The COVID-19 pandemic presents a tremendous number of unknowns for the healthcare industry. Will revenue ever be back to pre COVID-19 levels? How will telehealth impact the marketplace as it becomes the new industry standard? What malpractice losses will be realized with COVID-19?
These unknowns are causing healthcare decision makers to change their buying habits and are bringing insurers added uncertainty that they ultimately do not know how to price. The current hard market for property and casualty insurance will grow harder still for the healthcare industry, further straining healthcare providers already burdened by second and third waves of the pandemic.
Buyers must now navigate around decreased revenues and overdrawn resources. As pricing increases and capacity decreases, some buyers are increasing their retention and/or cutting limits in order to meet budgets. Alternative risk mechanisms are becoming more of an attractive solution to counterbalance the increased pricing.
The need to demonstrate a strong risk management culture -- particularly with the introduction of new coverage exclusions such as COVID-19, cyber security and sexual abuse -- has never been more important. In the end, everyone will have to adapt as the unknowns continue to unfold.
Outlook for 2021
Keeping in mind that the industry and marketplace are very much in flux, here’s a summary of the landscape for the healthcare industry as outlined in Alera Group’s Property & Casualty 2021 Market Outlook:
► Insurance companies are shifting emphasis from topline growth to bottom line profitability: This means scrutinizing every account and re-evaluating pricing, coverage terms and conditions. Clients with negative loss experience will struggle to get coverage at any cost.
► Rates are up: The market for healthcare insurance was already hardening. Costs have been rising on most coverages over the past several years. Minimum premiums are also increasing. These trends are likely to continue in 2021.
► Reduced availability: Several key insurers have exited the medical malpractice market. The good news is, rate levels and limited capacity may be attracting new investors. At least one new medical malpractice startup has been announced.
► Less capacity for any one account: Insurers are using their capacity carefully and limiting the amount they will allocate to a single account. In some cases, they are cutting limits in half and still raising prices.
► Telemedicine poses new risks that are yet to be quantified: The dramatic increase in the utilization of telehealth for non-acute care delivery has potentially introduced new risks. With it comes new risks. Key concerns include patient safety, credentialing, standard of care, documentation and privacy and security.
► Markets for skilled nursing and assisted living are especially challenging: Until recently, rates were increasing at a modest pace. Pricing on some coverages went up, and on some it went down. Overall, insurance costs were manageable. Now the rate increases are across the board.
There is a limited number of insurance companies in this space. Underwriting has become even more selective. Facilities need to be well-run and able to demonstrate that they know where the potential claims are and that they have well-documented and monitored procedures for protecting their patients, residents and staff.
► Insurers will remain conservative as they struggle with the unknown: Appetite, underwriting requirements and available coverages will continue to evolve as insurance companies assess the impact of COVID-19 on their healthcare business.
For a comprehensive look at the outlook on the healthcare industry by lines of coverage, download the complete Property & Casualty 2021 Market Outlook. Worth noting, workers’ compensation is the only line of coverage for which rates, availability, capacity and underwriting scrutiny/selectivity appear to be stable across the board.
Based on the 2021 outlook, how all of the above unknowns, from cyber security to capacity and revenues, evolve will determine the trajectory of the entire healthcare industry at large.
Telehealth and Cyber Liability
As my Alera Group teammate Christopher Breck noted in his recent article on the market outlook for cyber liability insurance, cybersecurity is a growing concern for the healthcare industry in general. But for physicians’ practices in particular, the greatest challenge – both short- and long-term -- may be developing or enhancing telehealth systems that are more efficient and more secure.
Although the pandemic was the driving factor in making it the new norm for non-acute care, telehealth isn’t going away along with COVID-19. In a report titled “Top health industry issues of 2021: Will a shocked system emerge stronger?,” the accounting service PwC says of virtual healthcare:
“For millions of Americans and their healthcare providers, the pandemic was an introduction to telehealth, often with uneven results. Caregivers, with varying levels of telehealth experience—tried suddenly to meet patients where they were. Many virtual visits happened on nontraditional health platforms: mobile phones, through texts and through messaging. In the year ahead, the industry will work to determine which virtual visits make the most sense, and where and how they should take place.”
Such uneven practices created or exacerbated multiple cyber exposures, foremost among them: data breach of patient protected health information (PHI); and medical malpractice through misdiagnosis, delayed diagnosis or failure to diagnose.
In an article for Bloomberg Law on medical malpractice concerns associated with telehealth, attorney Lindsay Lowe, a specialist on public health and healthcare law, cites these best practices for healthcare providers:
10 Considerations for Long-Term Care Providers
- Educate patients on telehealth visits, including potential risks and security measures;
- Accurately document each telehealth visit and maintain proper patient records while maintaining patient confidentiality;
- Be familiar with state laws pertaining to telehealth, which may include “specific requirements regarding patient medical history, written documentation, follow-up care and emergency provisions.”
Nationally, expanding distribution of COVID-19 vaccines has, in the words of the National Law Review, “raised a myriad of issues for long-term care providers, including whether providers can require residents and employees to receive the vaccine.”
Following the federal Food and Drug Administration’s (FDA’s) December 11, 2020, introduction of Emergency Use Authorization (EUA) of the Pfizer-BioNtech vaccine, the Law Review suggested these 10 considerations for long-term care facilities
- Whether a resident’s decision not to receive the vaccine places other residents at risk and how to mitigate risk;
- Whether the facility can make accommodations for residents who refuse vaccination;
- How to balance residents’ rights with potential efforts to mitigate potential risk to other residents;
- Whether facilities may develop policies concerning vaccination that are different for current versus potential residents;
- How to address vaccination and decision-making in residents who lack the capacity to make health care decisions;
- Whether facilities will face fair housing issues if some residents refuse vaccination and whether facilities will impede equal access and enjoyment of the facility for all residents;
- Whether to institute risk management agreements for assisted living and independent living residents associated with residents’ decision not to receive the vaccination;
- How to manage informed consent if the vaccine is administered by the facility;
- Whether to cohort residents according to those that have received the vaccine and those that have not; and
- How to address vaccination with regard to visitors, private duty care givers, and third-party providers entering the facility.
Acting on these considerations by developing specific COVID-19 policies to address them, the Law Review noted, is essential to long-term care providers protecting themselves by managing and mitigating risk. In addition, such action is likely to be a factor in underwriters’ decisions regarding coverage decisions and policy terms.
Rise of the Captive Alternative
Given the hard market and corresponding restrictions in coverage, a growing number of companies in 2020 turned to captive insurance companies as an alternative to traditional carriers. In December, an official with the North Carolina Department of Insurance told the Captive Insurance Times
, “The impact of COVID-19 and the hardening commercial market this year has caused business owners to further consider the use of captive insurance, either in their current captive or through the formation of a new one, to help them address risks faced by their business.”
In its Captive Insurance Overview, the accounting firm CRI highlights three factors driving the growth of captives within the healthcare industry:
- cost efficiencies gained through the use of the wholesale reinsurance market over the cost of the commercial market place;
- the consolidation of provider organizations and the change from a fee-for-service payor model to a value-based care model;
- the emerging risks facing provider organizations as the healthcare landscape changes.
Due to the expense of funding the creation costs and the capitalization requirements of the domicile’s regulatory body, however, creating a captive insurance company isn’t a viable option for every organization. Profitability is essential.
What You Can Do
Always critical to containing insurance costs, risk management is never more important than during a hard market. The COVID-19 pandemic elevates its importance to an unprecedented level, with already established risks heightened and changing circumstances presenting new challenges on almost a daily basis.
In addition to providing you with risk management tools and services, a knowledgeable agent/broker can market your organization to multiple carriers and design an insurance program with the best available premium and limits, as well as the fewest possible exclusions.
And you can explore the alternative of joining a captive.
In December, Alera Group hosted and recorded the webinar “Introduction to Captives,” which you can access by clicking on the button below. During the presentation, you’ll learn:
- The benefits of utilizing a captive
- Who is best suited for a P&C captive
- Common captive characteristics.
Risk management is a vital component of any business strategy, short- or long-term. Whether captive insurance should be part of your long-term plan is up to you and your organization. The webinar may help you decide.
Access the Webinar
About the Author
Paul Curtis, Managing Partner, Phalanx Healthcare Solutions
Paul’s career in healthcare liability insurance spans over 40 years and includes experience with captives, risk retention groups, reinsurers, hospital facilities, nursing homes, individual physicians, physician groups and allied health care professionals. Paul has held a variety of senior insurance and reinsurance positions at Guy Carpenter, First Reinsurance Intermediaries and Arthur J. Gallagher Reinsurance. His technical focus is on addressing the strategic medical professional liability needs of clients through the design and implementation of creative insurance and reinsurance program structures.