Coronavirus: the crown of thorns for health insurance providers

Millions of people have lost jobs because of coronavirus effects on business. And they are often deprived of the health coverage that came together with those jobs as well. More suffer from their work hours reduced or have to bear drastic pay cuts that make monthly premiums – that may have been manageable before – out of reach. 

The coronavirus disease pandemic has added more costs to the healthcare system, employers, and health insurance providers as well, though that will depend on how many people are infected and how many become seriously ill. Let’s take a closer look at the coronavirus impact on the health insurance system.

Coronavirus outbreak = health insurance breakdown?

The cost of providing increased COVID-19 coverage to policyholders, coupled with the overall higher frequency and severity of claims to treat the virus and exacerbated by policy cancellations, is expected to have a profound impact on the profitability of the insurance industry. 

When the 2020 health insurance policies currently in place were priced, there were no premium increases in anticipation of COVID-19. It is uncertain whether delays in elective surgeries and other non-emergent treatments in addition to the savings resulting from telehealth will have a significant impact to outweigh the increased costs of coronavirus pandemic. 

There is still a great deal of uncertainty regarding the timeline to contain the COVID-19 outbreak and the ultimate costs for the insurance industry to pay for such claims. It is also uncertain whether the government will provide relief to the insurance industry. COVID-19 has the potential of increasing future health insurance premiums significantly, but the final impact will be determined by the outcome of the aforementioned variables.

Will coronavirus make health insurance companies skyrocket the premiums?

Evidently, the coronavirus disease outbreak is going to cost health insurance providers a lot of money. If it doesn’t get under control soon, that might mean dramatic increases in insurance premiums next year. Some reports predict that employer premiums will rise in 2021 by 40 percent or more, if federal actions are absent, which is certain to alarm many employers.

That’s the message which is speculated among some experts. It is very true, that health insurance payouts have drastically increased. The cost to health insurers for covering COVID-19 testing and treatment, especially as many of them waive cost-sharing for patients, could be enormous. 

But insurers can’t legally hike their rates astronomically next year to make up for those costs. Their proposed rates should reflect their expected costs in 2021, not what they spent in 2020. State regulators can push back against proposed hikes that they don’t think are justified by the anticipated costs for the upcoming year.

2020 insurance rates have already been issued for most employers, and they include almost no coronavirus claims expenses. This means most employers will see a minimal impact to their existing 2020 rates. 

The real issue is how COVID-19 will affect 2021 premiums. Experts say some major questions need answers before they could assess what will happen to premiums in 2021:

  • Is the pandemic over by 2021 or is it still going?
  • Do insurers need to use their financial reserves to cover coronavirus costs?
  • How many elective surgeries are getting postponed into 2021?
  • Will governments do anything to help health insurers absorb their losses from the pandemic?

Has coronavirus put health insurance companies in its bear hug?

If the virus remains and people continue to get sick, be tested, or go to hospitals because of COVID-19, the insurers could fairly assume they will continue to have new expenses related to the outbreak next year. That scenario can lead to the worst consequences with double-digit increases potentially being the norm. Potentially, but not necessarily.

For most employers, this means four or more months of coronavirus expenses that will affect their base. And while this may lead to some premium increases, several countervailing factors will compensate the COVID-19 expenses and minimize potential rate increases.

  1. Insurance regulators rarely include one-time events in base claims. Assuming that the coronavirus outbreak is a one-time event, it means that 2021 insurance rates are not likely to skyrocket because of the current crisis.
  2. Social distancing has lowered overall claims expenses in other areas, such as office visits, elective surgeries, lab tests, outpatient care, and inpatient stays. This will outweigh any increases from COVID-19.

Insurers will experience significant losses from unpaid employer premiums. But because health insurers are required to maintain minimum “risk-based capital” reserves to cushion unforeseen disasters like COVID-19. This should, in its turn, compensate related revenue decrease and not affect employer insurance rates.

Insurers are often criticized for accumulating large reserves. But the reserves make it possible to protect subscribers and providers during catastrophes and ensure that they can cover healthcare expenses regardless of higher claims or lower revenues without influence on current rates.

Conclusion

But that is not the end of the story.

Even though most employers should not suffer severely from large premium increases, there will be some increases. Many employers will be tempted to pass coronavirus-related insurance losses to their employees’ shoulders to soften companies’ financial impact. 

The question arises: whether employers should expect workers to compensate more of the burden by passing on health insurance cost increases?

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