The health of private insurance in the US during covid-19

Insurers benefit

When insurers agreed in March to cover all covid associated costs and to forgo out-of-pocket copayments, most considered the deal to be temporary and attached expiration dates. Some companies have extended their initial dates, and the liberal advocacy group Public Citizen is pushing several others to extend waivers that are about to expire. The large insurer-provider Kaiser Permanente, with 12.2 million members, has extended its waiver to the end of the year.

It’s not clear how many delayed or cancelled procedures will take place at a later date—but some certainly will not, either because the patient has died or because staff and physical space are limited in their capacity to absorb the pent-up demand.

But, despite the lower payouts, the insurance industry doesn’t expect to see any huge windfall profits: it’s heavily regulated at the national and state levels. One provision of Obamacare (the Affordable Care Act) requires that insurance companies must pay fixed minimum percentages of the premiums they collect for medical services (at least 80% for individual and small group policies; 85% for large groups). If their profit margin increases because of deferred procedures in the pandemic it will be within only a narrow margin, and “surplus” revenue must be returned to policy holders. Some insurers have already started sending rebates to their customers.

Meanwhile, some insurance policies are likely to cost purchasers more in the future. Companies in hard hit New York City are seeking double digit increases in premiums next year, while a few serving the northern part of New York state, which was less affected by the pandemic, are asking for modest reductions in rates.

Idled workers scramble

Most US health insurance is acquired through the workplace, and people who have lost their jobs lose their health insurance on the last day of their final month at work.

Laid-off workers can, by law, choose to pay the entire cost of remaining under the company’s health insurance plus a 2% administrative fee for as long as 18 months, through a program with an unwieldy name but known by its acronym, COBRA. Unless the person qualifies for a government subsidy, however, opting for COBRA can be expensive—as much as $600 a month for individual coverage, and family coverage can cost three times that amount. The original workplace policy may require additional copayments for visits and drugs.

But workers must exercise this option within 60 days of termination or lose it. That window is now closing for the first wave of people made unemployed during the pandemic. Many newly unemployed people will be eligible for subsidies to help them buy health insurance under provisions of Obamacare. But many who believe that they will soon be working again simply don’t bother, and not everyone will be looking for new jobs: the pandemic has disrupted public transit and made getting around difficult.

In addition, the bureaucracy has become even more challenging than usual because many government agencies that are assigned to manage re-employment and welfare programs are now working remotely.

Medicaid crisis looms

Sara Rosenbaum, professor of health policy, said at a briefing organized by the Alliance for Health Policy, “You really cannot talk about health equity without talking about the Medicaid program in the middle of a pandemic: this is the biggest public health first responder we have.”

Medicaid, a program that provides health insurance for the poorest people in the US, is jointly paid for by the federal government and the states. And throughout the country Medicaid is threatened, Rosenbaum warned.

Huge cuts in Medicaid funding are likely in Democratic and Republican states, as social isolation has dramatically reduced the revenue that the states generally collect in sales, restaurant, and income taxes. States cannot, by law, operate at a deficit: if revenues decline, spending must be cut.

California faces a $54bn shortfall in revenue, almost 37% of its current general budget. Despite the large federal role, Medicaid is in many instances “the largest budget item for states” and thus a tempting target for making cuts, says Tom Betlach, a partner in the Speire Healthcare Strategies consultancy.

As an example he uses Arizona, where he used to administer the Medicaid program. Under the pre-pandemic formula, with a federal match, says Betlach, “To get $33m in state savings, we had to cut $100m out of the delivery system.” But, with the feds picking up a higher percentage of spending, cutting $33m from the state contribution will also reduce the federal share and result in a decrease to Medicaid spending in Arizona of around $135m in total funds.

Democrats in the House of Representatives are seeking to further increase the federal contribution to Medicaid, but the Republican controlled Senate is taking more of a wait-and-see attitude on additional spending. This impasse is not likely to be resolved until September at the earliest, when Congress returns from its summer recess.