Employers and insurers so far are coming out ahead in terms of the health-care costs they are incurring during the Covid-19 pandemic, but they may face sharply higher costs down the road, health-care analysts say.
After an initial spate of dire warnings of huge costs related to the pandemic, first quarter earnings calls revealed that insurers did well. That’s because they saw lower claims costs as patient visits and procedures were canceled to reserve capacity for Covid-19 treatment and out of fear that in-person contact at medical facilities could spread the disease.
Analysts are struggling to foresee whether insurers and employers will escape higher costs due to deferred care—or whether they will be hit by a double whammy of big costs for Covid-19, such as post-acute care, and higher expenses to treat sicker people who didn’t get care when needed. Insurers may also take a big hit on premiums as millions of people lose their jobs.
How analysts view the insurers’ prospects has evolved from the early days of the pandemic. Consulting firm Willis Towers Watson switched its forecast from a 7% increase in 2020 costs for employers in March to a 4% reduction in its latest report May 1.
“The first ways of looking at it, including ours, assumed probably higher initial rates of infection,” Jeff Levin-Scherz, North American co-leader of Willis Towers Watson’s health management practice, said in an interview.
“What’s changed things over this time is that now we understand just how little non-Covid care is being delivered in places where there is a substantial amount of community transmission,” Levin-Scherz said.
Health-care data company Komodo Health Inc. reported in April that routine disease management and preventive screenings declined significantly in the weeks after shelter-in-place guidelines took effect throughout the U.S. The largest declines were in cervical cancer screening (down 68%), cholesterol checks (down 67%), and A1C blood sugar tests (down 65%).
Some Costs Forgone
Delays in some screenings or treatments may lead to greater costs later as diseases worsen, but other types of delayed care, such as for common colds, will simply be forgone, said Levin-Scherz, who is also an assistant professor in the Department of Health Policy and Management at the Harvard School of Public Health.
In March, America’s Health Insurance Plans issued a report from consulting firm Wakely Consulting Group LLC estimating that Covid-19 costs to insurers could be as high as $556 billion in 2020-2021. That analysis didn’t include savings from forgone care.
The estimate was based on emerging data and information as of March 28, Michael Cohen, a senior consultant with Wakely and an author of the report, said in an email.
So far deferred non-essential care “is being magnified daily as states are extending their social distancing practices, and we’re only seeing some spotty areas where they’re bringing back non-essential care” on a limited basis, Bridget Maehr, associate director of credit ratings agency A.M. Best, said in an interview.
“Although Covid claims are there, it’s the other claims that aren’t there that are overshadowing everything,” Maehr said.
A.M. Best has maintained a stable outlook for health insurers.
Milliman: Deferred Care Reduces Costs
Milliman Inc. sees deferred and eliminated care as being “far more impactful” in reducing costs than increased costs from testing and treatment for Covid-19, according to the actuarial firm’s April 23 report. Milliman projects reduced medical costs for employers and health insurers of at least $75 billion and as much as $575 billion if care continues to be eliminated through 2020.
But the impact will differ for Medicare, Medicaid, and commercial insurers, Charlie Mills, a principal and consulting actuary for the firm, said in an interview.
Commercial, or non-governmental, insurers will see lower costs, but they also will have fewer enrollees, Mills said.
More than 30 million people have lost jobs as a result of the pandemic.
Some will keep coverage through Affordable Care Act exchanges, some will get coverage through Medicaid, and some will lose coverage entirely, he said.
The decrease in medical payments for commercial insurers is expected to range from $85 billion to $318 billion, Mills said.
High Price of Delayed Care
But Bruce Lee, a professor of health policy and management and executive director of public health informatics, computational, and operations research at the City University of New York, argues that deferred care is ultimately going to come around to bite insurers and employers at some point.
Lee is one of the authors of a report recently published in the journal Health Affairs, estimating that over the course of the pandemic, medical costs will range from $163.3 billion if 20% of the population gets infected to $654 billion if 80% of the population gets infected.
“These are costs that are above and beyond what are normal costs,” Lee said in an interview. “This is completely on top of it. This is not replacing these other costs.”
For example, post-acute care for Covid-19 patients will be needed for people who have lung injuries or who develop sepsis (blood poisoning), Lee said.
The idea of “elective care” that is being pushed off right now “is a difficult term,” Lee said. Some truly elective care, such as plastic surgery, could be eliminated altogether, while some care, such as for chronic conditions, can be put off.
“You’re seeing a shifting around” in terms of when costs will actually hit, Lee said. In addition, “deferring care in many cases right now is going to cause surges of other types of problems,” for ailments such as heart conditions. Those conditions will get worse, he said.
Furthermore, “we haven’t even begun to see” the toll on emotional health and stress on physical health, Lee said. “It’s hard to see a situation in the long-term where there’s actually going to be decreases in costs because of this pandemic.”
10% Claims Increase Foreseen
Machinify, a Palo Alto-based software company that processes claims for health plans covering about 150 million people, estimates there will be a 10% increase in claims to all payers, including government programs, commercial insurers, and employers, over the next 18 months, resulting in a cost increase of $641 to $1,885 per member per year.
Total extra costs would be between $208 billion and $614 billion, which includes between $79 billion and $234 billion for self-funded employers, according to Machinify President Tony Miranz.
But commercial insurers can’t increase premiums for 2021 based on expected losses in 2020, and many insurers must make refunds later this year for overcharges from prior years under the Affordable Care Act’s medical loss ratio requirement, Miranz said. The provision requires insurers to refund charges if they spend less than 80% of premiums on claims or quality improvements.
“Deferred treatments are going to come back. They’re going to happen. They’re just time-shifted,” Miranz said. “The lull that the payers see in their claim volume is a deceptive one. It’s the calm before the storm.”