Health Insurers Ride High for Now, But Watch What’s Coming Next

In the strangest healthcare business story of 2020, the major health insurance companies are thriving despite—or because of—the pandemic. As the second quarter reports of United, Anthem, Cigna and other insurers reveal, their COVID-19-related costs were outweighed by the sharp drop in claims for other healthcare services.

As a result, the second quarter operating gain for Anthem, one of the largest national carriers, jumped 65% from the prior-year period, while the portion of its premiums spent on member benefits dropped to 78%. The earnings of UnitedHealth, similarly, vaulted 98% as the percentage of its premiums spent on health care fell to 70.3%. Such a low “medical loss ratio” has probably not been seen since the 1990s.

At the same time, the big insurers’ membership has been rising, but not among workers covered by employer-sponsored plans. Commercial insurance members served by United, for example, fell by 270,000 to 26.8 million, following a drop of 720,000 in Q1. In contrast, the number of people in United’s Medicaid managed care plans rose by 330,000.

These trends track with the short-time fallout of the pandemic. Families USA reported that 5.4 million workers who lost their jobs from February to May also lost their health insurance. Another study predicted that by the end of 2020, 10.1 million people will lose employer-based insurance tied to someone in their household. 

The majority of the newly uninsured will eventually be covered by a family member’s plan, Medicaid or Obamacare if they don’t go back to work. Most Medicaid recipients are covered by private plans, and commercial insurers joust with each other for members on the state and federal insurance exchanges. So everything is coming up roses for the health plans, right?

Wrong.

First of all, insurers will inevitably raise their rates in the fall, in advance of the 2021 enrollment period. It’s unclear how steeply those rates will rise, but the trends that are currently holding down medical costs cannot last for long. In the pandemic’s early stage, elective surgeries fell by substantial margins, but more are being performed as state bans have disappeared and the need to do these procedures has become more pressing. Also, while office visits were down by 30%in late May and are still down significantly, patients will return to offices and ERs as their medical needs and emergencies increase. 

How big a wave this may be is demonstrated by a new study of “excess deaths” in the U.S.—deaths that are more numerous than expected. In just March and April of this year, the researchers found, about 505,000 deaths were reported, of which 87,000 were excess. In the latter group, about 56,000 (65%) were attributed to COVID-19. In 14 states, including California and Texas, more than 50% of deaths were attributed to causes other than COVID. This suggests that a lot of people who desperately needed care avoided it in the initial stage of the pandemic. However, as unmet medical needs mount, more people will seek care in the future.

Knowing that to be the case, and knowing that they’ll probably have to continue covering the total cost of COVID testing and treatment, it’s likely that insurers will present hefty rate hikes to employers and individuals. The fees that self-insured employers pay insurance companies for administrative services may not rise as much, but their claims payments will.

Early indications from the nation’s health insurance exchanges are that next year’s premiums will be up only slightly or even down in some cases. But many of the health plans surveyed by the Kaiser Family Foundation were not factoring in their COVID-19 costs in 2021. Moreover, in states like New York and Connecticut, some big plans are asking for rate increases of 10%-12% for their exchange plans, according to filings in those states.

Enter Joe Biden. If the former Vice President wins the November election, he’s going to be  dealing mainly with the COVID-19 emergency for the first year of his presidency. But his platform includes a “public option” that other Democrats—especially those in the party’s progressive wing—are likely to hold him to. That government health plan would be open to employees of companies that offer insurance, individually insured people and the uninsured. 

Under the Biden program, the public plan would bargain with hospitals and other providers to hold down costs. If a sufficient number of people joined the plan, it would have a fair amount of leverage—not as much as Medicare for All would, but enough to undercut private insurers. That is why they opposed a public option so fiercely in the runup to the Affordable Care Act.

So here’s what the big insurers are looking at in 2021: a pandemic that’s likely to go on at least through the end of next year, with continuing high costs for COVID-19 care; the political imperative to keep on paying their members’ share of those costs; a major drop in their commercial insurance membership and revenues; and a rise in less lucrative Medicaid and insurance exchange business. Meanwhile, if and when Biden’s health program is enacted, some employers are likely to bail on the insurers when they realize it’s less expensive to give their employees money to join the public plan than to pay private insurance rates for them.

Where will all of this lead? Eventually, if healthcare financing becomes more unstable, the number of uninsured people rises, and there’s a stampede to the public plan, there will be an overwhelming demand for Medicare for All. We were always going to get there eventually, because our healthcare financing system is unsustainable. As a result of the pandemic and the likely election of Joe Biden, however, we’re probably going to reach that goal much sooner. So insurance companies have plenty to worry about as they go into next year.

Ken Terry is a journalist and author who has covered health care for more than 25 years. His latest bookPhysician-Led Health Care Reform: A New Approach to Medicare for All, was recently published by the American Association for Physician Leadership.

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