A COVID-19 Fast-Path Initiative For U.S. Health Benefit Insurers

Urgent and specific actions to minimize the financial impact

COVID-19 is an unprecedented crisis with a direct impact to lives and the economy. The financial impact on commercial insurers, CMS and self-insured employers (collectively referred to here as “Payers”), will be extensive. Our estimates show:

The actual cost to the participants across the board could, in fact, be much greater, when the following factors are taken into account:

• Impact of undershooting 2020 MLR
• Impact of MLR undershoot on 2021 premium pricing
• Impact of anticipated 50M job losses on premium and ASC fee collections
• Impact of ASO stop-loss activations
• Impact of providers higher CAPEX+OPEX on future claims cost
• Impact of waiving out-of-pocket costs for COVID-19 care
• Impact of working-from-home on claims processing throughput
• Impact of disruptions to offshore/onshore workforces on vendors capacity
• Impact of deferred treatments on cost of the eventual treatment
• Impact of growing claims back-logs on recovery output
• Impact of surge in new claims mix and volume on processing efficiency
• Impact of new types of fraud and incorrectly priced/filed claims
• Impact of downstream COVID-19-related claims
• Impact of possible seasonal resurgence on contagion duration
• Impact of possible reactivation or relapse
• Impact of disruptions in provider cashflow on stability of networks
• Impact of the Federal Reserve 100 bps drop in rates on Payers float

The escalating cost will ultimately be borne by Providers and U.S. citizens. It is critical for Payers to take immediate action, not only to protect own enterprise but also to minimize the burden on Providers and the American people. This burden will come in the form of higher claims cost (reflecting higher Provider investments), higher premiums (reflecting higher Payer expenses), and reduced access to high quality affordable care (as a result of accelerated acquisitions turbo-charged by growing stress on providers practice).

It is true that for the moment claims are down and Payers have yet to experience a material financial hit. However, for reasons we describe below, we believe this current moment of calm water will be short-lived and will soon be replace by an extended period of turbulence.

Many of the knobs and levers to respond to this crisis are outside of employers control; one great exception is the area of Payment Integrity. This is where employers can significantly mitigate some of COVID-19’s most damaging effects.

In this Advisory, we identify critical failure points along the payment integrity continuum and recommend specific and urgent actions and implementation plan, with supporting information provided in the following sections:

• Appendix A: Estimate of incremental cost to all Payers
• Appendix B: Estimate of incremental cost to top-50 commercial insurers
• Appendix C: Estimate of incremental cost to top-50 self-insured employers
• Appendix D: Effects of deferred treatments on Payers cash outflows
• Appendix E: Machinify FortKnox Executive Overview

COVID-19 points of impact, recommended actions, and implementation plan

Appendix A: Estimate of Incremental Cost to All Payers

In the fullness of time, virtually every American will impose a COVID-19-related cost on U.S. Payers. A small number of people will require ICU treatment. A large number will require hospitalization. A larger number will have mild symptoms, requiring outpatient visits. The rest will be unaffected and require testing and vaccination only.

The two critical inputs to computing the cost impact on top Payers are:

1. the total number of Americans who will become infected during the course of pandemic; and
2. the cost of care under different scenarios.

Several credible organizations have made cost estimates, which vary considerably. For example, the Imperial College COVID-19 Response Team led by epidemiology professor Neil Ferguson, has predicted 81% of US population will become infected. A panel of experts at the University of California, San Francisco, has predicted that between 40 and 70% of Americans could become infected within the next 18 months. CDC has estimated 160M to 214M during the course of the epidemic. American Hospital Association projected 96M. California governor, in his letter to the President, predicted 56% infection rate in California. Johns Hopkins University has predicted 40%. Congress’s attending physician told the Senate that 70M to 150M people are expected to eventually contract the coronavirus in the United States. These infection rates will most likely be highly sensitive to the degree to which the US population adheres to social distancing practices.

The following table estimates the total cost to Payers for each projection above. It should be noted that the input and output numbers are highly speculative, but they do serve a critical purpose. Regardless of which estimates prove to be correct, it is clear that the cost impact will be large.

Appendix B: Estimate of incremental cost to top-50 commercial insurers

The unfolding panic guarantees that, during the course of 2020 and 2021, virtually every American will be making a visit to their healthcare provider for some COVID-19 related treatment, ranging from hospitalization to vaccination. The impact to insurers will primarily come from their fully insured (at-risk) members. The incremental cost to each Payer is estimated by multiplying number of fully insured members by the PMPY impact at the low and high end of the range. The following table provides estimated incremental medical payouts and incremental rise in claims volume for the top 50 insurers by enrollment:

Appendix C: Estimate of incremental cost to top-50 self-insured employers

Similar to commercial Payers, the cost to self-insured employers can be estimated by multiplying number of employees by PMPY impact at the low and high end of the range. The following table outlines the incremental medical payouts and incremental rise in claims volume for nation’s top-50 self-insured employers by employees.

Appendix D: Effects of deferred treatments on Payers cash outflows

Because of the widening disruptions to provider operations exacerbated by capacity constraints, large projected volumes of COVID-19 cases and associated fear of infection, it is expected that the vast majority of non-urgent care will be deferred into the future. We believe the most likely scenario is: delayed treatments will simply be time-shifted and dispersed across the coming months through end of 2021. The following series of graphics illustrates this point by depicting how Payers 2020–2021 cash outlay projections are expected to morph as they adjust to COVID-19’s aggregate impact.

Before COVID-19, Payers were projected to have an outflow of $3T and $3.2T in 2020 and 2021, respectively (CMS):

Then COVID-19 arrived, exerting an additional spend on the system:

The curve is expected to flatten and its financial impact dispersed across coming months:

Some care is expected to be delayed, but only temporarily:

By end of 2021, Payers will have spent $XB more than the projected $6.2T outflow:

Appendix E: Machinify FortKnox Executive Overview

Machinify FortKnox is a groundbreaking cloud implementation of Machinify’s highly successful commercially-deployed Payment Integrity Sentinels platform. Sentinels are a suite of machine-learning based models that operate on incoming claim streams and identify claims with potential payment integrity issues in real-time; the sentinels flag claims with potential issues, the reason for those issues and, in many cases, automate the proposed action to fix those issues. These Sentinels are used both in pre-pay and post-pay settings to optimize claim payment workflows, prioritize claims for review and audit, and to assist in automating the claim review and medical record audit processes. Machinify Payment Integrity Sentinels can be integrated directly into existing adjudication workflows through real-time API calls or used in batch zero-integration mode.

FortKnox runs inside an impenetrable HIPAA compliant and HITRUST certified cloud with guaranteed PHI security. The input to FortKnox is claims whether identified or de-identified and pre-pay or post-pay. The output is claims deemed faulty which should not be paid (if deployed in pre-pay) or should not have been paid (if deployed in post-pay). The output specifies for each claim, the reason for selection, exact location of the fault within the claim, the exact required fix and the actions required. Claims can be uploaded in batch for post-pay or fed through real-time API calls for pre-pay.

Machinify is a Silicon Valley technology company, dedicated to enabling Payers automate critical business functions including payment integrity, prior-auth, medical records and coordination of benefit. Investors include Google, Battery Ventures and Matrix Partners.

All Machinify services are offered as SaaS, eliminating complex time-consuming expensive integration. Services are charged at an annual fixed rate, consumable on an as-you-go-basis.

Machinify services run within a HIPAA and HITRUST-certified cloud underpinned by a rigorous info-sec protocol approved by leading companies in U.S. healthcare sector.

Machinify possesses both significant financial and engineering scale to help Payers implement crucial measures recommended.

For additional information, please contact Tony Miranz, Cofounder & President, at tony@machinify.com.