COVID-19 and self-funded plans: understanding the financial impact

Benefits professionals are busy trying to keep numerous balls in the air now as you look to help ensure some stability for their people and organization during chaos of the COVID-19 pandemic. Here’s one ball their benefits advisor can ensure doesn’t fall out of place in protecting everyone over the long term: Assessing the potential cost impacts of the SARS-CoV-2 virus on their self-funded health plan, and taking steps to protect its financial viability.

Trying to project the financial impact of the coronavirus on a health plan is no small task given the number of variables in play, many of which are not under a plan sponsor’s control. If you’re in a densely populated region, for example, you could see a worrisome rise in infected plan members. The extent and duration of the spread and its impact on people would depend on how early and how long (if at all) a city or state authorities implement “shelter from home” policies.

Related: Coronavirus testing and care: self-funded health plan considerations

You can help employers prepare for these costs. Start by looking at key treatments and their estimated costs:

• SARS-CoV-2 test to diagnose COVID-19 costs: $50 to $95.
• Test administration: $100 in a doctor’s office; up to $1,000 in an emergency room. Costs vary by region.
• Additional tests or care outside of an in-patient facility: $4,000 on average; many recover at home without incurring additional costs.
• Hospital admission/treatment: $10,000 per day with an average stay of 10 days.

Members with underlying co-morbidities (e.g. diabetes, respiratory issues, cancer, etc.) are more likely to need more intense and expensive care.

While the costs of COVID-19 may be a moving target, there are certain steps you should be following immediately to manage costs, drive plan savings and secure the financial viability of a self-funded health plan. They include:

1. Amend the plan document. If the associated costs of testing for COVID-19 are going to be covered at 100%, amend the plan to reflect that now. Our recommendation is not to adjust the  plan design beyond what is required in the Family First Coronavirus Response Act (FFCRA) at this point. Most stop-loss carriers are agreeing to such plan changes without any impact to their contracted premiums or attachment factors, but check before making any changes to make sure.

2. Do not stop accruing funds. The net effect of stay-at-home orders may be a short-term drop in health care costs as plan members delay routine medical appointments or procedures. That will change, however, bringing a likely uptick in healthcare costs with increased demand for care. Medical trend and supply chain issues may push costs of a portion of those delayed procedures up.

3. Do not reduce 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 in fact cost more when it does). Consideration could also be given to setup a specific COVID-19 reserve explicitly to pay for pent-up demand in the next fiscal year.

4. Evaluate the group’s risk level. If the employer’s population has characteristics that could negatively impact a health plan, assess the potential financial impact based on a list of questions the employer will need to answer. An example would be a skilled nursing facility whose plan members are densely populated and older and therefore, more susceptible to high infection rates (combined with a higher mortality rate 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 to drive cost savings and ensure members have the medicine they need to maintain their health.

7. If circumstances force a workforce reduction, talk to your team before deciding to subsidize COBRA coverage or extend benefits as part of the severance package.

The COVID-19 pandemic is having an unprecedented impact on every facet of our lives. With planning and paying attention to essential details, you will ensure that an employer’s self-funded health remains viable and serving its members well through the storm.

Steve Purkapile, GBA, Terry Reams, REBC, and Mark Guajardo, ASA, FCA, MAAA all work with global employee benefits insurance brokerage Hub International. Steve is regional director of financial consulting, Terry is president of the West Region employee benefits and Mark is a consulting actuary and director of analytics.