How Did COVID-19 Affect the Insurance Market?

Chris Freitas • Jul 23, 2021
covid 19 affect on insurance market

More than a year since the start of the pandemic, we are continuing to monitor the ripple effects on business operations worldwide. As one of the most highly visible – and scrutinized – sectors of the economy, the health insurance sector was forced to grapple with an extraordinary crisis. Although insurance analysts will be studying the influence of COVID-19 for years to come – and some of the pandemic’s effects have yet to be determined – here’s what we know about the impact of COVID-19 on the insurance market so far.


RATES


For the first time in history, overall health spending dropped slightly in 2020. That’s at a time when the average cost of COVID-19 hospitalizations was $73,300 for patients without health insurance, according to FAIR Health. And even average insured patients who sought in-network care racked up an average of $38,221.


The Kaiser Family Foundation reported that these spending changes resulted from a combination of factors, including the cancellation of elective procedures and preventive care, the delaying of medical care for non-COVID-related issues, and possibly due to financial concerns as a result of unemployment. Those reductions in services helped offset the costs of high-cost hospitalizations due to COVID-19.


As the vaccine became more widely available and the nationwide pandemic response shifted toward normalcy, insurers expected that health costs would pick up again in 2021 due to a few factors:


More people visiting their doctors for long-delayed care

Those with chronic conditions might end up with serious complications, requiring more extensive treatments


Insurers anticipating additional costs related to COVID-19 testing, treatment, and vaccination

Still, even taking into account the pent-up demand for health care, the health insurance market took a conservative approach when it came to setting premium rates for 2021, partly because of the lingering uncertainty, according to the Kaiser Family Foundation study.


Each year, health insurers that offer Affordable Care Act (ACA)-approved plans must submit filings to state or federal regulators explaining their justifications for premium rates for the following year. According to a brief from the American Academy of Actuaries, premium rates are typically based on the two years prior to the pricing plan year, with some experiences from the current year used to help inform the process.


Surprisingly, the changes to insurers’ 2021 premium rates were modest, with some insurers opting to keep premium rates steady while they monitored the rapidly evolving cost situation. Among ACA Marketplace plans, proposed rate changes ranged from a -42% decrease to a 25.6% increase – with half of the plans falling between a 3.5% and 4.6% decrease. Of those insurers who specified the effects of COVID-19 on their rate changes, the rate changes ranged from a 3.4% decrease to an 8.4% increase. Some of these insurers who chose the modest increases cited a need to prepare for the costs of testing for COVID-19 or for COVID-19 vaccines.


EXCLUSIONS


Since 2014, the ACA has made it illegal for insurance companies to discriminate against people with preexisting medical conditions or increase their rates. That’s good news for people who needed to shop for health insurance after contracting COVID-19.


The ACA did survive a constitutionality challenge in the U.S. Supreme Court in 2021. However, if the Court had struck down the ACA, exclusions for preexisting conditions such as COVID-19 could have become legal again.


While COVID-19 may not have created exclusions in the ACA-regulated insurance market, the same was not necessarily true for insurance products operating under a different set of rules. Here’s what possible exclusions came up as a result of COVID-19:


  • Short-term plans, fixed indemnity plans, and sharing ministries could exclude people who already contracted COVID-19. These plans are not subject to ACA regulation and often feature exclusions for preexisting conditions or refuse to cover medical care for these conditions if they do accept these individuals. According to a Brookings Institute report, these plans do not yet have blanket exclusions for COVID-19 but feature limited coverage for the level of care necessary for more serious COVID-19 cases. Some of these plans also do not cover the cost of COVID-19 testing.
  • Patients who require hospital treatment could also face “balance billing” or surprise bills for out-of-network charges. For example, if they required treatment from a specialist (i.e., pulmonologist or infectious disease doctor) who wasn’t in their network, they could end up incurring expensive bills.
  • Self-funded or self-insured plans could opt out of waiving cost-sharing for employees. In the early days of the pandemic, one analysis by Willis Towers Watson estimated claims for self-insured employers could rise by 7% in 2020. For employers already buckling under the financial pressures of COVID-19, covering the costs of hospitalizations and intensive medical care could be prohibitively expensive.


COVERAGE LIMITS


Typically, private health plans use some form of cost-sharing, such as deductibles, copays, or coinsurance, for covered benefits. Some plans also require referrals or prior authorizations for patients to receive coverage.


During this unprecedented crisis, the Families First Coronavirus Response Act required most ACA-regulated group health plans and individual health insurance coverage to waive cost-sharing and prior authorization for COVID-19 testing and associated visits related to the diagnosis of COVID-19 during the emergency period, scheduled to end on July 19, 2021. The services related to the diagnosis could take place in a healthcare provider's office, urgent care center, telehealth, or emergency room visit.


Private health insurers not regulated by the ACA also made voluntary changes in coverage, expanding their coverage for COVID-19 testing, and in some cases, treatment.


However, the law did not provide for cost-sharing in more severe cases of COVID-19 that required extensive treatment. The ACA capped the cost-sharing for in-network covered benefits at $8,150 for single coverage and $16,300 for family plans. That means that the out-of-pocket costs could still be significant for patients who required hospital stays and extended outpatient treatment.


PREMIUM REBATES AND PAYMENT FLEXIBILITY


Some insurers took steps to offer financial assistance to employer-sponsored plans. Independence Blue Cross, for example, announced plans to distribute premium rebates to fully insured employers totaling nearly $120 million. Independence also committed to extending payment flexibility and accepting credit card payments from fully insured employers with up to 500 enrolled employees through the end of September 2020.


Other insurers relaxed their requirements for employees to be actively working for coverage eligibility. For example, UnitedHealthcare continued to cover employees who were furloughed or who had their hours reduced, as long as the employer paid premiums on time.


However, it appears many businesses were unaware of the premium benefits, or their insurance companies did not extend similar privileges. In August 2020, one-third of employers said they were unsure they'd be able to pay their premiums going forward, according to an Alignable study published in NEJM Catalyst. Only 14% reported receiving relief from insurance carriers in the form of premium credits or extended grace periods – with the latter being the slightly more common option.


For those employers that received funds from the Paycheck Protection Program (PPP), they were more likely to maintain their health benefits than those that did not receive a PPP loan. In at least one case, a survey respondent in the Alignable study mentioned the PPP funds as instrumental in keeping the health plan intact during the COVID-19 crisis.


CRITICAL ILLNESS COVERAGE


Critical illness health coverage typically provides a fixed lump sum payment for specific conditions outlined in the benefits plan, such as cancer, heart attack, or stroke. However, after COVID-19 struck, some insurers amended their critical illness policies to add coverage for infectious diseases, which would allow policyholders to receive coverage in the event of a serious COVID-19 case.


Because of the additional benefits provided to higher-risk populations, more employers are considering adding critical illness coverage to their benefits programs. However, certain parameters do apply. According to the Society for Human Resources Management, the insured person might have to be admitted to the hospital or intensive care unit for at least five consecutive days or placed on a ventilator before the critical illness coverage kicks in.


FUTURE OUTLOOK


Looking ahead, much is still unknown about how COVID-19 will affect the insurance market. Nonetheless, some of the enduring concerns include:


  • Whether people will return to normal healthcare utilization rates
  • The cost of deferred or avoided care, which could result in much more serious (and costly) health conditions
  • The long-term effects of COVID-19
  • The possibility of another COVID-19 wave and the impact of other variants of the disease
  • The impact of the COVID-19 vaccine and emerging drug therapies on prescription drug spending
  • The amount of COVID-19 testing needed to be covered for public health reasons


According to Fitch Ratings, since health insurance companies were able to offset their claims costs from COVID-19 with the deferrals of non-emergency care, the insurance sector ended 2020 with a “strong operating performance." The American credit rating agency also predicted modestly higher healthcare costs to surface over the years to come due to elevated chronic conditions.


CHOOSING WISELY IN AN EVER-CHANGING LANDSCAPE


COVID-19 has clearly left its mark on the health insurance market. Since 2022 health insurance premium rates will likely be based on the 2020 claims experience, we can expect even more changes in the year ahead. As your dedicated benefits consultant team, we stand ready to help you navigate the challenging insurance market landscape. If you need help figuring out which health benefits plan is right for your business, our experts can offer specialized advice and insights to maximize your benefits and save on costs.

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KBI BENEFITS: EXPERT GUIDANCE FOR A COMPLEX SITUATION


Navigating post-pandemic challenges will be different for every workplace. As your employees return to the office, you’ll likely encounter some complex and delicate issues as you work to provide a safe and healthy workplace. If you need more specialized guidance and solutions, the experts at KBI Benefits can help. We can offer tailor-made solutions to fit your business, easing the transition and ensuring legal compliance every step of the way.


To find out more about how we can help your company, contact us today using our online contact form or calling us at 408-366-8880.


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