COVID-19: The Road Ahead for Commercial Insurance

COVID-19 Update

Effective and prudent health insurance coverage is a key to combating COVID-19 (COVID), enabling access to—and payment for—testing and treatment. State regulators, health insurers, providers, employers, unions and consumers will continue to face daunting coverage challenges presented by the COVID outbreak. 

Federal and state health insurance activity on COVID has begun. Congress passed a package that includes requirements that commercial insurance and ERISA self-funded insurers, as well as a variety of public programs, may not impose cost sharing or preauthorization for COVID testing and diagnosis. This federal action comes on the heels of a growing wave of state actions related to commercial insurance, discussed in a Manatt post from Michael Kolber. Manatt further posted a chart that summarizes certain key state actions taken to date. 

State regulators and stakeholders are beginning to face and will face a series of new issues in the coming days, weeks and months. Some of those issues are discussed below.

Premium Payment Grace Periods. As COVID impacts the health of consumers and the economy, many may struggle to make premium payments. States and health insurers may face the need to provide relief. Under current federal rules, individuals receiving coverage through Qualified Health Insurers (QHPs) with Advance Premium Tax Credits (APTCs) have a federal 90-day grace period for payment of premiums. 

The question presented is whether states should mandate a grace period to those without APTCs who receive coverage through QHPs or other products. If so, who bears responsibility if the consumer ultimately does not or cannot pay? The ACA grace periods require insurers to pay for the first month’s claims, but allow insurers to pend and ultimately not pay for claims in the second and third months of a grace period that ends with retroactive termination for nonpayment. Claims costs could be much higher with the COVID outbreak, with neither insurers nor providers able to bear those costs for even shorter grace periods without assistance. 

Absent a federal solution that covers these costs, state regulators will face tough choices. Should regulators specify who bears the costs or should it be left to the parties, in which case insurers and providers may not be able to resolve the matter and individual policyholders could end up with debts—including unpaid premiums, cost sharing or, if no coverage is effective, large provider bills—subject to potentially fruitless collection actions? What about group coverage? Employers, particularly small employers who are hardest hit by the economic slowdown, may want to keep employees on their insurer but may not be able to afford to do so. Would existing contract provisions between insurers and employers or unions, or between employers or unions and employees or members, permit reducing the employer or union contribution? Would state actions such as an extended and potentially subsidized COBRA benefit be worth considering if employers must drop coverage?

Cost-Sharing Waiver for Treatment, Not Just Testing. Many states waived cost sharing for COVID testing before Congress followed suit with a sweeping federal prohibition on cost sharing. Those state actions may continue to be important where they are more comprehensive than the federal law, especially if testing becomes more widespread and is done through out-of-network facilities. As COVID illnesses progress, the focus will expand from ensuring testing access to easing access to treatment. In many cases, the line between testing and treatment will blur as providers order multiple tests and provide multiple services during a visit for COVID testing. Consumers without adequate coverage may avoid testing for fear that they can’t afford the costs of any follow-up treatment. 

Networks and Coverage of Alternative Treatment Settings. COVID illnesses may overwhelm insurer provider network capacity for treatment, necessitating the use of alternative treatment settings. Should insurers have to cover out-of-network providers and, if so, at in-network cost sharing? What rules (if any) govern a dispute regarding whether the out-of-network care could have been appropriately done in-network? What payment must be made to the out-of-network provider? To what extent will insurers or regulators adapt network coverage rules to cover alternative facilities—such as makeshift hospitals and intensive care units—as well as costs associated with moving patients from one setting to another to increase capacity to treat COVID cases? Should provider credentialing rules be modified to allow insurers to bring more providers in-network swiftly? 

Surprise Out-of-Network Billing and Networks. In a related issue, if networks are overwhelmed, surprise bills from out-of-network doctors may become an increasing challenge. Even though the patient went to an in-network hospital, for example, if an out-of-network specialist is called, what is the liability for the insurer, provider and consumer? In the absence of rules, uncertainty could slow down the provision of needed services and consumers could be stuck with enormous bills. This can be an especially perplexing issue for states without existing consumer protections against surprise balance billing.

Special Enrollment Periods (SEPs). Twelve of the 13 state-based Marketplaces are currently holding special enrollment periods that allow uninsured individuals to enroll in ACA-compliant coverage. There also is increasing support for a national SEP from members of Congress, from states that are dependent on Healthcare.gov, and from insurers, though insurers also seek federal relief in relation to an SEP. Regardless of whether there is a COVID-specific SEP, there will be many people who lose their jobs and qualify for an SEP, often with little or no income. Those individuals will be eligible for large tax credits and some will be eligible for Medicaid. In addition, current recipients of tax credits whose incomes decrease may be eligible for redeterminations to increase their tax credits. In short, the economic implications of COVID will put the ACA Marketplaces in the center of preserving coverage for many of the current 10 million individuals with Marketplace coverage and could lead to a significant expansion of coverage among those currently uninsured. State regulators will have new opportunities to work in a coordinated fashion with their state Medicaid agencies to make the eligibility and enrollment process as effective as possible, as well as work with participating insurers to address any regulatory issues that arise. 

Appeals and Complaint. The demands of COVID may also compel insurers, providers and consumers to seek extensions of statutory or contractual timeframes for appeals of insurer medical necessity denials, as well as grievance complaints and appeals against insurers on other issues. In addition to timeframe relief, stakeholders may seek relief from information requirements such as clinical information for utilization review. Regulators may step in to waive or modify rules that impede service delivery and ensure a level playing field. 

Claim Payment Timeframe Extensions. Will consumers and providers, as well as insurers, need more time to submit and adjudicate claims as COVID progresses? Most states have prompt pay laws that set timeframes for insurers to adjudicate claims. In some cases, regulators may seek to extend formal timeframes. In other cases, insurers and providers may look to negotiate extended contractual timeframes and penalties associated with prompt payment. Regulators will have to decide when the parties are better positioned to resolve issues themselves and when regulatory relief is needed.      

Audits, Reporting Requirements. Fraud typically increases during a crisis, requiring insurers to conduct audits to identify erroneously processed or fraudulently submitted claims. In addition, government examiners may be auditing the health insurer for compliance with federal or state rules. Furthermore, insurers face a host of federal and state reporting requirements regarding payment or quality data. In light of the imperative to identify and treat COVID cases, insurers and providers may seek relief from a broad range of audits and reporting requirements. In most states, emergency orders by governors and public health departments give state regulators authority to waive rules, adopt new emergency rules and take other actions to protect public health.   

Premium Rate Increases. Some insurers and regulators have raised the question of whether 2020 rates will prove sufficient. COVID will cause increased claim costs that health insurers did not anticipate or include in approved rate increase requests for 2020. Federal rules prohibit mid-year rate adjustments and CMS has not indicated an interest in revisiting this rule, partly because no one knows how increased COVID costs will be offset by reduced claims costs for other routine services that are now being postponed to address COVID. These dynamics will soon play out for next year’s rates, with insurers already developing those rates and regulatory approval for 2021 rates fast approaching. How will COVID impact 2021 rates? There will be huge uncertainties on two fronts: First, what the trajectory will be of COVID claims in 2021; and second, how much pent-up demand there will be in 2021 from more routine services delayed in 2020. Additionally, increased costs from COVID treatment are expected to disproportionately hit seniors, and such costs will fall more heavily on Medicare and Medicare Advantage plans (which are currently in the process of setting their bids for 2021). State regulators will face difficult decisions in reviewing 2021 rates given the high level of uncertainty, especially if the federal government has not provided any of the relief that insurers are seeking from Congress to provide some cushion against unpredictable costs.    

Risk Adjustment. Will federal risk adjustment adequately account for regional differences in COVID cases? While the progress of the disease is unknown, it appears likely that there will be significant impact differences among regions within a state. In states where multiple insurers cover different regions, or cover those regions with different market share, the efficacy of risk adjustment will be important to health insurers. It remains to be seen whether the federal risk adjustment formula will effectively level the playing field for insurers that are disproportionately impacted by COVID costs. Under CMS rules, states can request authorization to supplement federal risk adjustment with a state-based approach. Insurers and regulators may wish to discuss whether it makes sense to maintain a state option.

Reserves. Will COVID costs impact solvency for some insurers? If COVID testing and treatment costs greatly exceed anticipated rates, or if the economic downturn ignited by COVID results in employers and individuals dropping coverage, those health insurers with low reserves may be placed in a more precarious position. NAIC rules, adopted by states, require minimum reserve levels, and dictate certain action levels by insurers and regulators. What flexibility do states have if risk-based capital (RBC) levels fall and require action that the insurer and regulators may want to modify? 

Non-ACA-Compliant Products. The lower coverage offered by some non-ACA-compliant insurers (e.g., short-term insurers) may result in huge consumer debt. The congressional bill to waive cost sharing for COVID testing does not apply to these insurers, but states have broad authority to regulate these insurers and may want to revisit their current regulations.    

ERISA Preemption of Self-Insured Insurers. Self-insured insurers comprise more than 60% of the group market nationally, though that share varies significantly across states. Because of federal ERISA preemption, states largely cannot regulate self-insured insurers. Congress can regulate these insurers, as it did on COVID testing, but federal actions may not match state needs. This may prompt a discussion of whether the broad preemption of state insurance regulation makes sense when states are on the front lines in battling a pandemic. 

New Vaccine Coverage. A number of states are instructing insurers to cover any new vaccine, with some states noting that it should be at no cost sharing. Federal EHB rules may require this anyway, assuming the U.S. Preventive Services Task Force endorses the new vaccine as a preventive service and waives the normal one-year delay in requiring coverage as a preventive service without cost sharing. Insurers and other stakeholders, as well as regulators, will want to minimize cost and utilization review hurdles for consumers to obtain any new vaccine.  

These are just some of the issues that regulators, health insurers, providers, employers, unions and consumers are likely to face. Manatt is here to help if you have questions or concerns about these or other challenges posed by COVID.

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