How the end of the COVID-19 Public Health Emergency will impact payers

Payers need to be prepared for shifts in membership dynamics, provider reimbursement rates, benefit design and cost sharing.

In brief

• Medicaid redetermination efforts will likely drive a rapid shift in membership dynamics and introduce new sources of risk for most managed care organizations.
• Anticipated increases in uninsured individuals and other challenges may also put financial pressure on health plans during negotiations with providers.
• Nontraditional benefits that rose to prominence during the COVID-19 era are likely to continue into the foreseeable future.

The unprecedented COVID-19 public health crisis has fundamentally changed our society, including the health care ecosystem. In response to the pandemic, the federal government implemented critical policies to mitigate challenges related to care delivery, financing and acute staffing constraints. These interventions alleviated a significant amount of strain on the health care system and accelerated positive change. However, given that the federal government ended the COVID-19 Public Health Emergency (PHE) in May 2023 and continues to advance policies intended to drive recovery, health plans need a strategic approach as they navigate the significant downstream impacts of these changes on their business.

At a minimum, health plans must seriously analyze the impact of the changing regulatory landscape on their current operations and business models and develop enterprise-wide strategies to mitigate the significant operational, financial and compliance-related risks that are likely in the months to come.

For payer organizations that are well positioned to mitigate these new sources of risk and operate effectively in the post-pandemic era, the conclusion of the PHE presents a tremendous opportunity to drive value through membership growth.

Rapidly evolving membership dynamics

Given the conclusion of the COVID-19 PHE on May 11, 2023, payers may experience a significant increase in enrollment through both the Health Insurance Marketplace (the Marketplace) and employer-sponsored plans as Medicaid enrollees undergo the redetermination process for the first time in nearly three years. Many Americans will be faced with difficult choices to find alternative health care coverage, legacy Medicaid plans will need to evaluate their existing business models, and other payers must quickly assess the impact of these changes on their operational capabilities and financial outlook.

With the unwinding of the Medicaid continuous enrollment provision that was originally included in the Families First Coronavirus Response Act (FFCRA), an estimated 5 million to 14 million enrollees will lose their Medicaid Coverage,1 with one projection as high as 15 million.2 Multiple studies estimate that approximately 50%3 to 65%4 of the individuals and families who lose Medicaid eligibility through redetermination will enroll in employer-sponsored health plans. As such, payers must be prepared to adequately service both fully insured and self-funded customer groups that may see increasing numbers of enrollees in the coming months.

Despite these changes, many individuals and families who lose Medicaid eligibility without an employer-sponsored alternative may find Marketplace options as an attractive alternative as they seek other sources of health care coverage. Due to the Inflation Reduction Act’s continuation of Affordable Care Act (ACA) subsidies through 2025, initially passed in the American Rescue Plan Act, it is estimated that the number of people eligible for financial assistance in the Marketplace has increased by 20%.5 To facilitate the transition for individuals and families who choose to transition from Medicaid to Marketplace coverage, the Centers for Medicare & Medicaid Services has established a special enrollment period (SEP) on the health insurance exchanges from March 31, 2023 to July 31, 2024.6

Given that some states were free to resume Medicaid redeterminations as early as April 2023, health plans must very quickly assess whether they have the appropriate processes, technology, resources and operational capabilities to address rapidly changing membership dynamics, limit risk exposure and maximize financial performance resulting from this unprecedented SEP. Three primary objectives of this assessment are listed below:

Through this exercise, there may be some health plans that decide to scale back their operations or conclude that an exit strategy is needed in certain markets where it no longer makes sense to operate due to operational, financial or regulatory challenges that would only be exacerbated by an increase in membership across ACA or commercial lines of business.

However, those health plans with robust operational capabilities and staffing levels in place should evaluate whether these market conditions present an opportunity to pursue membership growth through market entry or expansion, either organically or via M&A activity. This approach is especially important for legacy Medicaid managed plans that are likely to see a significant decrease in Medicaid enrollment and revenue over the next year or so. These payers may choose to intentionally scale up operations to defend against revenue losses and capitalize on growth opportunities for different lines of business, within existing or potentially new markets, across multiple benefit years. Further, health plans seeking post-pandemic growth opportunities should also consider their ability to develop products with attractive pricing structures and networks to achieve a sustainable level of success into the future, which may be challenging with ACA subsidies ending in 2025 and a financially constrained outlook on the immediate horizon.