COVID-19 puts health benefits costs in focus

COVID-19 puts health benefits costs in focus

Many organizations are recalibrating employee benefits programs as they adapt to the health care crisis and economic turmoil resulting from the coronavirus pandemic.

The higher cost of providing medical services to COVID-19 patients will likely be offset by reductions in elective procedures during the crisis, benefits consultants say. But the precipitous fall in economic activity during the coronavirus lockdown is putting huge financial pressure on employers, which will almost certainly hit their benefits budgets.

Some employers will likely change the structure of their medical benefit plans and curb ancillary benefits as they face a downturn in revenue and profit, they say.
Employers are also altering retirement savings plans in light of the crisis, including suspending 401(k) matches, and will likely make more changes in the future (see related story).

One consequence of the crisis that could reduce future costs is the big uptick in the use of telemedicine, which could change medical treatment protocols over the long term, they say.

The coronavirus pandemic hit several months after the start of most benefit plan years. While health care insurers have relaxed rules and are allowing new members to join midterm, larger employers are generally not making significant benefits changes.

Most middle-market and upper-middle market employer clients are not changing their health care benefits plans during the crisis, said John Miyata, Chicago-based executive vice president at Hays Cos., a unit of Brown & Brown Inc.

“They are all on 12-month plans, and no one is saying, ‘We need to fundamentally alter the plans in place,’” he said.

However, employers are grappling with how to treat contractions in their workforces, Mr. Miyata said. Many employers are furloughing workers, and some are continuing to pay benefits during furloughs. For laid-off workers, some employers are subsidizing COBRA premiums “to the extent that they can,” he said.
Some employers are looking to “create some sense of normalcy” and keeping furloughed employees on benefits, said Cory Jorbin, chief compliance officer, West region employee benefits for Hub International Ltd. in Phoenix.

“In some cases, they are picking up the tab, recognizing that employees don’t have an income,” he said.

As employers prepare for 2021 employee benefit plan enrollment, they are reviewing costs incurred due to the pandemic, Mr. Miyata said.

While costs related to COVID-19 treatment can be high, especially if it includes treatment in an intensive care unit, some of those costs are offset by the decline in elective surgery during the crisis, he said.

“For many employers, it’s reasonable to expect that the cost of the virus will be roughly offset by a reduction in other care over the period,” said Chris Calvert, national corporate health practice leader at Segal Group Inc. in New York.

It is still too early to predict how long the pandemic will last, but so far “in the working-age population, the impact of COVID-19 has been relatively modest,” said Eric Grossman, senior partner at Mercer LLC in Norwalk, Connecticut.

While some elective procedures or treatments have only been postponed, others, such as physical therapy sessions, regular check-ups and some lab tests, will have been canceled and there will not be a need to “catch up,” he said.

In its first-quarter results conference call with analysts, United Healthcare said elective deferrals had offset costs related to COVID-19.

But economic fallout from the crisis may lead to adjustments for health care plans in the future, because employers were already experiencing rising costs but were operating in a tough labor market, Mr. Grossman said.

“There are things that companies had been considering anyway because health care costs remain high, but maybe they weren’t pulling the trigger as aggressively,” he said.

For example, employers may look to enroll more people in high-deductible health care plans, adopt different provider network strategies or narrow formularies in efforts to control costs, Mr. Grossman said.

Given the economic environment, smaller employers especially will face cost pressures, said Carrie B. Cherveny, senior vice president, strategic client solutions for Hub’s risk services division in West Palm Beach, Florida.

“Employers will be strategic,” she said. “They don’t want to reduce coverage, but when it comes to the life or death of the business, they are going to have to make really difficult choices.”

Prior to the pandemic, employers were looking to 2021 and considering changes, “but now there’s the question of what will their budget pressures be and what will their workforce look like. For many it will be smaller and more part-time workers,” Mr. Calvert said. “And there will be additional pressure to cut benefits to save jobs.”

In addition to pushing cheaper high-deductible plans, some employers may increase employee premium contributions and shift more non-major medical benefits, such as dental and vision benefits where employers may pay some of the costs, to voluntary benefits, he said.

Job contractions could also mean that smaller employers will change their benefits offerings because they will fall below the Affordable Care Act mandate, Ms. Cherveny of Hub said. The ACA requirement to provide affordable health care coverage applies to companies with 50 or more fulltime employees.

One of the most significant trends arising out of the pandemic has been the increased use of telemedicine services as medical office and hospital visits have been curbed.

“When people need care, this is often their only option,” Mr. Calvert said.

“Employers are promoting telemedicine, employees are using it, and providers are embracing it; that’s a long-term game-changer,” said Julie Stone, managing director, health and benefits North America for Willis Towers Watson PLC in Parsippany, New Jersey.

In addition to diagnosing and treating physical ailments, telemedicine is also being used to treat mental health claims, which could be of benefit to some patients after the crisis is over, she said.

“It removes a barrier because patients are in their own space and don’t have to travel,” however, there remains a shortage of mental health providers so “there’s still challenges,” Ms. Stone said.

As telemedicine takes hold with wider adoption, and if the trend toward remote care continues after the pandemic for follow-ups or other appointments that can be handled virtually, employers need to consider costs because telemedicine providers usually charge less for care than physicians charge for office visits, Mr. Calvert of Segal said.

“What will be the tradeoff for employers when employees have virtual visits with their own physicians?” he said.

Employee assistance programs are also being used more frequently, and employers are communicating more often with employees about the availability of the services amid heightened concerns over alcohol and substance abuse during the pandemic, Ms. Stone said.

Including virtual options for EAPs is also enhancing the programs, said Mr. Miyata of Hays. For example, employees forced to remain at home may be more susceptible to depression and providing virtual EAP resources can help those workers access help, he said.

Business Insurance

by Gavin Souter