AIS Health – April 16, 2020 issue of RADAR on Medicare Advantage
Catalyst’s Jeff Myers discusses how the COVID-19 outbreak is affecting Medicaid enrollment and how this can influence health insurers’ financial considerations and states’ budgets. Read the full article reprinted with permission from AISHealth.com below:
As the COVID-19 pandemic continues to dominate the news cycle, headlines related to rising unemployment often underscore the impact to Medicaid, suggesting that a “Record number of unemployed Americans will stress state Medicaid programs” (NBC News) and that the new coronavirus will hit Medicaid “like a punch in the mouth” (USA Today), to quote the National Association of Medicaid Directors’ Matt Salo. But what about the Medicaid managed care organizations that will absorb the newly jobless and uninsured?
“I think that Medicaid MCOs are clearly in the best position to handle the influx of folks. They have the systems, they have the infrastructure and they have the experience to do this,” remarks Jerry Vitti, founder and CEO of Healthcare Financial, Inc., which connects low-income elderly and disabled populations with public benefit programs. While onboarding a wave of new members may put some initial stress on plans, the real “strain” will come from covering new members who have unmet health care needs, he suggests.
Likening the current situation to the surge in new membership when states began expanding their Medicaid programs under the Affordable Care Act (ACA), Vitti says new enrollees will likely fall into one of two buckets. “One is the previously insured folks who had commercial insurance before they lost their job and have been in the health care system,” he observes. This is not likely to be a “super high-demand population.” But the second grouping, previously uninsured individuals who may end up enrolling as awareness goes up and barriers to enrollment go down, are likely to have “pent-up and untreated medical [needs] and substance use issues,” he predicts.
In the meantime, plans’ medical loss ratios (MLRs) are improving as members delay certain medical procedures to the second half of the year or 2021, reports Jeff Myers, senior vice president, reimbursement strategy and market access with Catalyst Health Care Consulting. “I’m hearing from plans I’ve worked with that on both the MA and the Medicaid side…their MLRs have dropped substantially,” he tells AIS Health. “And though I think their net income is certainly looking up, that means they’re busy strengthening their capital position for what they expect to be the next phase, which is a big enrollment spike on both the [ACA] marketplace and Medicaid programs. And so I think they’re gearing up for a run not of the same size as when they expanded Medicaid under the ACA, but I think they see significant opportunity for additional lives.”
Impact on MCO Rates Is Uncertain
“All of them are concerned about state budgets,” continues Myers, pointing out that this is usually the time when managed care rate negotiations would begin with states. “I think the challenge for the few state folks I’ve talked to is modeling out, in states with extensive managed care programs, what that influx of people is going to look like given what the unemployment rate may look like, and also given whether they’ve expanded [Medicaid] or not,” he adds.
An estimated 54 million individuals (out of nearly 74 million total Medicaid recipients, including Children’s Health Insurance Program enrollees) are currently in managed care plans, according to AIS’s Directory of Health Plans. A recent report from A2 Strategy Group suggested that under a 30% unemployment scenario, Medicaid enrollment could exceed 104 million if all states were to expand eligibility. And if additional states didn’t expand Medicaid, “10 million-plus Americans could be newly uninsured, with Medicaid still substantially growing to 91 million,” estimated the report published in March.
As a result of these potential changes in coverage, A2 Strategy Group suggested that plans make the following considerations:
- Medicaid and individual health plans must be ready to onboard unprecedented numbers of new enrollees and scale operations to support a significantly larger membership base.
- Plans must “maintain flexibility in administrative expansion as some economic scenarios show an equally precipitous decline in unemployment from peak levels.”
- Plans must “be mindful of capital and financial considerations — maintaining appropriate statutory capital to support new membership and the potential for significant claims experience arising from COVID, but also the potential for substantial financial gains should new membership be temporary and not utilize care. Especially under the latter scenario, Medicaid and Individual plans should use the opportunity to create durable customer relationships, which can lead to customer preference in future years or as individuals become eligible for Medicare coverage.”
For states whose budgets have been stretched thin by COVID-19 testing and presumptive eligibility determinations to guarantee payments to hospitals, the pandemic could be the driving factor in expanding Medicaid where a legislature has historically blocked it. Or it may result in states seeking to expand federal Medicaid funding rather than limit it through block grants, suggests Myers.
“It would not surprise me at all if six to eight months from now, right in the middle of a presidential election cycle, you had serious talks about another ACA-type design to expand either the [federal matching assistance percentage] or some other mechanism to get money into the states’ hands to pay for this growth in the Medicaid program,” he adds.
Meanwhile, plans may experience swings in their per-member per-month (PMPM) administrative expenses as a result of short-term membership growth or declines, suggests a new analysis from Sherlock Company. In the April report, “Short-Term Economies of Scale: Growth in Membership and Health Plan Administrative Costs,” Sherlock analyzed the impact of membership changes on the administrative costs of 25 health plans between 2017 and 2018 and found that, in the short term, certain investments remain relatively fixed regardless of membership swings.
For example, the Sherlock analysis found that a 10% increase in membership would lead to a 6.7% reduction in corporate services costs on a PMPM basis. That includes the CEO’s salary and other related expenses, board expenses, strategic planning, the chief financial officer’s salary/benefits and other financial activities, legal, human resources and other similar activities, explains Douglas Sherlock, president of Sherlock Company. Account and membership administration, which includes customer service, would be less affected by membership changes. And while plans cannot bake into their annual staffing projections unexpected factors such as COVID-19, in some cases they can move expenses around to accommodate changes in claims processing and certain other activities, he suggests.
“Health plans’ inability to adjust for actual versus estimated volumes can mean that costs that are variable over the intermediate term can behave like fixed costs in the short term. A short duration time-series analysis, such as the subject of this analysis, can measure short-term scale,” observed the report, which was based on available data from provider-sponsored and Blue Cross and Blue Shield plans and not specific to one product type.
by Lauren Flynn Kelly