Study: California coronavirus testing, treatment cost could rise to $25B

The state of the fight against COVID-19 appears to be painful financially.

California insurance carriers have already paid out an estimated $2.4 billion in testing and treatment, a recent U.C. Berkeley study has surmised.

And the stark reality doesn’t end there.

By the time state residents reach herd immunity at a 60% infection rate — the point in which the contagion significantly minimizes — public and private insurers could shell out over $25.1 billion, the study concludes.

This figure equates to 6% of California’s total annual health care spending, the university’s School of Public Health determined. For example, the coronavirus outbreak has cost the San Francisco metro area $64 million, authors reported.

The report also found certain demographic categories have borne the brunt of coronavirus cases.

Just over half the positive cases fall into the age range of 18 to 49, which represents 45% of the state’s population. As for race, 56% of Latinos carry the largest number of cases among 39% of California residents.

“The bottom line is, COVID-19 has caused a lot of uncertainty in the health insurance market,” California Insurance Commissioner’s office spokesman Michael Soller told the Business Journal.

Who pays?

Once the world emerges from the COVID-19 pandemic, it’s unclear who will be hurt — the insurance carriers or the public?

Could the carriers consider this the breaking point and therefore place the industry in jeopardy or will they expect the insureds to foot the bill through pass-on costs for coverage?

“Actuaries are developing that assumption now,” Soller said, referring to those who help insurance companies analyze financial risk. “We expect the price of the product to reflect that uncertainty.”

To help ease the pain and burden, the state’s insurance Commissioner Ricardo Lara implemented a program on March 5 that eliminates the cost-sharing co-pays that consumers are billed.

“It’s one of the first things he did. We’re waiting to see the impact of that,” Soller said.

Another advancement the insurance commissioner’s office commends is the surge in tele-health calls, which can be used to evaluate symptoms.

“We think this is here to stay,” he said.

Hospitals’ untold financial burden

Holler anecdotally indicated that claims have not reached a windfall as predicted in the worst-case scenario. The state is also keeping an eye on the dramatic drop in elective procedures by hospitals in the state as the result of the virus-related shutdown imposed in mid-March.

These surgeries and other ancillary visits represent a portion of the funding cash cow for health care.

To hospitals and law firms, the university report signifies only the tip of the iceberg in terms of this debacle — the issue of our time.

“Health care is not only about insurers,” California Hospital Association Jan Emerson-Shea spokeswoman told the Business Journal. “This study doesn’t take into account the costs hospitals are incurring.”

Beyond being out their revenue-generating procedures because of patients avoiding medical facilities, hospitals up and down the state have lost an estimated $14 billion with additional expenses they’ve had to absorb, Emerson-Shea cited.

She indicated the costs to ramp up to the testing and treatment stages as what has set these health care facilities back. The expense list includes: tents, personal protective equipment, escalated staffing and other supplies as examples.

On top of that, claims take time to pay. Hospital budgets have been so dented, the carry-over or floating of one line-item fund to pay another hasn’t served as a potential option as it was years ago.

Kaiser Permanente incurred a net loss of $1.1 billion in the first quarter of 2020 ending March 31, compared to the net income of $3.2 billion reported in the same period in 2019, the health care provider reported May 8 in its financial results.

Kaiser attributes much of this loss is due to an instability in the capital markets caused by the pandemic, in addition to the lost revenue and increased costs associated with establishing mobile hospitals and triage units, among other factors mentioned.

Lawsuits also a potential unknown cost

But as worlds collide under the rule of law, there’s an even more dire situation looming before the United States.

The expense taken on by third-party liability claims to both health care insurers and providers may turn out to be astronomical as our sue-happy society meets the threat of a contagious disease, according to Santa Rosa attorney David Beach of Perry, Johnson, Anderson, Miller & Moskowitz.

In the event lawsuits as a result of coronavirus infections skyrocket, liability insurance kicks in to protect health care providers, care custodians and first responders.

How much pressure can the health care and insurance industries take with these anticipated claims and pending litigation?

“Given the numbers of infections and deaths across the nation, there may not be enough insurance in the world to cover the potential liability exposure that could flow from COVID-19 lawsuits,” Beach said.