MedCity Influencers, Payers

Could health insurance costs be flat or even lower during a global pandemic?

Here's a counterpoint to a recent PwC report that said that employer spending on healthcare could increase anywhere from 4% to 10% next year.

We’re in the middle of a devastating global pandemic forecasted to continue well into 2021. Common sense might suggest health insurance prices will increase as much as – or even more than – a typical year. And in fact MedCity News breaks down a new report by PricewaterhouseCoopers predicting employer spending on healthcare could increase anywhere from 4% to 10% next year (6% is typical). However, for a number of reasons, 2021 could be a year where employer insurance costs remain unchanged or even lower.

The PwC report is based on a range of research sources and focuses on predicting the consumption of health care. We’ll discuss that specifically in a bit but first wanted to highlight some data points that portend greater downward pressure on employer healthcare spending.

2021 individual market filings average just 2.6% requested increase, to date, with some decreasing
Delving into health insurers’ rate filings for the ACA individual market, we have uncovered that, to date, requested 2021 rate increases have been lower than prior years, and — in some states and for some health insurers — premiums will actually decline next year.

The ACA individual market covers a population similar to the employer market. Notably, adults up to age 26 are under-represented in the individual market due to the ACA’s provision to allow adult children to remain on their parents’ health plans.

Premium rates for new and existing 2021 ACA marketplace plans are in the process of being determined. The initial deadline for proposed rate submissions on Federally-run exchanges was June 17, 2020.

The impact of Covid-19 creates numerous actuarial uncertainties as the U.S. economy gradually reopens — particularly with the current uptick in cases and hospitalizations. New York state’s ACA filings certainly portend a more dismal scenario. Yet a majority of individual market ACA health insurer filings to date show Covid-19 may not be a significant factor in rate development for a range of health insurance plans and markets.

The 2021 employer market will be smaller — so health insurers will need to compete more aggressively
Job losses since February 2020 total 19.6 million, against a backdrop of 164 million people with employer-based health insurance. This sharp contraction in market size, while supply remains fixed, indicates there will be more competition (translation: price pressure) amongst health insurers and third-party administrators (“TPAs”). In addition to causing job losses, the recession imposes budget constraints on many employers, which may result in employers needing to offer less robust coverage to make ends meet, injecting additional price pressures into the market.

Another factor that may drive employers to put cost pressures on health insurers and TPAs is that employers must fund the costs of back to work Covid-19 screenings. The DOL recently clarified that insurance plans are not obligated to cover Covid-19 testing for back to work screening purposes, only for diagnostic purposes.

Which companies may be more aggressive on price? United, Aetna, Anthem and many NFP Blue Cross Blue Shield plans are positioning to offset membership lost in the employer market with growth in their individual and Medicaid books of business. Many TPAs as well as Cigna have minimal individual market and Medicaid footprints. Faced with losing 15% of their employer membership, these companies may move aggressively to “buy” business, whether ASO or fully insured.

Health insurers’ Q2 ‘20 earnings are forecast to be strong in spite of Covid-19, strengthening reserves
Moody’s noted that other than “several hotspot” virus outbreak areas “the impact and costs of the coronavirus have not been high, and our rated issuers are therefore likely to have a very strong Q2.”

“Even if there is a second wave” of COVID-19 coming, said Moody’s, “unless it is far worse than this current outbreak, it would also appear to be a small earnings event for the health insurers.” The rated health care companies included Aetna, now a CVS Health subsidiary, and six publicly-traded insurers: Anthem, Centene, Cigna, Humana, Molina and UnitedHealth Group. Note that several of these companies have significant exposure in Medicare. A majority of Covid-19 hospitalizations are amongst 65+. The impact to the employer-based insurance market is likely substantially smaller.

The punchline? If employers’ 2020 healthcare spending is significantly below budget, the 6% increase year-over-year for 2021 predicted by PwC would still be below pre-Covid-19 projections for 2021.

Non-Covid-19 healthcare costs could remain lower through much of 2021
Yes, a Covid vaccine, testing, and treatment will be new expenses in 2021 relative to 2019 and Q1 2020. But with Covid continuing well into 2021, Americans are likely to consume less ‘routine’ healthcare for at least 1H 2021, continuing trends since April 2020. Much has been deferred and will not “catch up”.

This is highly concerning. Childhood immunizations have dropped. Cancer testing and diagnoses have been delayed. Undoubtedly, the impact on health — and thus healthcare consumption and cost – is severe.

Narrow network strategies may help and are certainly a focus based on our interviews with insurer executives as well as the PwC report. Yet with provider consolidation accelerating and new price transparency rules upheld in court, employers may see happier employees – and help unleash market forces – by instead adopting value-based benefit designs coupled with robust digital consumer shopping capabilities such as what’s offered by Bind, Sidecar Health and Yaro (acquired by Virgin Pulse).

In addition to network and benefit design strategies, employers, health insurers and TPAs can adopt other strategies to get ahead of a portion of the downstream impact of delayed care:

  • Analytics to identify – and interventions to close – gaps in care, such as missed screenings. Predictive analytics may not be as effective here, because Covid-19-era patterns differ so widely from the norm.
  • Supporting consumers in navigating treatment paths. Many conditions have treatment alternatives…and often consumers aren’t even aware of or incented to use lower-cost, less invasive alternatives. Take musculoskeletal, one of the largest – and growing – drivers of healthcare spending. While research has shown that providers may over-prescribe, and many consumers prefer, the quick fix of surgery, outcomes often are no better than physical therapy. More consumers will be open to physical therapy and chiropractors to avoid the risk of complications and stay out of hospitals or operating rooms.
  • Retailers continue to expand healthcare services offered, increasing access to care at lower prices than traditional providers. For example, Walmart is moving to create “supercenters” with comprehensive healthcare services.
  • In addition, digital health has “crossed the chasm” as a viable alternative to in-person care for a growing array of health care – and it costs less than traditional health care. Digital health will become increasingly important to manage chronic conditions that are on the rise due to Covid-19 – such as obesity, diabetes, and mental health. With Covid-19 continuing well into 2021, consumers will continue to seek remote healthcare where possible.

Provider rate increase requests are likely to drive increased health insurance costs

Health systems are bleeding. There are equipment shortages driving up prices, accelerated pandemic preparedness including implementing technology to support virtual visits within days, the increased cost of delivering care in a Covid-19 environment such as PPE, Covid-19 testing and deep cleaning, and the sharp decline in routine and profitable elective medical care.

Some health insurers have already announced financial support for providers – notably Blue Shield of California and UnitedHealthcare. This is a more appropriate strategy to mitigate the significant impact of the pandemic on providers as compared to a rate increase, which sets the stage for artificially high rates going forward when the United States already pays substantially more for healthcare than any other country in the world.

A Covid-19 pricing factor?
Covid-19 is certainly a wild card in health insurance pricing, and 2H 2020 will undoubtedly continue to rapidly evolve. Yet employers have a range of strategies to employ to proactively reduce the risk of Covid-19 amongst their employees. Proactive employers should certainly highlight their programs and strategies as part of negotiations with consultants, brokers, and insurers/TPAs. Self-insured employers in particular should pay attention to reinsurance terms for 2021 as compared to prior years. Large claims associated with Covid-19 as well as deferred care may end up being the largest driver of health insurance cost increases. Given that different industries have very different Covid-19 risk profiles, perhaps we’ll also see health insurers in the fully-insured employer insurance market innovate on pricing and underwriting: perhaps a Covid-19 risk factor in pricing, based on SIC code.

So…could health insurance costs be flat or even lower during a global pandemic?

PwC predicts employer spending on healthcare could increase anywhere from 4% to 10% next year (6% is typical). As health insurers’ 2021 rate requests for the individual on-exchange market in New York highlight, if/where Covid-19 is severe, a 10% increase in healthcare spending is plausible.

Yet there is a significant likelihood that employer healthcare spending could be below the low end of PwC’s prediction:

  • The weighted average rate increase requested for the individual on-exchange market to date is just 2.6%, well below the low end of PwC’s forecast. Three of seven states’ weighted average 2021 rate requests were lower than 2020 rates.
  • The 10-15% contraction in the employer market, almost overnight, increases competition, injecting greater price pressure.
  • Employers’ exacerbated budget constraints due to recession and Covid-19 surveillance testing also puts pressure on TPAs and insurers to help contain healthcare costs.
  • Moody’s predicts health insurers earnings – and reserves – for 2Q 2020, and likely beyond, are forecast to beat targets.
  • Non-Covid-19 healthcare costs could remain lower through much of 2021, particularly if employers, health insurers and TPAs act now to address delayed routine care due to Covid-19. Strategies include analytics to identify gaps in care, and interventions to close those gaps; providing greater support to consumers in navigating treatment alternatives to prevent delays in care while supporting a shift to lower risk, lower-cost alternatives; benefit and network designs that steer consumers to retail for a more convenient, lower-cost alternative for a subset of healthcare; and driving uptake of digital health across the board, and in particular for chronic conditions being exacerbated by Covid-19 including mental health, obesity, and diabetes.

Sir Winston Churchill is credited with first saying, “Never let a good crisis go to waste.” He said it in the mid-1940s approaching the end of World War ll. More recently, in 1976, M. F. Weiner wrote an article in the journal Medical Economics entitled “Don’t Waste a Crisis — Your Patient’s or Your Own.” What Weiner meant by this is that a medical crisis can be used to improve aspects of personality, mental health, or lifestyle. The analysis above highlights how much influence and power employers, TPAs and health insurers have. Projecting next year’s healthcare spending and key drivers enables us to not only manage healthcare spending in the face of a once-in-a-century global pandemic – with the potential to achieve spending growth below PwC’s forecasted range – but more importantly drive adoption of innovation at scale to improve consumer experience, health and wellness.

Photo: Baris-Ozer, Getty Images


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Jaime Iosue Moran

Jaime Iosue Moran founded Shift Health Advisory as a boutique advisory firm to accelerate time-to-market and scale for companies innovating in health insurance and care delivery. She may have been the only person in her Stanford business school class who dreamed of working in health insurance, but 14 years later she remains focused on transforming the U.S. healthcare ecosystem. Jaime has helped design, build, evaluate, scale and lead a range of products and services across Blue Plans, Aetna, Walgreens and Venture-backed start ups that have improved healthcare quality and outcomes, lowered cost and improved consumer experience.

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