COVID-19 and Self-Funded Health Plans: Understanding the Financial Impact

By Terry Reams

As the COVID-19 pandemic continues to spread through the U.S., employers must be as mindful of the state of their self-funded health plan as they are the health of their employees. Here are key steps to ensure the plan’s financial viability during this crisis

Employers are grappling with a multitude of employee benefit issues in response to the coronavirus pandemic. Understanding the financial impact that COVID-19 may have on your self-funded health plan is key to maintaining a viable plan for your employees. Following are recommendations on what plan sponsors need to do (or in some cases, not do) in the near term to manage costs and drive plan savings.

Follow these steps to help ensure the financial viability of your self-funded health plan:

  1. Amend your Plan Document if you intend to cover the associated costs of testing for COVID-19 at 100%, and do so as quickly as possible. Most stop loss carriers are agreeing to these types of plan changes without any impact on their contracted premiums or attachment factors. Check with your HUB account team to verify that your stop loss carrier has agreed to not increase costs for this change.
  2. Do not stop accruing funds. You may experience a short-term reduction in healthcare costs as your employees and their family members remain at home and delay routine medical appointments or procedures. However, there will likely be an uptick in healthcare costs as the demand for care increases. Eventually, the unit cost of a portion of those delayed procedures might be higher due to medical trend and supply chain issues.
  3. Do not reduce your IBNR (or your Claims Reserve) or use it for capital expenditures, if possible. Any cost savings realized as a result of the prioritization of treating the virus over routine or non-emergency care will ultimately be paid by the plan (and could, in fact, cost more when it does). 
  4. Understand if your group is high risk. If you believe your population may have unique characteristics that could have a severe impact on your health plan, contact your HUB account team immediately. They will work with a HUB analytics specialist to calculate the potential financial impact based on a list of questions you will need to answer. An example of a group that could be uniquely impacted is a skilled nursing facility where the plan members are densely populated and older and therefore more susceptible to high infection rates (combined with a higher mortality rate upon infection).
  5. Consider adding telemedicine to drive cost savings and reduce the risk of virus transmission.
  6. Move to 90-day mail order for prescriptions to drive cost savings and ensure your members have the medicine they need to maintain their health. 
  7. If considering a reduction in workforce, talk to your HUB account team before deciding to subsidize COBRA coverage or extend benefits as part of the severance package.

Financial impact on plans remains unknown

The financial impact of the COVID-19 pandemic on your health plan is difficult to predict, given the number of variables in play that aren’t all under your control. For example, employers in densely populated cities could see the number of infected members rise dramatically, while others in similarly sized cities with “shelter from home” policies in place could see the level of infections plateau and then taper off.

Treatment costs for a plan member infected by the COVID-19 virus could range from $250 to over $100,000. The key treatments and associated costs are:

  • SARS-CoV-2 test to diagnose COVID-19 costs: $50 to $95.
  • Administration of the test: $100 if performed in a doctor’s office up to $1,000 if performed in an emergency room (with costs varying by geography).
  • Additional tests or care performed outside of an in-patient facility: $4,000 on average, but many people recover at home without incurring additional costs. 
  • Admission and treatment in a hospital: $10,000 per day with an average stay of 10 days.
  • Members with underlying comorbidities (e.g. diabetes, asthma or other respiratory issues, cancer, etc.) are more likely to need more intense and expensive care.

About the author:

Terry Reams is president of employee benefits for Hub International’s western region. You can find his blog here