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Virus Outbreak Could Send Health Premiums Soaring, Analysts Say

March 31, 2020, 7:10 PM

The Covid-19 crisis could result in higher health insurance premiums in 2021, but insurers’ profits may not take a hit, health-care industry stock market analysts said Tuesday.

High premium increases are “a possible outcome,” Matthew Borsch, managing director of BMO Capital Markets, said in a roundtable. But, he said, there’s a wide range of possibilities that could play out. “It could be the costs of Covid-19 overall are more than offset by the reductions in volumes from all of the disruption to the health-care system that’s occurred.”

Insurers are benefiting from an initial deferral of elective procedures by hospitals, which are preparing for a surge of Covid-19 patients, some analysts have said. “This is a very extraordinary situation, so we don’t know how they necessarily will react,” he said.

Analysts have disagreed over how much the crisis will drive up premiums in 2021, with some saying the initial reduction in elective procedures would be beneficial, while others, such as insurance rating company A.M. Best, predict claims may be high to cover sicker patients.

If there is a worst-case scenario with as many as 20 million hospitalizations in the U.S. from Covid-19, even with a lot of offsetting admissions that don’t happen, that could result in 20% to 25% increase in spending for hospital and physician costs, Borsch said. If insurers had to pay for that large an increase, “you would be getting borderline insolvencies” in the health insurance industry, he said.

However, in a worst-case scenario “you’re going to have a lot of care that’s provided directly by emergency mechanisms directly funded by the government,” Borsch said.

Impact Differs by Region

“The impact is very different based on different regions,” Ricky Goldwasser, a managing director with Morgan Stanley, said.

Regional health plans in areas hard hit by Covid-19 may face higher costs and premiums compared with health plans that are more diversified and that can cross-subsidize different regions, Goldwasser said.

There are about 400,000 diagnosed Covid-19 cases in the U.S. so far, George Hill, a managing director with Deutsche Bank, said. In comparison there were about 30 million cases of diagnosed flu in the U.S. in 2019, he said.

While treating Covid-19 cases is more expensive than treating flu, at this point it isn’t clear that insurers will suffer financial losses, Hill said.

Health plans need to consider the impact of the crisis on unemployment, Hill said.

“The health plans right now need to be looking at themselves wondering what does membership and enrollment look like as we come through the end of 2020 into 2021,” he said.

Lower numbers of people who are covered by company plans could mean lower numbers of people on the insurers’ membership rolls and lower revenues, Hill said.

To contact the reporter on this story: Sara Hansard in Washington at shansard@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com; Brent Bierman at bbierman@bloomberglaw.com