A few weeks ago, none of us would have expected to be in the position that we are currently in. Companies are having to make tough decisions quickly– can my workforce work remotely? Do we need to furlough employees in order to remain viable as a company? Can we weather this first wave of COVID-19? And that is only the business aspect– families are suddenly seeing each other only through a phone screen, and our children don’t understand why they can’t see their friends for the time being.
Now that many of us have been home for, how many days?, we’ve started to wonder what this will mean going forward for the healthcare industry. Claims for both COVID-19 testing and treatment were not anticipated a few months ago, and there will be a heavy impact from these claims costs for both self-funded and fully insured plans. A recent analysis released March 26th by Willis Towers Watson estimated the range of cost for a COVID-19 patient to range from $250 for a mild case to close to $100,000 for a patient that requires admittance to an intensive care unit. This same analysis estimates that costs could increase between 4 and 7% if the infection rate in the United States reaches 30%. This 4-7% is in addition to normal healthcare cost increases of between 5-6%.
However, there are many factors that could change the trajectory of any claims cost estimates at this point. It is simply too early to really be able to estimate the end financial impact upon renewals, but the discussion is worth having since there certainly will be an impact.
- Severity – through social distancing initiatives, the goal is to keep the overall infection rate as low as possible, but there will be a big difference for future healthcare costs between a 20% infection rate and a 50% infection rate. Severity will also take into account how many of the cases are mild versus severe since the severe cases take a heavier toll on a medical plan.
- Deferral of Services – many, if not most, elective procedures have been put on hold for the next few months at minimum. This could range from checkups to elective surgeries like knee replacements. While this may garner a decrease in claims in the short term, it will likely mean an increase in these claims in 2021 as those who deferred services in 2020 head back to the doctor in addition to the normal utilization. Insurers will take this into consideration when planning for renewal rating.
- Timing – it’s still unclear if most of COVID-19’s impact will be on claims in 2020 or if there will be a significant claim impact in 2021. We are in the midst of the first “wave” which no carrier planned for in their rating. Insurance carriers need to rate prospectively, however, and are not allowed to try to make up for claims retrospectively. If the United States is able to successfully limit the outbreak during spring/summer, this will bode better for healthcare costs if they aren’t anticipated to such a high degree in 2021
- Reserves – insurance companies need to keep a certain amount of money in reserves in order to deal with situations exactly like COVID-19, where extra money may be needed for unforeseen disasters/situations. If insurance carriers do need to dip into their reserve funds, that money will need to be replenished regardless of the 2021 COVID-19 outlook.
- Government Assistance – Another game changer will be if the federal government decides to aid healthcare insurers due to the strain of COVID-19 claims. If this were to happen, it would help to stabilize insurance carrier costs, and thereby, employer renewal premiums.
Over the coming months we will be able to gauge how these factors have come together to impact the healthcare industry and what this may mean for future premium and spend. In the meantime, the most important thing we can do is to work together and find new ways to support each other both professionally and personally. For updated information about special enrollments and plan renewals, visit our dedicated page here.