COVID-19 and the Uncertainties for 2021 Health Plan Premiums

By Clive Riddle, June 12, 2020

What will COVID-19 do to next year’s health plan premiums? The American Academy of Actuaries have just released a new issue brief, Drivers of 2021 Heatlh Insurance Premium Changes: The Effects of COVID-19. They tell us one thing for certain, is COVID-19 brings a whole lot of uncertainty to the equation.

Academy Senior Health Fellow Cori Uccello explains that “premium changes are based on how costs of care, enrollment, and other factors are expected to change relative to insurers' assumptions that were used in setting premiums for the current year, and the COVID-19 pandemic has brought new unknowns and opposing trends into the mix. The pandemic has introduced both positive and negative cost pressures within the health care system, and uncertainties to key projections such as claims that could be sensitive to possible subsequent waves of infection and illness.”

Four key points of their nine-page issue brief include:

1. For the first half of this year, increased health spending due to the direct costs of diagnosing and treating COVID-19 has been more than offset by a reduction in non-COVID-19 health services

2. We don’t know how trends will continue through the remainder of this year.

3. COVID-19 has introduced significant uncertainty regarding projecting 2021 claims levels

4. How COVID-19 will impact 2021 premiums depends on assumptions involving:

• The emergence of subsequent COVID-19 waves in 2020 or in 2021
• Whether non-COVID-19 utilization continues to be deferred or eliminated in 2021 or whether treatment deferred in 2020 is provided in 2021
• The pandemic’s economic effects on shifts in insurance coverage and risk pool composition, and
• COVID-19 testing and treatment costs, the availability of new treatments and vaccines, increases in mental health and substance treatment needs, changes to telehealth utilization and costs, and changes to provider reimbursement rates

With such an uncertain immediate future, perhaps the best place to start in considering premium rate impact, is to ask the right questions. Last month, MIlliman released a seven-page white paper on this topic: COVID-19: Considerations for commercial health insurance rates in 2021 and beyond.

Milliman tackled the topic by addressing these issues, and their related questions going forward:

1. Acute treatment and vaccination for COVID-19: How will COVID-19 infections and prevention impact 2021 costs? How will the cost of treatment evolve? When will a vaccine be ready, and what will it cost?

2. Access and demand for healthcare: How will the pandemic and aftermath affect access and types of care received? How long will utilization declines last, and what will patterns look like in the aftermath?

3. Lasting impacts on population health: How will the pandemic affect overall population health? How will carriers adjust rating philosophies to manager COVID-19 risk?

4. Economic impacts on enrollment and utilization: How will collateral economic damage affect enrollment and utilization patterns?

5. Disruptions to provider networks: How will provider systems be disrupted? How might this affect future contract negotiations and reimbursement structures? How will costs swings interact with one-sided and two-sided risk-sharing arrangements?

6. Operational impacts: How will disruptions and cash flow volatility impact reserve estimates used for pricing? How will delivery systems need to adapt, and how will that influence risks and costs? How might general and administrative expenses be impacted?