The Lasting Effects of COVID-19

What does the Magic 8-Ball say?

“Cannot Predict Now”

Once we get past the COVID-19 pandemic medical claims and projections for the coming years are not going to be easy to predict. The general assumption was that a national health emergency would cause medical utilization to climb causing future insurance premiums to increase. While future rates will continue to increase, this pandemic is going to make it a bumpy ride.

We encourage you to review The Hidden Costs of COVID-19 for Employer Healthcare Budgeting Alight_Hidden_Costs_White_Paper_2020 for a more in-depth analysis of future healthcare costs.

Before we go into the financial impacts of COVID-19, let’s remember how health insurance rates are developed. Insurance carriers assess the current trend in medical/Rx claims and the amounts they are paying for those claims. They’re also assessing the past few year’s trends and then projecting the upcoming years utilization of benefits to develop a prospective premium for each benefit plan they offer. Obviously there’s more that goes into making the insurance premium “sausage,” but this gives you a basic idea of how medical and Rx utilization helps determine rates.

The original rate projections for 2020 fully insured plans was about a 5% increase over the prior year. A typical year compared to the last 5-years. Then COVID-19 happened – a national health emergency and global pandemic.

Everyone’s initial reaction to the pandemic was that medical claims would skyrocket; but the opposite effect, it turns out, is true. For the 3-months following February 2020 doctor and hospital visits plummeted and medical claims decreased to unpredictable levels. Hospitals implemented unprecedented layoffs of staff. Medical procedures deemed non-emergency were postponed or rescheduled. The last place relatively healthy people wanted to be was in a doctor’s office or emergency room.

The outcome of this drastic decrease in medical services? Medical claims reduced anywhere from 10% to as much as 50% in the early stages of the pandemic. This alone should cause future premiums and premium equivalency’s to decrease, right? If usage decreases so should rates, correct? Not so fast.

Projected insurance premiums will be determined by the coming rebound effect. If you needed a hip replaced prior to COVID-19, you still need that procedure. Most of the costly services that were scheduled during early 2020 will still occur, just later in the year or possibly in early 2021. On top of that, the new cases that require treatment, but weren’t diagnosed or treated, will need to be performed.

There is also the impact of those individuals who avoided routine checkups or even important diagnostic services. Catching cancer, heart disease and other large health insurance cost drivers early allows for lower cost and less invasive treatments. By not catching those diseases until after people feel more comfortable seeking treatment may lead to higher cost treatment in the long run.

The expectation for medical utilization trend is there will be a spike in care as the world slowly returns to normal. If you have been limping for the last 3-months waiting for a knee replacement you want to be first in line once it’s safe. At the same time routine physicals will be ramped back up and possibly increased due to the volume of postponed office visits. Medical claims will increase; by how much is the question we’re faced with.

Conservative projections see the increase in utilization and cost averaging out the decrease we are currently experiencing. Essentially, the expectation is that when we look back in 2-years time we’ll see average claim cost in the 5% range compared to previous years.

Others project an increase in claims going well beyond the decreases we are currently experiencing. Decreased government assistance, increased healthcare needs resulting from the virus itself, Mental Health service needs, and greater high-cost treatments for the major health disorders that weren’t diagnosed during the 3-months following February 2020 are some of the reasons for anticipated increased utilization. This would lead to higher than normal premiums for years 2 and 3 post COVID-19.

Our advice to employers is to budget for higher than normal costs in 2022 and 2023. While we’ve become accustomed to rate increases in the 5%-10% range over the past few years, budget for 10% or greater increases if you can. Hopefully, we remain at the 5% level, but it’s best to be prepared should utilization and rates trend higher.