For the first time in decades, health-care costs for large employers went down in 2020—albeit modestly. But neither employees nor smaller companies benefited from the reduction in costs that resulted from fewer elective procedures and fewer visits to the doctor during the height of the pandemic.
Data compiled by insurance brokerage and human resources advisory firm Willis Towers Watson showed health-care costs for about 600 companies covering more than 2 million people by paying claims directly—known as self-insured coverage—were about 2% lower in 2020 than in 2019, Trevis Parson, chief health-care actuary, said in an interview.
“We’ve never seen that before. Not in my lifetime have I seen it,” Parson said of the drop in claims costs, which occurred primarily in the second quarter of 2020, the height of the Covid-19 societal shutdown.
Demand for health-care services in 2021` is up slightly compared with what may have been expected otherwise based on the first quarter, Parson said. But it isn’t clear that costs will spike due to pent-up demand as some have predicted. If that doesn’t happen, there could be more pressure on employers to give a bigger break for premiums and out-of-pocket costs paid by employees.
Employer costs were about $12,600 per employee for 2020, about 6% under what they had budgeted, Parson said. That compared with costs of about $12,900 per employee in 2019.
The employee share of premiums in 2020 was about $3,100 with out-of-pocket costs such as copays and deductibles at about $2,200. In 2019, employee premiums were about $3,000 and out-of-pocket costs were about $2,100, he said.
For 2021, employers’ budgeted costs are about $13,900, employee premiums are about $3,200, and employee out-of-pocket costs are about $2,200, Parson said. Employers are planning their health-care designs expecting to pay about two-thirds of benefit costs, “and that figure has been very stable for 2019, 2020, and 2021 budgets,” he said.
Employers experienced savings in 2020 because of reduced care, “but they’re the ones in recent times who have been picking up some of this trend and not passing it to employees anyway,” Parson said. “So maybe things balance out a little bit.”
Affordability for employees “has become a clear concern” of employers, Parson said. “The focus has been less in recent years on cost shifting and more on cost shrinking.”
Smaller Companies Not Seeing Savings
The self-insured employers Willis Towers Watson tracks typically employ at least 5,000 people. But smaller employers that buy fully insured plans—under which claims are paid by health insurers—"didn’t see the savings because their 2020 premium rates were set in late 2019,” before the pandemic hit, Parson said.
For smaller companies, 2021 premium rates were set assuming that deferred care is over and health-care costs will go back to pre-pandemic levels, Parson said.
Insurers selling group plans in the Affordable Care Act marketplaces are basing 2022 rates on 2019 health-care costs, Greg Fann, a consulting actuary with Axene Health Partners LLC in Temecula, Calif., and a fellow with the Society of Actuaries, said in an interview. Fann reviews rates for ACA state marketplaces.
Insurers think 2019 “is a better picture of 2022, just because you had a lot of interruptions in 2020,” Fann said.
Of the approximately 20 insurer rate filings Fann has reviewed for ACA individual and small group plans, which cover up to 100 employees, 2020 claims costs ranged from no change compared with 2019 to as much as an 8% reduction.
There was a lot of pressure on insurers to waive cost-sharing, such as copays and deductibles, for members in 2020 “because everybody recognized they were perhaps benefiting from the reduced claims,” Fann said.
Self-insured employers benefited from lower claims as insurers did, and many also waived cost-sharing for members, Fann said. “But health-care costs are a pretty small piece for most employers in the grand scheme,” he said. “If your business is decimated by a pandemic, saving a little bit of money on your health-care costs isn’t that big of a deal,” he said.
“For insurers, it’s their business,” Fann said. “They’re much more sensitive to health-care costs than self-insurers.”
Spending Drops for Group Plans
The Kaiser Family Foundation found that spending for fully insured group plans dropped slightly in 2020, “the first time in recorded history,” according to a March report.
“We did find that insurers were either doing just as well or even better financially during 2020" as in previous years, Krutika Amin, an author of the KFF report, said in an interview.
Under the Affordable Care Act medical loss ratio (MLR) provision, insurers must refund excess profits. “They basically provided premium relief to people, or waived Covid treatment costs,” Amin said. “They would have had to provide consumer rebates, and so to kind of get ahead of that they did those,” she said.
Most of the cost-sharing relief provisions insurers provided for members have expired, Amin said. In 2021, “while most of utilization and spending has rebounded, it’s still lower than prior years,” she said. “This suggests that insurers’ financial performance may continue to do well.”
One consolation for smaller companies that buy fully insured plans from health insurers is the possibility they may receive refunds under the ACA medical loss ratio provision, James Sung, director of financial services ratings for S&P Global Ratings, said in an interview. “Some companies have gotten refunds directly from insurance companies,” Sung said.
Insurers estimate they will issue about $2.1 billion in refunds in 2021 to cover 2018, 2019, and 2020 in individual and group markets, Kaiser Family Foundation reported. That would be the second-largest amount since rebates were first issued in 2012 under the ACA. Rebates to employer group plans are estimated to be $618 million.
This year’s rebates are about $400 million lower than last year’s record high of $2.5 billion, but more than 50% higher than in 2019, KFF said.