Whenever a country faces a crisis, the people of that nation look to the leaders of their local, state and federal governments. Throughout our history we have dealt with a number of crisis situations ranging from war to national disasters and now a global pandemic. During this crisis we once again look to our elected leaders to help. On March 18th the President signed into law the Family First Act to provide enhanced benefits for people who lose their job due to the virus. Less than 10 days later on March 27th the President signed the unprecedented 2 trillion-dollar CARES Act to help individuals, small businesses and other segments of the economy who are being impacted by the coronavirus. Both of these bills were greatly needed, and as we learn more about the depth and breadth of this crisis, we understand that further actions by our government is likely to be needed and needed quickly.
While many segments of the economy are being significantly impacted there is one critical segment that is not being discussed or addressed. Another segment is likely to profit significantly due to pandemic. Our elected leaders have an opportunity to utilize the unexpected windfall from one industry and provide relief and support to individuals, small businesses and our front-line health care professionals during this time of need.
Let me explain. When the virus started, physicians and hospitals across the country did what they always do in a crisis. They began planning for the impact of the virus in wide variety of ways. We’ve all learned about ICU bed capacity and ventilators at this point. What most of us don’t fully understand is all the other ways our health care professionals have quickly adjusted to keep us well and reduce the threat of spreading the virus. Very quickly, physicians across the country, in almost every specialty, began using telehealth visits to care for their patients. This act of clinical social distancing allows them to provide care in many situations while reducing the risk of virus transmission to patients and staff. Across the country hospitals started canceling and delaying elective procedures to both create more capacity in their facilities while also reducing the possibility and threat of transmission. These actions are necessary and beneficial to both patients with COVID-19 and all the other patients whose treatment could not be put on hold. Let’s remember that not only are we dealing with COVID-19 but we still have to care for patients with cancer, MS, heart disease and all the other conditions that cannot be ignored while we fight this pandemic. The patients with these comorbid conditions are the ones at most risk from the coronavirus and these measures are designed to protect them as much as possible and save lives. Unfortunately, these actions also have a negative financial impact on the very professionals that put them in place. Simply put, our nation’s physicians have once again put their patients first.
While we all understand the value of these actions, what is not obvious are the economic impacts these changes are having on the physicians, our health care delivery system, and the insurance companies in this country. When these capacity-increasing and transmission-reducing measures were put in place it significantly reduced the revenue flowing into almost every physician group across the country. Doctors, like so many other industries, saw their revenues reduced without warning almost overnight. The difference between a medical practice and another business is the physician practice can’t just shut down and send everyone home. They have to stay open in case of emergent need, as well as for the distance care they provide to their other patients. They still have to be open, therefor continuing to incur most of their operating costs, but without the necessary revenue to pay for these operations. As if that wasn’t bad enough, they know the patients that still need care and can’t be handled through telehealth have to be seen, even when doing so puts the physicians and their staff at personal risk of contracting the virus. Social distancing and shelter-in-place are simply not options for these dedicated health care professionals.
On the other side of this coin are the insurance companies. Keep in mind that what a physician calls revenue an insurance company calls expense. Every claim filed by a physician ends up being paid by an insurance company. So, if physicians are experiencing a significant reduction in revenue, that means insurance companies are experiencing an equally significant reduction in expenses. Those insurance companies are still collecting premiums for that insurance, they just aren’t paying out as many claims. Through no fault of anyone, clear economic winners and losers have emerged. This creates a wonderful opportunity to match these two situations in such a way that it helps and supports not only the people caught in this crisis who have lost their jobs, but also the hard-working physicians fighting this virus. A great deal of good could be done with three simple legislative actions. The good news is that these actions wouldn’t cost the federal government anything, which would allow them to focus their resources on other segments of the economy in need.
- The first action would be to make changes to the current rules for COBRA coverage: Currently, individuals that lose their jobs qualify to purchase COBRA coverage and continue on their employer’s plan. The current program allows the individual to continue their coverage at the same cost their employer pays for the coverage plus a 2% administrative fee for 18 months. This is advantageous to the individual because they keep their same coverage and keep their doctor. In addition to that, if the individual has paid part or all of their current deductible or maximum out of pocket expense those amounts carry over to the COBRA coverage. In the age of high deductibles this could be a major benefit. The problem is that most individuals who have just lost their jobs can’t afford to pay for this coverage. My proposal is for the government to do two things: First, given the known reduction in elective services, the cost for this coverage should be reduced. The government should require that individuals that elect COBRA coverage be allowed to do so at 75% of the current employer premium amount. This should still allow the carriers plenty of money to pay claims. Remember that for most insurance companies, between 15% and 20% of the premium is dedicated to administrative costs and profits. These members will have little to no administrative costs – which include things like sales, marketing, and corporate overhead which are largely fixed expenses. In addition, the insurance companies should not be making profit on these members right now. The second thing the government should do is allow the ACA subsidies to be applied to COBRA elections so that individuals wouldn’t be forced to change plans, possibly change doctors, and have their deductibles reset during this time of crisis. This action would not cost the government any additional resources and would help individuals impacted by this event.
- The second thing the government could do is put a moratorium on any plan terminations of either group or individual policies for non-payment for the next 90 days. Much like policies that some cities have implemented that put a moratorium on evictions for failure to pay rent or mortgages, this would be a similar patient and small business protection plan. There are many individuals and small businesses that will be facing a cash crunch right now that will hopefully be short-term. Those individuals and small businesses shouldn’t lose their insurance coverage during this time of crisis, especially when we know companies collecting their premiums are going to be flush with cash. This action would actually save precious government resources by keeping more people in their current insurance plans rather than switching them to a Medicaid or an ACA plan that is paid for, or subsidized by, state and federal resources. If this is done, it is critically important not to allow plans to suspend paying claims and to require them to pay all claims within 30 days. If this isn’t done it will only transfer this cost to hard working providers when they can least afford it. Think about a cancer patient in this scenario. That oncologist has to buy the chemotherapy agent at significant cost. If the insurance company suspends that claim it only makes the cash crunch that doctor is experiencing worse. Let’s face it, insurance companies have huge reserves and are set up to handle these kinds of situations. That is the essence of insurance. They should not be allowed to transfer their financial responsibilities to the doctors that are on the front line of fighting this battle.
- The final thing the government could do would be to set up a special business continuation fund for independent physician groups. We all expect that the demand for the initial $350 billion in small business loans will greatly exceed the money that has been set aside for that purpose. We have an opportunity here to create a specific fund for physicians which will pull them out of that demand pool. We also have an opportunity to fund these loans with cash currently held by insurance companies and the significant cash that they are going to accumulate during this crisis. My proposal would be that we require each insurance company to contribute proportionally based on their size into this fund. Non-profit companies like many of the individual BCBS plans must also be made to contribute. The amount of the contribution would be calculated based on an actuarial estimation of the reduction in claims they are likely to face for the next 90 days and by drawing down on 50% of their state mandated reserve requirements. This could produce a fund of as much as $200 billion. Let’s take my home state of North Carolina as an example. BlueCross BlueShield of North Carolina currently has around $3 billion in reserves. They pay out over $500 million each month in claims. If we required them to draw down 50% of their reserves and if we assumed that for the next 90 days, the claims expense is going to be reduced by 25% that would mean that BCBS of North Carolina would contribute almost $2 billion to this fund. Now if we assume that all the other carriers combined in North Carolina are about the same size as BCBS that’s another $2 billion to the fund from just this state. If North Carolina is an average state, then by this rough math the total amount of this fund for all 50 states could be as much as $200 Billion. This fund would be used much like the small business loans but would be exclusively for independent physician practices. When the practices pay back the loans the government will return that money to the payers.
Doing these three simple things will benefit Americans whose employment and insurance coverage have been disrupted, as well as the hard-working physicians that are doing incredible work saving lives and keeping us well. These actions would free up scarce resources for other impacted industries and individuals by simply using excess resources of insurance companies where they are needed most. I have seen and heard insurance company executives say that we are all in this together. Right now, I don’t think that’s true. They are all safe at home drawing a full paycheck while hard working doctors are putting their personal safety at risk, and in many cases not getting paid while they try to keep their nurses and staff employed. It’s time for the insurance companies to get in the game and truly join the fight.