Medical Loss Ratio and COVID-19: Investment, Risk, and Looking through 2022

Medical Loss Ratio During COVID-19 by Evan HetuAs is well understood now, the impact of COVID-19 on healthcare has led to a massive reduction of patient volumes. For providers, it has manifested as reduced revenue, furloughs of staff, and outright office closures. Meanwhile, a second, slower-burning issue is manifesting in the payer space: the reduction in spend from depressed care volume will likely create medical loss ratio (MLR) issues that can put health plans into rebate.

Health plans need to find new ways to consider how the current circumstances can be used strategically to ensure not just a compliant 2020, but a means towards greater financial health and patient care in the coming years.

First, some context: For government programs like ACA and MA, CMS mandates that contracts meet a Minimum Medical Loss Ratio (MMLR) of 85%. If they don’t, they have to return any excess as a rebate to the premium payer. That means 85 cents of every dollar must be spent on care (claims, population health management, etc.) and quality (HEDIS, Star, etc.) to meet MMLR. So, if a Medicare Advantage H-contract had an MLR of 82%, it would have to return 3% of the premium to CMS and its members, proportional to their contribution.

2020 premiums were set when insurers submitted their bid and benefit designs mid 2019. As a result, these premiums did not take the impact on the Medical Loss Ratio from COVID-19 into account. Similarly, 2021 premiums were recently determined and submitted before COVID-19 trends were understood. As a result, health plans are now left struggling to meet their MMLR and will likely see the same challenges next year. Less patient contact in 2020 means the reconfirmation of HCCs will be lower than expected (even with telehealth expansion making up some of the lost ground). However, even the reduced revenue from lower risk scores will be generally outpaced by the pandemic’s impact on care costs.

To recap: for many plans, MLR is down to a point of short-term crisis and long-term complication for payers. However, there is a solution: payer investment in pre-encounter programs that drive quality and care.

As a risk adjustment technology partner, traditionally, we are not involved in MLR conversations with health plans. Retrospective risk adjustment is indisputably an administrative cost, and typically has no impact on MLR. At the same time, with patients coming in less often, it is more important than ever to get documentation right.  When a condition is missed, it is less likely to be addressed and properly treated in future encounters until it becomes an aggravated issue or emergency. That said, this is not a traditional year, and the applicability of risk adjustment, as well as the relationship between payers and providers, is changing.

This opens the door for a solution like Lumanent Pre-Encounter Prep, a solution that addresses risk adjustment prospectively by using our NLP engine to parse risk adjustment data directly to providers within their workflow to support patient care through clinical suspecting.

In that context, risk adjustment isn’t about coding conditions after the fact, but instead providing proactive and/or a deeper level of care. It supports an encounter and may be treated like an in-home assessment. So, for payers, by investing in a pre-encounter solution that drives care, they would also address issues that impact MLR and forecasting. For payers in rebate positions, by shifting the focus and costs of their risk adjustment programs to better addressing the patient care visit, the dollars spent could reduce the rebate and be net neutral or even positive to the payer. (For additional outside perspective on these topics, read AHIP’s blog responding to the New York Times piece on premiums and revenue here.)

While there is an argument that a more accurate capture of risk for a population leads to higher revenue and therefore a higher MLR target, it also helps more accurately set forecasting and premiums for subsequent years, especially 2022.

Calling 2020 a complex year for healthcare is an understatement. 2021 is certain to be even more so, due to pent up demand and potential lapse shocks on members and beneficiaries, and both years will carry into 2022. Flexible solutions must be in place and used to optimal effectiveness as circumstances continue to evolve. Pre-Encounter Prep is just one example of how Lumanent can help payers and providers alike navigate the coming years.