- Insurers face myriad challenges as they set premium rates for 2021 in the individual and small group market in the midst of the COVID-19 pandemic. The crisis is forcing payers to consider a slew of scenarios, laid out in an annual issue brief from the American Academy of Actuaries.
- The brief notes the pandemic has fueled "significant uncertainty" in projecting claims and lists a number of scenarios, including the potential for additional waves of infection this year and next.
- At first blush, the financial picture may seem hopeful for insurers, with deferred care outweighing the increased medical costs to treat COVID-19 patients. But the brief spells out challenges that may lead to higher spend, including a shift in coverage leading to adverse selection, deteriorating health for those delaying care and pressure on reimbursement rates as providers seek to make up for losses.
Even in the midst of a pandemic, the nation's largest insurers have seemed cautiously optimistic about 2020, mainly due to the fact that the plunge in patient volumes has offset the increased costs to treat those infected with the novel coronavirus.
In fact, the depressed patient volumes have lead to an unprecedented descent in healthcare spending. For decades, healthcare spending has steadily ticked upward, until this spring when it took a nose dive, according to figures from the Kaiser Family Foundation.
Yet, the nation is long from thwarting the virus without an effective treatment or a vaccine readily available. And as states across the country lift social distancing restrictions, infections will most likely continue to rise.
Compounding the issue is the staggering drop in employment. The unemployment rate reached a record of 14.7% in April, though slightly improved to 13.3% in May as many returned to work. With job loss comes the risk of losing health insurance coverage for millions of Americans, the majority of whom receive coverage through work.
Job losses are expected to spur a shift in coverage as people who lose insurance turn to plans on the Affordable Care Act exchanges or elect COBRA. Others may be eligible for Medicaid.
For insurers, this shift can result in adverse selection for them, ending up with a member who is less healthy and costs more. However, people in the employer market tend to be viewed as healthier.
"For instance, when individuals lose coverage, they must decide whether to purchase coverage, and less-healthy people are generally thought to be more likely to purchase coverage than healthy individuals," according to the issue brief.
On the flip side, the pandemic may motivate some to purchase insurance due to the risk of getting sick while uninsured, according to the brief.
Another scenario laid out in the paper that makes pricing more difficult is coverage for testing for the virus, which public health experts have said is key to containing and controlling future outbreaks. But who will pay for continued testing as it's used as a public health tool is still a muddied question.
If insurers are expected to pay, outside the need for confirming as a means for diagnosis and treatment, it could pump up costs. Not to mention the potential costs if a vaccine is available.
As patients return to providers, the delayed care could have resulted in poor health, particularly those who put off cancer or other key screenings. If there is a degradation in health status for people, it will likely lead to increased per member costs.
Plus, providers are likely to pressure insurers for higher reimbursements as they seek to make up for losses experienced during the downturn toward the end of the first quarter amid mandated social distancing.