COVID-19: Insurance Policy Considerations
March 31st, 2020
As of March 31, the Coronavirus Resource Center of Johns Hopkins University reports that, in the United States, there have been approximately 177,452 people diagnosed with COVID-19 with 3,606 deaths being recorded. It is an understatement that this new strain of Coronavirus will radically alter life in the United States – and the world – in the months and years ahead.
Current statistical models paint a grim picture of what’s to come in the United States, even with social distancing in place. One model designed by the University of Washington’s Institute for Health Metrics and Evaluation (www.covid19.healthdata.org/projections), estimates that more than 2,000 people could die each day in the United States by mid-April, when the virus is predicted to hit the country hardest. The model predicts that 220,000 hospital beds -- 54,000 more than are currently available -- will be needed on April 15, when the COVID-19 virus is estimated to reach “peak resource use.” Severe shortages of ventilators, respirators and PPE have been reported by state governors and healthcare professional for weeks. The strain on the country’s healthcare resources will be incredible. The cost to care for those infected will be astronomical.
The Healthcare Costs of COVID-19
A recent New York Times article reported that, depending on how many people need care, insurers, employers and individuals could face anywhere from $34 billion to $251 billion in additional expenses from the testing and treatment of COVID-19. In early March, credit analysts at S&P Global estimated that health insurers collectively could face nearly $95 billion in medical costs from a severe national Coronavirus pandemic, assuming up to 30% of their privately insured members tested positive for COVID-19. According to the Times article, S&P Global analysts calculated that hospitalization costs for patients requiring care in an intensive care unit could top $20,000 for patients under 65 on private health insurance plans, and more than $12,000 for Medicare patients requiring ICU care. While the $20,000 estimate for a hospital stay is based on a typical pneumonia case, the Times article reported that current COVID-19 hospitalizations average closer to $72,000 for severe cases.
Insured Health Plans
Health insurers Cigna, Humana and UnitedHealthcare are now waiving patient cost-sharing on all treatment for Coronavirus for their insured members and employer plans. The insurers have said the waiver applies to all medical costs related to the treatment of Coronavirus, including hospitalizations and ambulance transfers, FDA-approved medications and vaccines when they become available. They will apply to their privately insured individual and groups plans, Medicare Advantage and Medicaid members.
Self-Insured Employer Plans
While insurers like Cigna, Humana and UnitedHealthcare will pick up the tab for their own plans, self-funded or self-insured employer plans are the ones who actually foot the bills for their workers’ coverage and determine cost-sharing provisions for its members. For self-funded employee benefit plans which do not want to assume 100% of the liability for losses arising from the plans, a stop-loss policy affords protection against catastrophic or unpredictable losses. A stop-loss policy affords specific and/or aggregate excess risk coverage. Self-funded employers initially pay for claims out-of-pocket as they are presented. Most commonly, the stop-loss carrier reimburses the employer for claims exceeding the specific or aggregate limits, although some stop-loss carriers may, at their discretion, advance the amount needed to pay the excess claims.
Since a self-insured employer assumes the risk for paying the health care claim costs for its employees, subject to eventual reimbursement by a stop loss insurer, the employer must have the financial resources to meet this obligation, which can be unpredictable. The skyrocketing costs associated with treatment of COVID-19 infected employees could present serious financial difficulties for employers which already are facing increased pressures on cash flow by the economic slow-down brought on by the declared national emergency and social distancing orders implemented to combat the COVID-19 pandemic.
Whether, and to what extent, employees of self-funded plans will be balance billed by medical and healthcare providers for out-of-network and other unpaid portions of medical bills remains to be seen, but is likely to be rampant.
COVID-19’s Impact on Other Types of Insurance
The economic impact of COVID-19 is not limited to the employer health plans and insurers. In a March 30 article in the Insurance Journal, it was reported that the property/casualty industry estimates that business interruption losses from Coronavirus just for small businesses in the United States could be between $220-$383 billion per month — or a quarter to half of the total industry surplus available to pay all P/C claims. In the article, the American Property Casualty Insurance Association estimates there could be as many as 30 million claims from small businesses that suffered Coronavirus-related losses. According to the APCIA, that is 10 times the most claims ever handled by the industry in one year. The industry processed more than three million P/C claims from the 2005 hurricane season that included Hurricanes Katrina, Rita, Wilma and several other storms.
Exclusions for pandemic-caused losses have been incorporated into standard business interruption policies for years. Still, evaluating whether a particular insurance policy affords coverage for business interruption or other losses brought on by the COVID-19 pandemic will depend upon the specific language of a policy and its exclusions (remember, ambiguous policies are construed in favor of coverage) and state laws. Whether to make a claim with a P/C insurer for business interruption or other coverage should be evaluated sooner rather than later to avoid problems that can impair coverage frequently brought on by the failure to comply with prompt or timely notice requirements which are found in most P/C policies.
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