Paying the Bills for COVID-19: Three Ideas for Protecting Patients and America’s Health Care System
COVID-19 is hitting the United States harder than any other country in the world.
by Arielle Kane, Director of Health Care at PPI, and Josh Gordon, Senior Health Care Policy Fellow
COVID-19 is hitting the United States harder than any other country in the world. Roughly 41,000 Americans have died from the novel coronavirus and more than 50,000 Americans have been hospitalized. Some experts estimate millions more could be hospitalized before the disease runs its course. Each COVID-19-related hospitalization costs between $30,000-$72,000 per person.
However, it is unclear how those increased costs will affect patients in the long term. There will clearly be a large expense in order to deal with COVID-19 cases. However, there has also been a reduction in other types of care due to the limitations on elective procedures and the logistical difficulties of seeking care in the current environment.
As of now, it is unknown whether health care spending in the aggregate will go up or down. Some hospitals might lose money and layoff workers. Ultimately, insurance premiums might stay steady, but they could also increase, draining state coffers, stretching employer budgets, and straining household finances beyond their capacity. And beyond the aggregate changes, any individual person, doctor, hospital, or insurer could see wild and unanticipated swings in either revenues or costs.
The presence of this uncertainty in the country’s largest economic sector should be a call to action. Only the federal government has the national reach and resources to do the job and eliminate most of this uncertainty. The emergency legislative actions taken by Congress so far are not enough.
We outline three ways the federal government could proceed:
- A robust federal reinsurance program
- A disease-specific federal benefit.
- A hospital capitation model.
The federal government should act quickly using one of these strategies. Doing so is an essential piece towards putting the nation and our health care system on a smooth path to an economic return to normal.
What’s been done so far isn’t enough
Congress has passed three emergency relief packages to address the emergence of the novel coronavirus. The Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security Act (CARES), requires federally regulated health plans (public health plans and private self-insured plans) to cover testing free of charge. Some state governments have also directed state-regulated insurance companies to waive cost-sharing associated with testing. Congress did not earmark funding or pass regulations requiring coverage of COVID-19 treatment costs.
Epidemiologists predict that 15 percent of people with COVID-19 need to be hospitalized — millions of patients. The lack of action on treatments will leave insured patients vulnerable to higher bills through increased direct costs or cost-sharing.
Average deductibles — the amount a patient must pay before their insurance kicks in — have increased in recent years. For individuals with employer-sponsored coverage, the average deductible is around $1,800 while the average deductible for individuals in ACA bronze-level plans is more than $6,500. Add that to co-pays, co-insurance, and out-of-network charges, and a patient could owe thousands of dollars from a COVID-19 related hospitalization. Some analysts also suggest insurance premiums could increase by as much as 40 percent next year due to high coronavirus treatment costs.
Then there are the uninsured. There were 28 million people who were uninsured before this crisis and they are expected to be joined by another 11 million who lose their employer-sponsored coverage as a result of the financial fallout from the economic shutdown necessary to contain the virus’s spread. There is no fully realized plan to protect them from severe financial consequences.
These risks to individual finances could be mitigated by Congressional action but it hasn’t happened yet.
Hospital finances are also concerning. Some hospitals are being slammed by high costs to treat patients in need of desperate and intensive care. Others are suffering from reduced revenues because they have halted elective procedures to preserve personal protective equipment (PPE) and health care provider capacity.
According to data from the Bureau of Labor Statistics, the health care industry cut 42,500 jobs in March — and that is expected to increase in April. While many of the lost jobs were in medical offices and other outpatient settings, some people who are fighting the coronavirus in hospitals are also seeing salary cuts. In the past, the health care industry has proved resistant to economic downturns and led other sectors in job creation. This makes it even more remarkable that the industry is laying off workers during a health crisis.
The emergency measures do funnel some funding to hospitals through existing programs. The CARES Act increased Medicare reimbursement to hospitals by 20 percent and gave Medicare Advantage companies an increase of 1.66 percent for 2021 to offset any increased costs incurred this year. The other Coronavirus bill, Families First Coronavirus Response Act, increased the federal Medicaid matching rate to states by 6.2 percent (however, this funding is best thought of as general fiscal support to states, not necessarily for health care spending).
The CARES legislation also directs about $100 billion in emergency funding to hospitals and providers. How the money will be allocated is uncertain and there is a lot of discretion left to the HHS Secretary. The first tranche of $30 billion is being distributed based on 2019 Medicare reimbursements rather than to the states and regions with the most COVID-19 cases. Some states like Minnesota and Nebraska will get more than $300,000 per COVID-19 case while New York gets only $12,000 per case.
The Trump administration has also said that they will use a portion of the $100 billion earmarked for hospitals to cover the costs of the uninsured. Democrats have protested this idea because it means that states that haven’t yet expanded Medicaid and have higher uninsured populations will get larger sums. The Kaiser Family Foundation estimates that covering the cost of the uninsured at Medicare rates, as Trump has proposed, could cost as much as $42 billion. This would leave just $28 billion to provide financial relief to hospitals in hard-hit areas.
The bottom line is this uncertainty — for individual finances and hospital finances, is unwise and unnecessary. We need concern about patient costs to not serve as a barrier to treatment or a barrier to individuals restarting normal economic activity. We need hospital finances shored up to maintain investments in capacity that might be needed to deal with virus flare-ups down the road and to reduce layoffs for the economic health of local communities more generally.
The federal government can step in to reduce this uncertainty in one of the following ways:
A robust federal reinsurance program
Reinsurance is not a new or partisan idea and PPI has argued for the use of a permanent reinsurance program before. Reinsurance is essentially insurance for insurers: The government helps pay for exceptionally high-cost claims. It is currently used in Medicare Advantage and the Medicare Part D Prescription Drug Program and has been approved by both Republican-led and Democratic-led states in their insurance markets.
Rather than completely overhauling the health care financing system during a crisis, a reinsurance program could be quickly set up to address the surge in high-cost health care claims. All the usual payers — Medicaid, Medicaid, private insurers, and self-insured employers — would continue paying for health care services as they normally do. As many have agreed to reduce or eliminate cost-sharing for COVID-19 cases, in many cases they would also pay for the patients’ portion as well. Then, on the back end, the federal government would reimburse the payers for all COVID-19 claims. Some analysts have argued that the government could pay Medicare rates for COVID-19 cases. As private insurers normally reimburse hospitals at much higher rates than Medicare, a reinsurance set at Medicare rates would offset much but not the entire cost of the disease for private insurers.
A well-structured reinsurance program would keep premiums from skyrocketing in 2021 due to insurers trying to offset an expensive year. This could leave employers, employees and individuals with premiums in 2021 similar to what could have been expected prior to the outbreak.
While this program may be the easiest to set up, hospitals and physicians may not see the type of funding they need to cover the costs of a surge in utilization. It doesn’t account for needing more beds, ventilators, and staff than typically used when treating patients and it wouldn’t help patients meet their high deductibles before insurance coverage kicked in.
A disease-specific federal benefit
Another way to cover costs would be to set up a federal program that would cover all of the health care costs associated with COVID-19.
To streamline testing, treatment, payment and data collection, the federal government could establish a program that pays providers, hospitals, and laboratories directly for all COVID-19 associated care. While funded with emergency discretionary funding rather than the Medicare Trust Fund, the program would use Medicare’s extensive provider network and payment system.
Proponents argue that the U.S. health care system is not designed to finance a public health pandemic and that a public health crisis insurance program should pay for treatment and recovery services for everyone in America.
When the private market fails, Medicare has a history of covering disease-specific care, such as –End-Stage Renal Disease (ESRD) care which is paid for by Medicare regardless of a person’s age.
Establishing a disease-specific benefit covered by the federal government would protect the Medicare Trust Fund, state Medicaid budgets, employers and those with individual health plans. All of the costs of COVID-19 would be paid for through the federal government and people would not face financial burdens to accessing care. Furthermore, rather than pushing funding through various programs — like Medicare, Medicaid and disaster aid which may skew how the funding gets allocated — a disease-specific benefit would protect those suffering from coronavirus and the institutions treating them.
However, one could imagine that this would be slightly harder to set up than a federal reinsurance program. There could be pushback from industry who see a disease-specific benefit as a slow slide into Medicare for all.
A hospital capitation model
Maryland has not had the same type of hospital layoffs that have been seen in other states. That is because the state has a capitation model where each hospital is given an annual budget from all the payers — Medicare, Medicaid and commercial — to cover all in-patient care. So when “elective care” all but stopped, they didn’t see a change in funding as they are not dependent on fee-for-service procedures.
We don’t have full data yet because state unemployment numbers lag behind federal numbers. However, two large health systems in the state — University of Maryland Medical System and Johns Hopkins Hospital — have not made layoffs to offset the loss of elective procedures. In fact, UMD is hiring at all 16 of its hospitals.
This is at the same time that hospitals in other parts of the country — including states known for high-quality health care like Massachusetts and Minnesota — are laying off, furloughing, and cutting staff salaries.
A capitated model changes other incentives as well. When a hospital isn’t reliant on performing as many procedures as possible to stay afloat, they can invest in programs that work to improve overall health. Health-care experts have long understood that social supports such as housing, education, public safety, environment, transportation and nutrition affect people’s health at least as much as medical care does. Research has demonstrated that collaborations among health-care providers and community development sectors can improve health, yet most hospitals don’t have the capacity to invest in these so-called social determinants of health.
In Maryland, however, 74 percent of hospitals invest in interventions to address social determinants of health. They have the capacity to address non-medical social needs that lead to increased health care spending.
COVID-19 has made it clear: those with underlying health conditions are worse off. Longstanding racial inequities such as access to health care, affordable housing and fresh foods, has contributed to poorer health status among people of color. Now those inequities in rates of diabetes, hypertension, and chronic lung disease like asthma means that people of color are more likely to die as a result of COVID-19.
In the long-term, when the pandemic has died down, we should seek to move away from fee-for-service. It unnecessarily increases costs and does little to encourage long term investments in health outcomes. U.S. health care totaled $3.65 trillion in 2018, more than $11,000 per person and almost 18% of GDP. Yet despite spending roughly double that of other affluent countries, and the U.S. ranks among the lowest in life expectancy and the highest in infant mortality rate and still was short on capacity when faced with a public health crisis.
Though shifting to a capitation model may encourage increased investment in social determinants of health, it would be a monumental shift even in normal times. Attempting to implement it during a crisis would be very difficult. However, COVID-19 has demonstrated many weaknesses in the health care system — a lack of preparedness, a lack of capacity for a surge in demand, an overreliance on “elective” medical procedures, and an inequitable system just to name a few.
Conclusion
In the short term, patients stricken by the coronavirus should not have to worry that they can’t afford the medical treatment that could save their lives. This extraordinary public health emergency demands an extraordinary response for our government. This response could take a number of forms, but we believe the most efficient answer would be to reimburse health care providers directly for COVID-19 patients.
In the longer term, we must prevent this pandemic from bankrupting states, the Medicare Trust Fund or employers. Socializing the costs through the federal government would streamline the response, centralize data collection, and reduce costs to patients — expediting the nation’s economic recovery from the COVID-19.
