In yesterday’s post, Zelma asked a great question:
They demonstrate how amazingly complex health insurance is. It certainly seems to me that we have the worst possible system. Do you think COVID-19 is going to break it?
The short answer is probably not.
The long answer is complex. The most straightforward part is that the steps made to prepare the hospital systems for a COVID surge are steps that are financially bad for hospitals as high margin elective procedures have been cancelled en masse, but are pretty good for insurers. United Healthcare reported a profitable 1st quarter and a slightly low MLR in Q1 2020 compared to Q1 2019. The big question for insurers this year is how many people will get infected, how many will be hospitalized, how many ICU days will be needed, what are the medium and long term consequences of COVID inpatient days and how quickly does “typical” inpatient utilization come back. Insurers also have tremendous reserves to handle spikes in claims even before either commercial or federal reinsurance contracts kick in.
Over the longer run, the risk adjustment process for Medicare Advantage and the price linked subsidy system for the ACA individual market provide a lot of financial stabilization for private insurers.
The big challenge will be unsophisticated and small self-insured employer groups that have significant non-random clustering of expensive COVID-19 cases. David Grabkowski and Michael Barnett, both of Harvard, wrote in the Washington Post of the nursing home hot spots:
As of Wednesday, at least 5,500 Americans were reported to have died in nursing homes or other long-term care facilities: Just 0.4 percent of the entire population represents 22.5 percent of our country’s fatalities. In our home state of Massachusetts, the situation is dire: About 46 percent of deaths statewide were nursing home residents. And novel coronavirus infections in nursing homes are still drastically underreported…
The industry is potentially facing a financial catastrophe that could prevent any meaningful attempt to beat back covid-19.
They look at the case mix cash flow crisis that nursing homes are facing. Most non-chain nursing homes are likely to be self-insured with some stop-loss and reinsurance policy. This means that the nursing home is on the hook for large potential liabilities when their insured staff gets ill or injured. We know that nursing home staff as a class has significantly above random odds of being infected with COVID. A nursing home that has a COVID cluster among its residences is also likely to have a COVID cluster among its staff. Depending on how much the nursing home spent on their reinsurance or stop-loss policies, the nursing home could be facing catastrophic medical costs for their staff.
This is just one case scenario where non-random clustering of high costs could wipe out significant segments of the self-insured market. Small businesses can always move to the ACA small group, guaranteed issue, community rated markets, but average premium is higher there. Reinsurance and stop-loss policies could be improved but at a likely higher premium. Large employer groups often have the actuarial depth to absorb a bad year and they are more likely to have sophisticated and competent stop-loss strategies in place but they too could potentially get hit with idiosyncratic cost spikes.
Those are some of the mechanical reasons why I have a hard time seeing the US insurance system breaking because of COVID. The bigger challenge though is not mechanical. It is political. There is no consensus of what would the replacement be? The Democratic Party’s fundamental position is that the federal government should be the risk-eater of first resort through some combination of Medicaid expansion, ACA subsidy expansion, public options, Medicare for more, Medicare Advantage for All or several other things. The Republican Party’s fundamental policy belief is that risk should be shifted off of federal books and onto the individual or budget constrained lower levels of government as seen in Cassidy-Collins, Cassidy-Graham-Heller, AHCA, and BCRA. There might be agreement zones to smooth out rough edges such as what happens to peoples’ insurance when twenty million people get laid off in a month but there is no fundamental agreement on who should bear risk and what the risk bearing ladder should look like. Until there is an agreement zone, fundamental transformation is unlikely, so we’ll continue to muddle along.
Kosh III
My two cents are that we sweep the R(egressive) party out of office. Institute Medicare for All with Dental and Vision added at some point. We abolish all federal programs such as Medicaid and VA Health and anything else.
dr. bloor
So hospitals, nursing homes, health care workers, citizens are screwed; United Healthcare has to cut back a little bit on hookers and blow in Q2.
For-profit health care companies: the cockroaches of nuclear-scale public health crises.
Butch
Latest estimate is that an additional 9.2 million are suddenly without health insurance because of the layoffs and Trump won’t open up the Exchanges. I think “fundamental transformation” is about to become inevitable.
Villago Delenda Est
@Kosh III: Keep your paws off my VA health care. A better solution is to expand VA health care to all. The hopelessly broken for profit health care system in this country must be totally retooled to one focused on science, realistic medical contingencies, and patient care, not parasite stockholder care.
kindness
As a society we’ll be better off when we decouple people’s health insurance from their jobs. It won’t be better care but it will be portable.
pat
I remember visiting my aunt in her nursing home. Everyone sitting at tables for four in the dining room, absolutely no way for any type of social distancing unless they were all confined to their (double occupancy) rooms. One case coming in with a worker would just tear through the entire building in days.
And to those who think, oh they are just waiting there to die anyway, consider that dying from covid-19, unable to breath, no relatives able to visit, is a terrible way to go.
My aunt died over a year ago, my cousin and I were there holding her hand at the last.
Omnes Omnibus
@Villago Delenda Est: A better idea might be to expand the VA to all veterans, push Medicare down in age, and move Medicaid up the income scale until everyone is covered by one of the three. Then merge them. It could be done gradually, but it wouldn’t involve creating a new system out of whole cloth.
WereBear
@Omnes Omnibus: That is a good idea.
gene108
@Omnes Omnibus:
Medicaid for All would be great. Each state provides insurance, like in Canada where each province provides insurance, but we have too many Republican controlled states that don’t want insure anybody.
This makes relying on Medicaid very uneven
VeniceRiley
Also expand Medicare to cover Americans travelling or living abroad. Please and thank you.
Shantanu Saha
Medicaid for All, with Medicaid reformed to be an entirely federally-funded and administered program, would be my plan. This preserves a role for health insurance companies, who can claim that they have better coverage, better doctor networks, etc. than Medicaid, which does stingy payment rates. But all public hospitals would accept Medicaid and could structure their business around it. Fund it with an unavoidable 5% tax on ALL income, whether earned or unearned. In the case of corporations, make it a 2% tax on gross revenue rather than income, which can be gamed much more.
Omnes Omnibus
@gene108: It’s an idea for a starting point. I am sorry that it is not perfectly workable as a flawless plan that is immediately actionable. I will endeavor to do better in the future. Please, I beg you, forgive me.
Frank Wilhoit
The problem with private insurance is perverse incentives, which in turn require an extremely heavyweight regulatory apparatus in order to create even the possibility of good outcomes.
The same kind of perverse incentives are a structural feature of many other industries, none of which are regulated adequately — some not at all.
The path toward a reformed capitalism would go through the elimination of these kinds of perverse incentives and an overhaul of the regulatory institutions to streamline them and give them more authority. The result would not resemble past practice in any meaningful way.
“Late” capitalism is purely a revolt against accountability, nothing else.
negative 1
@Omnes Omnibus: The issue is that it’s not just the insurance it’s the actual medical delivery system. Hospitals, still being profit driven, will continue to have as few beds as possible as they represent slack in the supply chain. So no matter which insurance system is paying, there is still the issue of how the care is actually delivered.
Of the three systems you named, the VA is the closest to the model which would be helping the most now. Because of the example mentioned in the post of the delaying of elective surgery, a high profit service, hospitals were laying off workers as late as March.
germy
Hero Dog Fills Out Hospital Paperwork
Omnes Omnibus
@negative 1: I actually don’t think my idea would do a damned bit of good in the immediate or even short term.
Amir Khalid
Per the Guardian’s coronavirus liveblog:
The fucker’s doing everything he can to undermine the fight against Covid-19.
Van Buren
2 months ago: I am ccd a letter from insurer to surgeon denying claim.
1 month ago: I am ccd letter from insurer to surgeon denying appeal of claim.
Yesterday: Receive check from insurer, to be signed over to surgeon, for claim.
I don’t understand this business, at all.
They could have saved me a month of worrying about how to pay bill equal to half a year’s salary.
Cheryl from Maryland
@Van Buren: I’m sorry for your stress and glad it worked out, but this is SOP. We have been going through this regularly — my husband has neural sarcoidosis, e.g. sarcoid of the nerves of the hands and feet — and there is no FDA approved treatment. So his doctor prescribes off label a very expensive biologic drug, which works. EVERY TWO YEARS for FIFTEEN YEARS his insurance company denies the prescription, we appeal, they deny the appeal, my husband does research at the National Library of Medicine (he was a lawyer for the FDA) to send them many, many documents about how this is a standard treatment, my husband wins. Rinse, repeat. The only silver lining is that we send .pdfs of all of his correspondence and research to his doctor so patients without a legal/medico background can also take on their insurance companies. The goal is to get you to give up.
Kent
Medicare is Federally managed and generally decently run.
Medicaid is State-managed and reasonably decent in blue states that make an effort. It is an absolute horror show in red states that want to punish the poor and brown people.
I would be wary of any massive expansion effort that relied on the good will of states. That only works where states give a shit. I spent too many years living in Texas to trust the state government to EVER do anything progressive without deliberately fucking it up to the greatest extent possible.
“Medicare for All” is a 1000x better model than “Medicaid for All” for that reason.
terry chay
@Kosh III: Unlikely. The move by Democrats is to increase healthcare coverage. Taking people out of the VA (true socialized medicine) and into a socialized insurance plan would be a regression. While I’m not a fan of veterans as a voting block, I don’t understand the hypocrisy in taking away their coverage. Seems like this anger is motivated more about hate and punishing others then what’s right/best for people? That joy(punishing yourself opponents), if it happens, is temporary — as the Republicans and their supporters are about to find out. I also don’t see a move to push for dental. Politically that organization is full of libertarians and right wingers which doesn’t help the case that they are essential as the amount of corruption in extending Medicare/Medicaid to that group will, unfortunately, be a lot.
@dr. bloor: Your reading is very unfair and not what David said at all. Large hospitals, like large insurers have large reserves, distribute risks, and are backstopped by federal social programs that will eventually kick in. Maybe instead of just ranting with rose twitter talking points and being all “Carthage delenda est” on whatever hobby horse enemy, we can work to move the backstops those who really need it, instead of the insurers? The sad fact is, these insurance corps., like employers in the case of PPP, are the only, flawed mechanism the federal government has to reach the patients, nursing homes, and hospitals with the needed $ and support. After all, reading between the lines, there are some small insurers (Oscar? One Medical?) that are also going to go under.
@Butch: I agree. The front pager is making assumptions of our political inertia that won’t be there because of how big a change this represents. I don’t profess to know which way the whirlwind will blow or where we will end up, just that it is likely to be big.
@kindness: Somehow I have a feeling the political will will be there post COVID-19, whereas before it was not. What you are pointing at is an artifact of WWII that was never fixed, this pandemic has exposed a big gaping hole in the thesis of employer-supplied health insurance.
Bob Hertz
@Butch:
The ACA plans and their subsidies are open by law to anyone who loses a job, without any action or inaction by Trump.
The exchange plans are not always good and the enrollment process can be a mess, but the plans are there. Plus, a person whose income falls to near zero can get Medicaid in 36 states.