During these unprecedented times, health plans and the healthcare industry in general are still coming to terms with impact of post-COVID reality. While lower utilization has led to decrease in medical spending, economic drivers have also impacted enrollments and premiums. Assuming medical spending will not surge in the immediate future, most health plans will struggle to maintain their Medical Loss Ratio (MLR), and this will eventually lead to premium rebates. Overall, there are 4 approaches to this evolving situation:
- Premium returns or waived co-pays to offset lower medical spend
- Budget freezes, furloughs, or layoffs to reduce administrative burden
- Promotion of alternative care delivery methods such as telehealth to stimulate utilization
- Investment into care management and quality improvement services / solutions to increase medical spend
COVID-19 Impact on Payer MLR
The Q2 2020 financial results for health plans have not been great for their MLR ratios which have seen drops in the double digit percentage point ranges. For instance, United Healthcare’s MLR fell to 70% for Q2 2020. CitiusTech recently conducted a study with Horman Mathematical & Actuarial (HMA) Solutions, an actuarial healthcare and regulatory consulting company, to understand the impact of COVID-19 on payer’s MLR. HMA Solutions estimates that the ratio will be approximately 5% for year 2020.
For instance, a health plan with $1 billion premium would need to return a surplus of $50 million through premium rebates, or identify options to increase medical spending. More importantly, health plans should ensure that the medical spending adds value to member care. Additional investments in better care delivery support mechanisms and quality improvements can be suitable options for payer organizations to modernize population health.
Quality Improvement: Benefits for Payers
Investments to enhance quality management can help payers control their MLRs and reduce their premium rebate rate. This can be achieved if payers meet the necessary criteria mandated by HHS regulations (45 CFR § 158.150) which suggest:
- Be an expense / investment focused on healthcare quality improvement activities:
- Improve health quality
- Increase the likelihood of desired health outcomes in ways that are capable of being objectively measured and of producing verifiable results and achievements.
- Be directed toward individual enrollees or incurred for the benefit of specified segments of enrollees or provide health improvements to the population beyond those enrolled in coverage as long as no additional costs are incurred due to the non-enrollees.
- Be grounded in evidence-based medicine, widely accepted best clinical practice, or criteria issued by recognized professional medical associations, accreditation bodies, government agencies or other nationally recognized health care quality organizations.
- Be primarily designed to improve health outcomes; prevent hospital readmissions; increase wellness and promotion of health activities; improve patient safety/reduce errors, infection, and mortality rates; or enhance use of health care data to improve quality outcomes.
- Expense must be directly related to quality improvement activity.
While payer organizations could invest in numerous ways to meet the criteria, they should take early action to invest in a modern and flexible quality improvement solution which can drive long-term value-based quality management initiatives. The solution will also help payers manage the upcoming regulatory and technology changes such as FHIR®, dQM, and NLP. This will put payers in a better position to front load their investments and have budgets to thrive in the immediate post COVID-19 future, especially as medical utilization picks up.