2020 was an unprecedented year for the healthcare industry. Due to the suspension of costly elective procedures, the COVID-19 pandemic precipitated an unusual cash windfall for health plans, while health systems experienced unprecedented financial stress.
Even after reopening for elective procedures, health systems have been as of yet unable to return to pre-pandemic levels of elective procedures due to additional spikes of COVID-19 consuming ED, inpatient acute and critical care capacity. Over the course of the year, approximately 52% of Medicare fee for service patients admitted to a hospital experienced a length of stay (LOS) between 1 and 7 days, the balance experiencing a LOS greater than 7 days.1
As a result, health plans will experience an unintended surplus of cash that was initially budgeted for elective procedures, and consequently lower than anticipated medical loss ratios (MLR). Legislation included in the Affordable Care Act established a mandatory MLR threshold of 80% for individual and small businesses, and 85% for large group plans. Therefore, health plans are required to spend a minimum 80-85% of healthcare premiums on claims and quality improvement programs, with any surplus returned to members in the form of a rebate. Research published by the Kaiser Family Foundation (KFF) in April 2020 estimates that rebates for plan year 2020 are likely to nearly double from plan year 2019, increasing from $1.4B in 2019 to $2.7B in 2020,2 and exacerbating the MLR trend that existed prior to the onset of the pandemic. (see Figure 1). It should be noted this research was published prior to the following spring, summer and winter surges in COVID-19, suggesting KFF estimates may be conservative. These rebates however, will not offset the rate of healthcare inflation which is currently more than double the overall rate of inflation in the U.S. Economy.
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