Published September 1st, 2020 at 6:00 AM
Brace yourself. The COVID-19 health insurance sticker shock is here.
According to the Harvard Business Review, employer health premiums may be rising this year between 4% and 40%. An Aetna filing with the District of Columbia’s Department of Insurance showed increases of between 7.4% for health maintenance organization (HMO) plans to 38% for preferred provider organization (PPO) plans.
Employers are no strangers to double-digit renewal increases, but why so high this year? Industry analysts say COVID-19 has created the perfect conditions for larger-than-normal spikes in health insurance rates for 2021.
Patients may return en masse for non-emergency care they postponed this spring. Hospitals could shift these services to costly venues to make up for revenue losses and fit in additional patients. And, when setting rates, insurers must consider the potential costs of a second COVID-19 wave anticipated in the fall.
One factor that could contribute to higher premiums in 2021 is hospitals making up for the dramatic drop in revenue during the pandemic.
According to Bill Kampine, co-founder of Healthcare Bluebook, physicians saw revenue losses of around 50% this spring. Hospitals lost as much as $60 billion a month because of delayed surgeries.
In the short-term, it will be hard for providers to raise prices to make up for the losses, Kampine said. Most take part in multi-year agreements with insurers. But large providers with leverage in a renewal year may try to increase rates.
It’s more likely that hospitals will shift the site of care to more expensive venues. According to a 2016 Healthcare Bluebook study, about 50% of outpatient services eligible to be performed in ambulatory surgery centers were completed there. The rest were done in hospital outpatient departments – which can cost as much as 600% more for the same procedure.
“As outpatient case volume returns in the post-COVID environment, there is incentive to schedule a larger proportion of cases in the higher-cost environment,” Kampine said. “We anticipate that we will see case migration. It is important for employers, plan sponsors and patients to be aware of the cost differences and actively manage site of care navigation for outpatient services.”
But this isn’t happening in all areas. Polly Thomas, president of CBIZ Employee Services Organization, said they are seeing a shift to lower-cost options for many services – like patients using telemedicine instead of urgent care facilities.
Melissa Haskins, a principal and Kansas City office leader at Mercer, said they haven’t seen providers asking for higher rates yet, but they did want to see if there would be market changes. Because of the growth in telehealth services, they are working with insurers to track utilization and see if patients are being charged lower telehealth rates or in-office fees for these visits.
Thomas said COVID-19 is having a direct impact on insurance costs for 2021 as actuaries try to determine how many postponed treatments will be taking place and what the second wave may bring this fall.
“We are looking at claims for specific companies to see how many of the services that were delayed will be performed versus those that just won’t not happen at all,” she said.
For example, minor knee pain that might have prompted surgery may have gone away with time and rest.
Insurers are also trying to determine what fall will look like in terms of COVID-19 cases. They are looking at infection rates for employer clients and who may require expensive, inpatient hospital treatment. Some employers are seeing increases because of serious cases from the previous year, Thomas said.
Some businesses with employees at higher risk – like meatpacking plants, prisons and assisted living facilities – may see insurance rate increases simply because of their industry risk.
Haskins said Mercer is predicting a second wave beginning this fall and ending around May of 2021. Using comparisons with the Spanish flu, they anticipate this wave to be about 60% as impactful as the original one.
“We are trying to apply some math and a crystal ball to see what will happen,” Thomas said. “And our models have never had to take into account the pandemic, so we don’t have that history to look at.”
If rate hikes have organizations seeking ways to reduce costs, businesses often switch to a different insurance company. For organizations tired of hopping around, there are some other options that can help reduce costs.
Small employers may be able to pool together to have a broader group of claims, which can sometimes lower costs, Haskins said. Slightly larger organizations may want to consider self-insurance or a hybrid plan. She said that can give an employer more flexibility to do things that can lower claims costs like implementing well-being initiatives. Typically, an employer needs to have 300 to 500 employees to make it work, but companies as small as 50 have used a hybrid approach.
“I have had a 150-life group that has done it and they just took the good years with the bad,” she said. “They have to have a high risk tolerance, though, because all it takes is one expensive gene therapy treatment to throw things off.”
Thomas said employers can modify their plan design to lower costs. High-performing, narrower networks can produce substantial savings and most insurers have these options. Companies can also implement tactics to better manage their spending on drugs (one of the major drivers of annual rate increases) like step therapy and prior authorization.
“We are seeing a lot of companies that were reluctant to implement some of these things that are making the decision to do so to mitigate the projected impact of the increases from COVID,” she said. “It’s not hopeless… It is challenging, but not hopeless.”
Tammy Worth is a freelance journalist based in Blue Springs, Missouri.