Claims Are Down. What Happens Next?

In evaluating the effect of COVID-19 on health plan costs, the primary impacts are related to new costs for testing and treating patients who need hospitalization, and ‘savings’ from deferred elective care that does not return. While many estimates, including Mercer’s, envision some scenarios leading to 2020 costs lower than budgets, there are secondary consequences that could impact costs in 2021 and beyond.

Even for 2020, the outlook is far from certain. The last two weeks of March 2020 saw an estimated drop in medical claims of 30% - 40% in many instances and the drop in April was of a similar magnitude. In May, total spending is still likely to remain below normal levels. However, it remains to be seen how much of this care is “lost forever” and how much will simply be delivered later in the year. Other unknowns for the remainder of the year include the possibility of a second wave of the virus, as well as the emergence of expensive treatment options. Given the uncertainty, some employers are holding off on adjusting CY 2020 budgets, while others are choosing to make an adjustment now. Regardless, it’s important to closely monitor both actual claims experience and changes in the macro environment that are likely to affect experience, and make adjustments as necessary. Scenario modelling can be a valuable tool to understand the range of possibilities, provide insights into key drivers, and establish a framework against which to monitor actual experience.

Looking ahead into 2021, additional financial risks come from the potential adverse consequences from missed wellness visits, immunizations, and services that otherwise would have been delivered.  It is not unreasonable to assume that we’ll see an increase in case complexity due to these missed services, and though the extent is debatable, it will likely be dependent on how long people continue to avoid care. 

In addition, given the precipitous drop in revenue, providers are rethinking their strategies, and in some cases already asking health plans to revisit contractual terms.  Given the cash flow and revenue challenges, especially in smaller practices, upward pressure on reimbursement rates is likely. Constrained Medicare and Medicaid budgets may exacerbate cost-shifting to private sector health plans. Provider consolidation could play a role in raising prices as well. Employers should prepare for the possibility of higher-than-average increases in provider reimbursement, which typically account for two-thirds of total trend (with the remaining third driven by utilization increases).  An additional point or two of trend may take projections from the mid-single digits to the high-single digits, and push employers to consider new strategies that may not have resonated in the past. While increased cost-sharing with employees has been the primary lever for combating cost growth over the last 5-10 years, given current and emerging health care affordability challenges for employees, this tactic may not be viable for many employers going forward.  

The COVID pandemic has many other potential impacts as well, including an increased demand for behavioral health services, and, on a positive note, a possible shift to more efficient delivery channels such as telehealth and urgent care (vs. emergency departments). With so much still unknown, employers can’t afford to be complacent during this time of low utilization. A rebound in costs is likely later this year as delayed care returns, and, longer term, as the secondary impacts kick in to drive up costs.

Sunit Patel
by Sunit Patel

Partner, Chief Actuary, Mercer

Partner and Chief Actuary, US Health & Benefits Actuarial Financial Group

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