COVID may slow premium increases in 2021

In June, the Colorado Health Institute estimated 563,000 Coloradans would join Medicaid this year, with the majority coming from those who lost their jobs due to the ongoing COVID-19 pandemic. With those losses came a large drop in the number of people within the risk pools that comprise the group insurance market.

But while the pandemic remains a heavy net negative for businesses, it does offer one silver lining: Health insurance premium hikes are likely to be small come renewal time.

COVID upends health care, but not in the way many think

Initially, health-care experts were warning that the pandemic would skyrocket health-care spending, and the ensuing rise in Medicaid enrollments due to widespread unemployment would only add to that.

The final fuel to the flame was the potential of younger, healthier people leaving the risk pool to save money, which would have by definition increased premiums.

“We might expect that to result in an increase in premiums and maybe even a substantial increase in premiums in the job-based marketplace,” said Jerry Kominski, a professor of health policy and management at the UCLA Fielding School of Public Health.

In the first weeks of the pandemic, local governments across the country shut down elective procedures so hospitals could dedicate space for intensive-care beds and to stop the spread of the virus between their walls.

While that decimated hospital revenues, which relied on those expensive elective procedures to offset the cost of lower-reimbursing care that COVID fell under, it led to a boon for insurers that took in premium dollars and paid out far fewer claims than usual.

Major insurance companies such as Anthem Inc. (NYSE: ANTM), Humana Inc. (NYSE: HUM) and UnitedHealth Group (NYSE: UNH) saw their profits double in the second quarter of this year compared to the same period last year due to Americans deferring their care to a later point.

However, members of those plans will get a cut of their premiums back.

Under the Affordable Care Act, private insurers selling individual and small-group plans have to spend 80% of their premium income on claims and improving quality and are limited to using the 20% remaining for administration, marketing and profit. That ratio rises to 85/15 for companies selling large-group plans.

If an insurer can’t meet that ratio, it is required to return the excess back to its plan holders by either a cash rebate or a discount on future premiums.

Linda Blumberg, a fellow at the Urban Institute’s Health Policy Center, said those rebates won’t be enormous as insurers pay them out based on three-year premium averages. However, those profits will put downward pressure on premiums for 2021.

“What we’re anticipating is [that] increases in premiums next year will be quite small,” she said.

A temporary drop in care-seekers

Blumberg said some of that deferred care may never require medical treatment, such as a person with back pain who improved over time without the help of a doctor.

“Some of that care that was forgone is likely never going to come back,” she said.

But economists generally expect bookings to return at some point once a COVID vaccine is widely deployed, mostly from patients delaying non-critical care such as optional surgeries.

“As we get past that peak (of COVID cases,) people who have delayed elective surgery will come back and get the surgery,” Kominski said.

There’s also the ongoing debate as to whether or not health insurers should be on the hook for covering the cost of COVID-19 virus and antibody tests for those looking to go back to work in high-risk environments.

The insurance industry has argued that the problem needs to be tackled logistically and financially by public health authorities, a position the Trump administration has backed.

What happens when jobs come back?

At some point, it will be safe to pack restaurants, bars, retail shops and other public gathering spaces to maximum occupancy without worrying about a super-spreader event. The sections of the economy that couldn’t run at full steam with social distancing in place will return to some level of normalcy.

Blumberg said a large portion of the country’s job losses are concentrated in sectors that traditionally don’t pay well and are less likely to offer insurance. In other words, the number of Americans jumping from private insurance to Medicaid or the Obamacare exchanges isn’t as large as it could have been compared to a financial crisis like the Great Recession.

But therein lies some of the biggest questions facing the American economy: How many jobs will come back, and how many of them will offer health insurance?

“We should anticipate that employer insurance will come back by and large, but the timing of that is incredibly uncertain,” she said.