care to encourage utilization where they can. Others are refunding premiums (anywhere from 5% to 20%) for individuals and employers. Many are advancing payments to providers to sustain their business. Plans recognize that this type of support now will impact their future relationships with members and providers.
5. When and how volumes will resurge is the biggest uncertainty when setting premiums for 2021.
Plans are currently in the process of setting next year's premiums and there remains significant uncertainty: if and when a second wave of Covid-19 could hit, how and when elective care will return, what higher acuity needs will emerge as conditions go unmanaged, and how purchasers will be able to pay premiums. Plans are trying to balance those considerations against potential risk stabilization policies from the government.
6. Despite uncertainty, plans may not raise premiums significantly to remain competitive.
While it's likely that many plans will increase premiums some to hedge against a surge in pent-up demand hitting in 2021, it probably won't be as high as some fear for two reasons. First, fully insured plans still need their rates approved by state regulators who aren't as sympathetic to plans hedging their bets. And second, insurance remains a competitive business (likely more so on the individual market next year). Plans will want to keep their premiums in line with the market to avoid losing business.
7. Most plans will weather Covid-19, but they have different strategic advantages.
Much of the headlines focus on the nationals (and their earnings). But that overlooks the hundreds of other plans that are facing a very different strategic outlook. We've highlighted a few strengths and challenges here:
- National plans' size and financial position gives them flexibility to invest in innovation, though they don't always have the largest market share locally to partner with the community.
- Blues have sizeable share in their local markets giving them an advantage in contract negotiations, though they are likely hit hardest by any reduction in employer sponsored insurance.
- Smaller, Medicare Advantage plans are largely insulated from enrollment shifts but their senior population is certainly vulnerable and likely not getting needed preventive care right now.
- Medicaid managed care plans could see a massive influx of members but they'll struggle with tighter state budgets and presumably lower rates.
8. Enrollment shifts are happening against the backdrop of a stronger ACA exchange and expanded Medicaid.
We expect to see greater shift from employer-sponsored insurance to the individual market and Medicaid as the recession stretches later in the year. Relative to 2008, we may not see as dramatic an increase in the uninsured since many states have expanded Medicaid and set up individual exchanges. In fact, many more carriers are likely to participate in the exchanges, making them an increasingly competitive marketplace.
9. Covid-19 is most likely to accelerate risk-based payment in Medicare Advantage rather than Medicaid.
New value-based contracting is likely to stall in the next few months, just given executive bandwidth in the moment. The future may yield a divergence. Medicare Advantage is already capitated in many markets, and Covid-19 could accelerate providers' (and plans') desire for predictable revenues. Although near-term risk-based payment may stall in commercial plans, over the long term they also may see more risk in the employer market as companies once hesitant to disrupt benefits will look for alternatives to control budget. It's unlikely we'll see much risk in Medicaid given the already low (and possibly soon declining) rates to providers.
10. The timing of the economic recovery, long-term telehealth adoption, and provider acquisitions all impact plan strategy.
Plans looking for economic certainty will need to wait as it's unlikely we'll see much stability without widespread treatment or a vaccine. This has implications for their own investments (both capital reserves and in new tech companies) and business mix. In addition, plans will consider how consumer uptake of telehealth will change once the immediate health concern is over. If members significantly prefer telehealth, that will have a big impact on product design—but plans have a role to plan in enabling continued broader adoption. Finally, as some providers seek new partners (and acquisitions), plans will need to adjust their network strategy to account for these alliances and may even consider purchases of their own.
Slide deck: Health plan strategy in the Covid era
In this week's webinar we focused on health plans, and welcomed expert cohosts Rachel Sokol and Natalie Trebes from Advisory Board.