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COVID-19: What Will Happen to Future Private Health Insurance Premiums?

As of April 6, COVID-19 cases have surpassed 1.35 million globally, with more than 75,000 fatalities…and counting. The U.S. accounted for 367,000 infections and almost 11,000 deaths. The world economy is spiraling disastrously downward with no clear consensus when the bottom will be reached.

While watching the evening news recently, my wife asked me how insurance companies will remain financially sound if the scenarios of COVID-19 cases and fatalities reach doomsday projections. This is a logical, yet difficult, question worth some exploration.

In the U.S., most healthcare is privately provided – except for the elderly (Medicare) and for the poor (Medicaid). The key issue in the U.S. and most countries is to enable rapid testing of people in vulnerable populations, such as the elderly and individuals with health conditions who may have compromised immune systems.

Overview on Treatment Cost, etc.

Most countries, thanks to government-directed health systems, will provide free testing and treatment, but in the U.S., when appropriate tests are available, it is largely dependent on whether each private insurer (and self-insured employers) will cover COVID-19 testing and treatment. However, the Families First Coronavirus Response Act that was recently passed by Congress mandates that Medicare, Medicaid, other government plans, and most private plans cover the entire COVID-19 testing.  It must be noted that ‘surprise’ billing issues could develop under some scenarios.  There are no curative treatments for the COVID-19 virus itself, so the treatment mentioned in this blog addresses the complications from COVID-19-related illnesses.

According to the Peterson-Kaiser Family Foundation Health System Tracker, the potential costs of COVID-19 treatment for Americans covered by employer health plans will vary greatly by location and insurance plans – in addition to complications and comorbidities. The average hospital stay for admissions due to pneumonia, a relatively similar comparison to treating COVID-19, with or without complications or comorbidities is 3.2 days – with a median total cost of treatment being about $13,000. Patients with respiratory conditions who require a ventilator (requiring less than 96 hours) will average 5.8 days – with a median cost of over $34,223. Finally, patients on ventilators for more than 96 hours will average 22.6 days – with a total median cost of over $88,000.

It is important to note that the actual number of patients and the medical efforts required will ultimately determine the true medical costs, both in Iowa and across the country. Medical costs in Iowa tend to dip below national average costs mentioned earlier.

As of April 5, a research center at the University of Washington estimated that 420 Iowans will die of COVID-19 by August 4. This figure is based on a moving target of assumptions, as it will be greatly dependent on a number of variables such as stay-at-home adherence by Iowans practicing social distancing, number of Iowans affected by the virus, healthcare workforce capacity and availability of medical supplies, adequate number of ventilators, etc. Just three days earlier (April 2), this Iowa estimate was 1,488 fatalities. Facts and assumptions are clearly very fluid at this time. The number of Iowa residents testing positive in the upcoming weeks is expected to peak in late April or early May. The Iowa Department of Public Health provides the latest update on the COVID-19 cases, including the number of Iowans currently hospitalized, discharged and recovering, never hospitalized and deceased.

The majority of people with COVID-19 can be managed at home, but as the cases in China have demonstrated, about 15 percent required hospitalization and another five percent ended up in critical care.

Postponed Medical Visits and Elective Surgeries

Hoping to free up more hospital beds and staff to deal with the COVID-19 surge of patients, many Iowa and U.S. hospitals have postponed elective surgeries and procedures. It is important to note that these ‘elective’ procedures cover many different areas, and in some cases, are still considered urgent, such as cancer, organ transplants and heart conditions, while other procedures, like joint replacements, are not considered to be a medical ‘priority.’ Elective surgery is any surgery that is scheduled.

Certain types of elective surgeries may be postponed for a long time – such as hip and knee replacements – but sometime later this year, or in 2021, there will be a pent-up demand for those types of surgeries. In fact, some procedures could develop into more serious medical conditions, including compromised mental well-being of having prolonged pain and discomfort.

Insurance Companies – Wellmark Blue Cross and Blue Shield of Iowa

On March 20, Wellmark Blue Cross and Blue Shield of Iowa, the state’s largest private insurance company, indicated that it is offering virtual healthcare visits for all appropriate medical and behavioral health visits at no cost to members until June 16. Additionally, Wellmark is covering diagnostic testing for COVID-19 at no cost-share to members. Early refills of prescription drugs are also permitted.

Wellmark then announced on April 1 they will retroactively waive members’ cost-share related to the treatment of COVID-19 – including copays, coinsurance and deductibles – when members seek care from an in-network provider, effective February 4 through at least June 16. By eliminating cost barriers to their fully-insured business and Medicare Supplement members, the desire is to ensure members seek the necessary testing and care regarding COVID-19. Self-funded employers that are administered through Wellmark will decide separately whether to replicate Wellmark’s policy or implement something different.

What Will COVID-19 Mean to Future Private Premium Costs?

How the COVID-19 medical costs will impact private Iowa medical insurance premiums is unknown at this time. Insurance companies, such as Wellmark, establish a ‘reserve’ for claims that are incurred but not yet paid. Additionally, certain statutory requirements for reserves are set aside to help cover unique medical situations that we are currently experiencing. If the COVID-19 claims erode the reserves, insurers may actually have a legal obligation to increase rates to build up those reserves for the next ‘emergency’ sometime later. This is a sound actuarial practice.

Insurers may need to price their 2021 premium rates upward to anticipate a surge in elective surgeries because people have delayed less urgent medical services. On the other hand, the decrease of elective procedures this year may help insurers financially weather the COVID-19 medical costs; their reserves may hopefully be stronger than expected when heading into 2021. A new report from Covered California, the Affordable Care Act marketplace in that state, projects that commercial carriers and employers could face between a $34 billion to $251 billion bill for COVID-19 testing and treatment in 2020, requiring insurers to increase premiums between four percent to 40 percent. Whether the federal government would help mitigate premium growth due to this pandemic is too soon to speculate.

All of this will largely depend on controlling the pandemic as soon as possible. If insurers have to dig deep into their capital reserves, then all bets are off on just how much higher health insurance premiums will need to be in 2021.

As one insurance professional mentioned to me last week, “Reserve adequacy is a function of rate adequacy.” In other words, rates will need to be adjusted upward to ensure the claims and reserves are adequate for future emergencies.

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