They are waiving cost sharing for COVID-19 treatment. How large will premium increases be next year?
Although the burden of providing direct care and treatment of COVID-19 patients is falling on hospitals and other providers, payers will be bearing the costs of that care.
COVID-19 costs this year will almost certainly result in premiums increases in 2021. How much of an increase will depend on the number of COVID-19 cases and, more specifically, the number of Americans who will need expensive hospitalizations and the fraction of those who will need to be treated in the ICU. Researchers at the University of Washington published a model in late March showing the demand for ICU beds in April will exceed the supply by 17,000. In a policy brief published earlier in the month, Covered California said the 2021 premium increase for employers and Americans buying in the individual market could range from a modest 4% up to an astounding 41%. Covered California is the government organization that runs the ACA exchange in California.
The American Academy of Actuaries noted in a FAQ this year’s premiums are locked in, so the insurers without large reserves could have solvency problems because of expenses related to COVID-19 care and the widespread waiving of cost sharing, including for treatment. Large insurers like Cigna, Humana, and Aetna, which is now part of CVS, made splashy announcements in March that their members with COVID-19 don’t need to be worried about medical bills.
But an increasing number of employers, including relatively small ones, have elected to self-insure, and they may not have the same amount of reserves on hand as the major insurers. Some self-insured plans have stop-loss coverage, but the academy said the majority of COVID-19 claims will fall below the large claim threshold, so the stop-loss may not help with the surge of COVID-19-related expenses as much as one might think.
A great deal of evidence shows older people and people with co-morbidities are far more vulnerable to becoming seriously ill from an infection with the SARS-CoV-2 virus that causes COVID-19 than younger, healthier people. That pattern could mean that cost burden of COVID-19 falls disproportionately on public payers, especially Medicare. As a result, Medicare Advantage (MA) plans and Medicaid managed care plans could be facing much higher medical costs this year than they had anticipated. Seniors who have flocked to MA plans in recent years may find the plans are not quite as attractive as they used to be if they wind up shouldering large COVID-19 costs. And governors and state legislatures may see some pressure on their Medicaid budgets if the Medicaid care plans take on huge new costs this year.
There may be offsetting factors for insurers. COVID-19 has meant widespread cancellation of elective surgeries - and those are procedures insurers would have otherwise covered. In fact, use of many kinds of medical services may tail off as American hospitals and clinicians grapple with the outbreak. New, expensive drugs may come on to the market at a slower pace this year both because the FDA is preoccupied with COVID-19 and the reluctance of pharma to launch product during such uncertain times. It is a complex situation, however. There may very well be some upward pressure on medical spending if the management of conditions like diabetes and hypertension suffers and people with those conditions develop complications.
As we went to press, the course of the outbreak was nothing if not uncertain, which makes projections of the costs and therefore the effect on insurers equally subject to uncertainty. Covered California’s estimate of COVID-19 costs for commercial insurers ranged from $31 billion to more than seven times that amount-$237.6 billion-with a “medium” estimate of $94.6 billion. One key factor in Covered California’s calculation is an estimate that COVID-19 hospitalizations will cost $72,000. That was far higher than the $20,000 figure that the Kaiser Family Foundation put out in mid-March, although the Kaiser figure was an estimate based on past experience with inpatient pneumonia admissions.
The classic insurance function is to buffer the shock of large, unexpected expenses, and Gary Shaw of Deloitte wrote in mid-March that “insurers are expected to continue to serve as shock absorbers for the economy and society.”
In the early days of the outbreak in early and mid-March, insurers moved quickly to waive the cost of COVID-19 tests. Waiving out-of-pocket costs for treatment came later. Here are some other steps that insurers have taken:
Mari Edlin is a regular contributor based in Sonoma, California. Peter Wehrwein is senior editor of Managed Healthcare Executive.®