A Message from EPIC’s Employee Benefits Financial Team
We are monitoring the potential impact that the novel coronavirus (COVID-19) will have on costs for employer-sponsored health plans. The costs associated with the virus are still emerging, so providing a concise percent impact to costs is premature at this time; however, please see the following general facts regarding COVD-19:
- Per the Society of Actuaries (SOA), initial mortality rates related to COVID-19 range from 3.0% to 4.0%, but these are very dependent on age, with mortality for older groups reaching up to 15.0%. Some health U.S. officials expect the ultimate mortality to fall in the 0.5% to 1.0% range. In a given “regular” flu season, mortality tends to range from 0.1% to 0.3%.
- Though the spread (frequency) of COVID-19 has been faster than recent influenza pandemics, specifically SARS (2002-03) and MERS (2012-14), the associated mortality (severity) is lower, though the impact of SARS and MERS was not widely spread in the U.S. While COVID-19 has not run its course, we believe it should be pointed out that mortality is not unlike prior pandemics to date, though is expected to be higher than that of a given flu season.
Many of our clients, particularly those in self-funded arrangements (in some cases with little or no aggregate stop-loss protection), have inquired as to whether this pandemic will destroy their healthcare programs with costs exploding higher in response to broad sickness.
Our strong belief at this time is that COVID-19 will not have a dramatic impact on plan costs. The reasons for this are multi-fold:
- As the country responds to this virus, much of the “elective” healthcare service system will disappear (joint replacements, bariatric surgeries, etc.). This doesn’t include the wide variety of other discretionary medical services that will not be consumed as most commerce slows, including fewer doctor visits, prescription drug scripts, and medical devices utilized. Given the amount of discretionary and voluntary care in the system, it’s entirely plausible this can have at least a 20%+ dampening effect on healthcare costs.
- The cost of hospitalization for pneumonia and respiratory illnesses are not considered to be “higher cost” hospitalizations, such as transplants, cancers, high-risk pregnancies/NICUs, and complex surgeries. The average cost of treatment for pneumonia with major complications is around $20,000 per the Kaiser Family Foundation, with less complicated stays roughly half the cost.
- We do recognize there will be lots of additional diagnostic testing and some unnecessary ER visits, but on a relative scale, it should not be terribly impactful. Diagnostic testing will be fairly low cost (see below for initial communicated costs), and we are strongly encouraging employers to steer employees toward telehealth services in advance of unnecessary ER visits that can run up to a couple of thousand dollars.
Again, costs are still emerging, but the following will help provide clarity:
- LabCorp ($51) and Quest Diagnostics ($95) have communicated the cost for COVID-19 testing. These costs do not include any associated office visit costs or treatment.
- Many carriers have communicated the intention to waive cost-sharing for the costs associated with COVID-19, including Anthem, UHC, CVS/Aetna, and Cigna.
- For fully-insured employers, carriers have or intend to implement these changes immediately.
- For self-insured employers, carriers have indicated that the same policies will apply, though groups may opt-out. For example, Cigna is requiring opt-out submissions by March 23.
- As EPIC’s National Compliance Team communicated, the IRS has stated that first-dollar coverage of COVID-19 testing will not cause a plan sponsors HDHP to become non-compliant, nor will a member’s HSA be disqualified from tax-exempt status.
- For additional considerations, read Coronavirus Is a Major Challenge to Employers and Human Resource Professionals.
EPIC’s Employee Benefits Financial Team is continually monitoring news that could impact employers’ financials. In the meantime, for more of EPIC’s coronavirus coverage, visit epicbrokers.com/coronavirus