Transcription

• COVID-19: Employer-Based Insurance (with Dave Jones)

  Introduction: Welcome to the official podcast of the University of California Riverside school of public policy. I'm your host, Maddie Bunting. For this podcast series, I will be talking with various voices in the public policy world about today's pressing societal issues. Join me to learn about potential solutions and interventions for today's biggest policy challenges. Be they about how the economy, the environment, or other societal problems impacting families in your community or the international community. Joining me today is Dean’s Brand Ambassador, Eric Calderon and Dave Jones. Mr. Jones is a member of the US CR School Public Policy Advisory Board. 

  Eric Calderon: Mr. Jones served as California as insurance commissioner from 20112019. The California Department of Insurance regulates the nation's largest insurance market insurance industry, which collects $257 billion in premiums annually from California. Prior to that, Mr. Jones served in the California State Assembly from 2004 to 2011. Thank you and welcome, Mr. Jones, thank you for taking the time. 

  Dave Jones: It's nice to be with you. 

  Maddie Bunting: The coronavirus has taken up a lot of news recently for obvious reasons and there's been many implications and consequences just that changes in society recently. So as you are an expert with insurance I'd love to ask you, what impacts is a coronavirus having on health insurance? 

  Dave Jones: So one of the impacts that the coronavirus is having on health insurance is that we ensure a lot of people in the United States through their employer. In fact, the majority of people have insurance through their employer. And as a result of the coronavirus and shut down associated with that, a lot of people are losing their jobs and they're losing their employer-based health insurance. So one study that came out recently projects, we may have an additional 7 million uninsured people in this country by virtue of all the people that are unemployed. And as those unemployment numbers grow, we'll have more people uninsured. Now some of those people will be able to apply for Medicaid, which is the federal health insurance program operating in each state, but some people might not be eligible for Medicaid. And then what that health benefit exchange, where they can get a premium subsidy to help them cover the costs. But only 12 states at this point have opened their health benefit exchanges under the Affordable Care Act. Not only to the recently uninsured as a result of COVID, but to anybody who was uninsured. And that's important because we want to make sure not just the folks that are unemployed due to COVID-19, but anybody who's uninsured gets health insurance so they can get the care they need always to slow down the amount in emergency rooms, which of course right now are inundated with coded patients. So one of the things that I'm pushing the Trump administration's refusal to do is to open the federal exchange and to allow individuals who purchase health insurance in states that don't have a state-based. And it's changed. You set up your, your federal exchange. And that's going to mean that the impact of the uninsured is harvested on those states that don't have their own state exchange and they have to rely on the federal government. 

  Eric Calderon: And I think that covers a little bit about how Covered California, which is California's state health insurance exchange to establish pursuant to the Affordable Care Act has reopened to uninsured Californians, including those who were uninsured before the COVID-19 crisis. So should, I think you are referring to that little bit, should the Trump administration open the federal health insurance exchange and direct other exchanges to open much more than what we currently see? 

  Dave Jones: They should, and even though, as I said a moment ago here, unemployed due to the COVID crisis, you do have the ability to sign up for health insurance through an exchange that there are people that have been unemployed earlier will be able to get into health insurance now because the Trump administration refuses to open up the federal exchange and open up exchanges in those states that are keeping them closed. The other health insurance impact of this crisis is a likely increase in premium costs. One estimate that was done by Covered California estimates that premiums could go up as much, 40% because of the health care costs associated with the medical treatment around the COVID-19 virus. Another impact of course, that people are experiencing is even if you have health insurance, oftentimes you have deductibles, copays, Howard shirts, which have to be covered before your health insurance kicks in. And a couple of health insurers, Aetna, Humana, Sigma, various ways have said that they're going to waive those deductibles, co-payments, co-insurance requirements for various aspects of treatment. But to the extent that health insurers are not waving that, that means people have to dig out of pocket curse if they had insurance before the health insurance kicks in. So that's another way this is impacting people. 

  Maddie Bunting: Yes. And that the California Department of Insurance has recently asked health insurance companies to cover telehealth during the COVID-19 emergency. Do you agree with this request? 

  Dave Jones: Yes. I think this makes a lot of sense. My successor commissioner, Laura, has asked health insurers to cover Telehealth. I think that at this moment where we're all being required to stay at home, there ought to be a greater willingness to cover Telehealth and a greater utilization of telehealth. And so I think that makes a lot of sense. 

  Eric Calderon: And what impact is the coronavirus having on other types of insurance such as life insurance, business insurance, auto insurance and other there's a recent article that came out saying that some auto insurance companies such as Geico and Allstate, were gonna give refunds to some of their insurance customers because, you know, less less insurance claims. So can you talk about some more of the impacts that it's having, on the other industries? 

  Dave Jones: Yes. So auto insurers are seeing a reduction in claims because people are staying at home, not going to work and driving. And so starting with the data on Monday, but then followed by Geico, Liberty Mutual and American Family and a couple of others, Farmers, they've all voluntarily agreed to provide rebates of premium to their auto insurance customers to reflect the fact that there's not as much driving going on, not as many accidents, not as many payouts by insurers. And the premium is set based on an analysis of the historical loss that ensures suffering as a result of auto accidents, as those are going down. Then these insurers have concluded that the entrepreneur provides rebates. A number of insurance commissioners have asked for that as well. I think we'll see an increasing number of auto insurance providing a rebate and maybe even some insurance commissioners requiring insurance companies to file with the insurance regulator as to what their experiences during this period of time. So as to further adjust rates. With regard to business insurance, this is a big controversy right now because so many employers have been forced to shut down, including small employers. And many employers have business that includes what's called business interruption coverage. However, the way those policies are written, they'll either have an explicit exclusion or disease or pandemic or they will require before the coverage gets triggered, physical damage to the business premises. And so the business insurers are taking the position that the virus does not affect physical damage to the businesses. And as a consequence, they're saying they're not going to pay claims for business interruption. Of course, this has the business community very, very upset and some number of businesses have filed lawsuits against insurance companies already arguing that the virus adheres to the physical surface of the Business states or restaurants as a restaurant in New Orleans. Also, the famous French restaurant, the Michelin four-star restaurant in Napa County is following the law passed to saying that the virus adheres to the pictures of the restaurant that causes physical damage and it works hay out of the insurance. So that's going to be a very heavily litigated issue. I think there is. One important thing to understand though, is that the insurers did not price these policies based on having to pay out for business interruption claims. And they haven't set aside reserves to pay those claims. And a recent analysis by the property and casualty industry in the US identified something on the order of $450 billion of market losses may suffer as a result, the business interruption. And the insurers simply have not priced the policies to cover those losses. So if they are forced to pay those losses and there’s a bunch of bills that have been introduced and curious state legislatures to reinterpret those existing policies so as to require the insurance to pay that can have significant impacts on the financial stability of the ensures themselves, which they prompt. There's also a constitutional question as to whether the legislature can interfere with an existing contract that's already in effect and reinterpret that contract and insurers positioning if they can't do that. And if they do do that, and that's going to have significant negative consequences for the financial sovereignty of the insurance companies. Then you mentioned life insurance, there are a number of life insurance companies that have basically acquired waiting periods so that when people apply for life insurance, there's going to be a waiting period that some life insurers are imposing doesn't want to make sure the person is not sick with COVID-19, and potentially facing a high risk of passing away before they write that life insurance policy. So this is lagging in various ways across each insurance sector. I think that apart from the business interruption issue though, so far, most industry observers. Well, they have concerns about the way this is impacting insurers. There are concerns that rise to the level of solvency for the insurance companies. But if they are required to pay out on business interruption that could have an impact on the insurers that are writing that insurance on their solvency. 

  Maddie Bunting: I know personally, I know quite a few people who just paid their car payment and it was painful and they do so with staying inside these past months. So I'm sure it's the same with their car insurance meant. But I would like to discuss it a little bit more. You were speaking about business interruption insurance claims. So Congress is considering establishing a federal program to help pay for these claims as a way of incentivizing or requiring business insurers to offer coverage for business interactions from pandemics such as COVID-19t. Could you explain further what you think about this idea? 

  Dave Jones: So it's been reported that the House Financial Services Committee Chair, Maxine Waters, is considering some sort of a federal pandemic risk insurance backstop that would basically, based on published reports, function as a reinsurance of federal reinsurance for the business insurers that are reading business insurance for business interruption due to pandemics. So basically this would be insurance for the insurers that would also cover a portion of the claims up to some threshold and also have a coverage cap so that the insurers know what their exposure is and also has some, basically some federal insurance to cover them if they're forced to make payouts if they are offering business interruption coverage for pandemics. So I don't believe the draft has been made public yet, but there was a trade press report about it that described it much in the way that I just described. And so I think that the general idea is a good one, the notion of a federal backstop, because given the enormity of the costs of a pandemic, the ability of insurers to write that insurance at all, let alone at a price that's economically affordable is really, really challenging. Which is why they have basically written their policies in a way that it requires us to do physical damage, it doesn’t cover pandemics, and then it's just because of the enormity of the losses associated with these pandemics. So I think without some sort of federal backstop for federal insurance programs, it's going to be very difficult going forward to get insurance, to be able to write this product, so I think the idea conceptually makes sense. It's patterned on a similar program that was established in the wake of 9/11. What's called the Terrorism Risk Insurance Act, the Terrorism Risk Insurance Program. And there it gets the idea was to provide a backstop to insures so that in the event of losses due to terrorism, the federal government would cover some portion goes losses so that insurers new or know that they will have some assistance in covering those losses so they can, so they're better able then to write insurance for that. The difference here though, is that when you think about terrorism as bad as it is, as bad as 9/11 that occurred in New York, that occurred in Washington D.C., occurred Pennsylvania. The pandemic is occurring across the nation simultaneously. It's shutting down the economy across the nation, shutting out simultaneously. So the losses, the normative losses are much greater and they're happening all at once. So the Federal backstop, it's going to have to be a lot bigger than what was provided. Yeah. I think just given the enormity of these losses, but I think conceptually makes, it makes a lot of sense. 

  Eric Calderon: And I also heard that it's hard to compare it to a previous event because most events just happen in one day and this is happening in the span of weeks and possibly months and so it's hard to just be like, oh, this is similar to this happened in the past because again, it just keeps on going. Are there any takeaways from the government and private sector response to COVID-19? Which might help inform government and private sector response to address things like climate change? 

  Dave Jones: So I think one of the things we've learned tragically with COVID-19 is the importance of preparation. And we simply weren't prepared. And we're not alone in this in the United States, but many, many countries were not prepared. And so too with climate change, we're really not prepared. Now it's a different sort of threat. Climate change is going to take a little bit longer for it to unfold. But the kinds of physical risks, if you will, and losses that are occurring across the economy as a result of COVID-19 are not, dissimilar to the sorts of consequences associated ultimately with climate change. I mean, it's going to manifest itself in different ways. And so we need to be better prepared. And we're not prepared right now for climate change. We're not doing what we need to do to head it off. We're not reducing greenhouse gas emissions enough, we’re not transitioning our economy away from relying on fossil fuels to one that relies on clean energy. We certainly haven't sufficiently through our financial sector considered and taken action to address climate related financial risks. So we're not prepared. And I think one lesson from the virus is that we need to be prepared. And we weren’t with the virus and we're not climate change. I think the other thing too is obviously the federal government and federal monetary authorities, the Central Bank, the Federal Reserve are deploying a tremendous amount of monetary and fiscal resources to try to address the implications of the virus from the economy. I think we need to think about, as we do those things, as we, as we provide, say, assistance to various sectors of the economy. We need to think about what recovery looks like. And, and look at ways to recover that will hopefully reduce greenhouse gas emissions too. So for example, providing substantial resources, say, to the oil industry without requiring that, that industry transition away from fossil fuels to my mind doesn't make a lot of sense. So one of the things we saw after the 2007, 2008 financial crisis was that although with the economic decline, you saw a decline, not an absolute decline, but some reduction in growth of greenhouse gas emissions. And here, you've probably seen that footage from Los Angeles with the clear air and other places. And what are the, what are the consequences of the economic shutdown associated with the virus is exactly that. But when we recover, as we recover, we need to think about how to recover in a way that is consistent with trying to address climate change as opposed to doubling down. And after the 2007, 2008 crisis, what you saw was a recovery that resulted in a significant spike in greenhouse gas emissions. So there was basically a phenomenon where there was a decline but then a significant jump. So how do we design the recovery here in a way that makes sure that we take every opportunity to try to transition away from greenhouse gas emissions, greenhouse production? 

  Maddie Bunting: The coronavirus has sparked a lot of conversation about private insurance versus, you know, government insurance. Do you, with your experience at the California Department of Insurance and seeing how this crisis is playing out with the coronavirus., do you see after the fact, once this is all over, do you see any shifts in the insurance field one way or another or do you see it staying the same? 

  Dave Jones: Well, I think that the coronavirus demonstrates the challenges associated with the health insurance system that's largely based on employment. So that when you have huge, huge increases in unemployment, people lose their health insurance. And so I think ultimately where we need to go is a Medicare for all program where we're providing health insurance universally to all Americans, we're far away from that. But, you know, I would have hoped that in this crisis, a faster remedy for folks that are becoming unemployed, and finding themselves without employer-based insurance, who now have to go on Medicaid, have to buy out insurance exchanges. A faster remedy would have been just to move them all onto Medicare potentially. But that's not what the federal government wants to do at this point. So at a minimum, what the Trump administration ought to do is open all of these exchanges so that not only people that are unemployed due to the virus can get health insurance, but those who were previously unemployed get health insurance to and get access to here that hopefully we'll keep them out of the hospital at a time where we need to reduce people showing up at hospitals to make more room available for those that are suffering from COVID-19. 

  Outro: This Podcast is a production of the UC Riverside School of Public Policy. I’m Maddie Bunting, till next time.