Economic impact of Ebola may lead to $32 billion in losses

October 16, 2014

The economic impact of an Ebola pandemic could reach $32 billion by 2015, according to the World Bank, while costs to the healthcare insurance industry will depend on how quickly the disease is controlled in countries with high insurance penetration, according to the Insurance Information Institute (III).

The economic impact of an Ebola pandemic could reach $32 billion by 2015, according to the World Bank, while costs to the healthcare insurance industry will depend on how quickly the disease is controlled in countries with high insurance penetration, according to the Insurance Information Institute (III). 

In areas of the world where there is little or no health insurance, the economic impact to insurers will be minimal, according to Dr. Stephen Weisbart, senior vice president and chief economist for the III.

“There is a wide variation in the use of insurance worldwide,” says Weisbart. Because there is almost no life or health insurance in West Africa, the cost of treatment and control “is pretty much a governmental expense,” he noted, with help coming from outside agencies like the U.S Centers for Disease Control and Prevention and World Health Organization (WHO).

But in the U.S, where insurance penetration is high along with the cost of treatment, a significant rise in infections will likely lead to losses among healthcare insurers, resulting in what Weisbart calls an “earnings hit.” Insurers will be able to spread those losses worldwide because “many of the reinsurance companies are overseas,” notes Weisbart.

The U.S. government will bear the economic costs of patients who are on Medicare and Medicaid, notes Weisbart.

Meanwhile, healthcare workers infected in the course of their jobs will likely be covered by Worker’s Compensation insurance. While some of those policies are managed by state agencies, the providers are generally private insurers, notes Weisbart.

Healthcare facilities that might be impacted by government shutdowns or quarantines also carry insurance to protect themselves from revenue losses, adds Weisbart. NAS Insurance Services of California announced Oct. 14 that it was offering coverage against business losses resulting from Ebola-related government-ordered closures, according to the Denver Post, and Boston-based brokerage William Gallagher Associates announced a similar business interruption insurance product on Oct. 15, according to Business Insurance.

Richard Bryant, a senior underwriter at Ark Syndicate Management Ltd., which is underwriting the policy for Gallagher, notes that coverage for Ebola-related losses is a necessity. “This could be potentially catastrophic for any medical-related facility,” said Bryan in a statement.

The U.S stock market posted its biggest loss in three years on Oct.15, plunging and regaining 400 points in the course of a trading day as investors reacted to Ebola news and fears about the economic impact of a growing crisis.

Weisbart says the number of new cases is just one factor in costs. “The number of patients who need to be isolated and quarantined (also) affects costs,” he adds.

Because the U.S. healthcare system is more developed than in other countries, “there’s a much better chance of actually overcoming the disease,” says Weisbart. A better survival rate means that there will be less of an impact on life insurance in the U.S, and more on health insurance.

The WHO on Sept. 22 warned that “unless the Ebola control measures in West Africa are enhanced quickly,” more than 20,000 people will be infected in that area by November, while the CDC puts the number of cases at 1.4 million if current trends continue.

The CDC is recommending that anyone traveling to countries where outbreaks of Ebola have occurred have full health insurance coverage, including coverage for emergency medical evacuation.

Benjamin Haynes, a spokesperson for the CDC, told insure.com that health insurance companies can play a role in preventing outbreaks by raising awareness among of health care providers and subscribers of the need to take precautions.

"Anything that they can do to help make people aware of what's going on where they live or where they travel is helpful," he says.

Certain insurers have already indicated that they are launching awareness campaigns, a move that the Insurance Institute strongly encourages.

“One would expect them to do that,” says Weisbart. “It not only has the potential to cut down on the outlay of costs through claims, but also on the number of people getting the disease.”