Factors Shaping the Post-COVID Payer Market

June 15, 2020

Understandably, there is a lot of nervousness around how COVID-19 is going to affect the healthcare industry-both in the near-term as well as the distant future. As the organizations that will have to take on a majority of the financial and operational burden of the COVID pandemic, providers will be hit the hardest in the short-term. As a result, a majority of relief, both at federal and local levels, can be expected to be centered around rescuing providers post-COVID.

Understandably, there is a lot of nervousness around how COVID-19 is going to affect the healthcare industry-both in the near-term as well as the distant future. As the organizations that will have to take on a majority of the financial and operational burden of the COVID pandemic, providers will be hit the hardest in the short-term. As a result, a majority of relief, both at federal and local levels, can be expected to be centered around rescuing providers post-COVID. 

Payers, on the other hand, have had a slight advantage during the pandemic itself, as normal healthcare utilization has dropped significantly, saving money in the process. This sentiment is reflected in the financial markets as well, with Wall Street remaining mostly bullish in its short and long-term projections for major payors. 

A nuanced take on the micro and macro influencers to truly understand the post-COVID payer world, however, has largely been missing from common discourse, especially as the market looks to streamline processes and conduct more targeted engagement, while flattening the expected and anticipated demand curve.

Economic drivers and anticipated payer impact
Payers and providers alike can expect continued turbulence as transmission hot spots wax and wane over the coming months and until a vaccine is readily available. The effect of the uncertainty will continue to be felt both economically and from an overall community health perspective. Once greater stability is achieved, however, three major factors will impact the payer market in the post-COVID world.

High unemployment rates:  By July 2020, around 50 million Americans are expected to be unemployed, at least 50% of whom receive health insurance through their employers. In addition, roughly 54% of small and mid-sized businesses have already closed or are in the process of closing in response to the pandemic. Commercial markets, both large and small groups, are a major source of revenue for most payers, sometimes up to 84%, and loss of members and direct customers will affect them severely. 

Increased utilization and adverse risk pools: A combination of fear of disease transmission and lack of provider bandwidth has resulted in most non-urgent healthcare utilizations to be halted for the foreseeable future, although some organizations are now beginning to provide some elective procedures. After the disease begins to dissipate, the healthcare system demand curve will accelerate and peak in a narrow window of time, resulting in increased costs for payers-costs that were not underwritten in premium models. Basic preventative care and chronic care management has also been missing in this period, which will manifest in increased healthcare payer costs. 

Additionally, many people that have lost their health insurance coverage due to unemployment will more than likely apply to receive healthcare coverage through various government programs including Medicaid or Affordable Care Act (ACA). It is important to remember that these programs’ incentives for participating payers were not designed for the kind of volume increases that are expected to occur. Due to lack of better data on trends and risk, payers can be expected to be afflicted with the burden of adverse risk pools, as they did in the beginning years of ACA, which resulted in significant losses over the next cycles.

Tougher regulatory environment: Regulatory agencies including Centers for Medicare and Medicaid (CMS)and National Committee of Quality Assurance (NCQA) are currently relaxing annual requirements for quality and performance measurement. If payers abandon these regulatory efforts, it further increases the probability of adverse events in the near future. Payers must continue to execute these programs as they created to improve health outcomes for the most common, yet high risk, conditions. It is also very likely that government mandates will require payers to accept more Medicaid members. In addition, there may be regulations from state and local governments encouraging payers to re-negotiate favorable rates with providers to help the latter stay afloat. This is a more probable scenario for rural hospitals that will be hit the hardest because of the pandemic. 

What should payers prepare for? And how?
Utilization is expected to skyrocket in the post-COVID world taking payer spending with it, while revenue sources are drained. Payers with multiple revenue streams are likely to be better positioned against such revenue shrinkage, but unfortunately for the remaining payer market, the outcome does not look as promising. Liquidity will be the primary concern in the short term, and payers will be focused on cost-cutting initiatives, especially in areas that are deemed automatable or non-essential to direct revenue. 

The market can also expect to see an increase in merger and acquisition activity among providers and payers, and accelerations where one was planned. Additionally, it will be imperative for payers to look for opportunities that drive efficiency and cost reduction across various verticals so anticipated utilization spikes can be well managed. As provider collaboration will be more important than ever to enable broader coordination across the expanded care continuum, with the right players in place, payers will be well prepared to focus on cost cutting efforts while simultaneously preparing for a utilization surge and managing high quality outcomes.  

Suman Giri Ph.D. is the director of Data Science at CitiusTech. Shitang Patel is the assistant vice president of Payer Markets at CitiusTech.