How COVID-19 will Impact Employer-Sponsored Health Plans
By BKS Employee Benefits Advisors
COVID-19 has created unprecedented challenges and uncertainty in every aspect of our lives, with the future impact on healthcare costs no exception. Our objective is to deliver relevant information rooted in research and data to provide insights on how COVID-19 will impact employer-sponsored health plans. For purposes of this analysis, we will focus on experience-rated fully insured health plans and self-funded plans with stop-loss protection, which generally applies to employers that cover 100 employees or more.
While it may be too early to assess the full impact of COVID-19 on 2021 renewals for employer-sponsored plans, in consulting with actuaries, our health insurance carriers, and stop-loss providers, consensus indicates that the virus will have a negligible impact on claims spend and will likely fall in the range of between -2% and +2%. Premium increases are expected, therefore, to hold steady at the historic 6% range. This, of course, will also depend on several variables including individual employer COVID-19 claims experience and the severity of those claims, employer COVID-19 demographics and geographic risks, the number of COBRA filings due to furloughs and layoffs, and other factors.
Utilization is Down
There are several factors behind the anticipated steady claim and premium trends for employer-sponsored health plans. The average cost to treat an individual with a mild form of COVID-19 or recovering from the virus is manageable, typically requiring bed rest and isolation at home. Also, healthcare utilization in both fully insured and self-insured plans has decreased for elective and non-emergent services during the pandemic, with individuals either postponing or canceling procedures altogether, lowering medical spend and potentially offsetting any large COVID-19-related claims.
Social distancing and remote work have reduced other potential infectious exposures such as influenza and the related costs to treat these infections.
It’s important to note, however, that individuals with illnesses who defer care during the pandemic may risk a worsening condition resulting in additional treatment and higher medical expenses. Actuaries have taken this into account in assessing the impact of the coronavirus at this time.
Adoption of Telemedicine is Up
The rise of telemedicine, with millions of Americans seeking virtual care during the pandemic, is also expected to have a positive impact on medical spend. Fewer people are making ER, urgent care and in-person doctor visits for non-emergency issues. We may also see other medical services steered toward telemedicine, which should have a positive impact on claims.
Severe Cases of COVID-19
As mentioned, individual claims experience will also play an integral part in the cost of an employer’s healthcare plan moving forward. Employers with employees and/or dependents with a higher incidence of severe COVID-19 cases requiring in-patient hospitalization will likely experience premium increases higher than the anticipated historical range. The cost of self-funded plans next year will also depend on the number of individuals hospitalized for an extended period with severe symptoms from COVID-19, with employers potentially exceeding their stop-loss limit. The nationwide average cost per day for a hospital stay is $4,000 – $5,000 and could hit $80,000-plus for severe coronavirus cases. In fact, according to an analysis by the Kaiser Family Foundation, the median total cost of an admission for a respiratory condition requiring 96 hours or more of ventilation is $88,114.
The COBRA Factor
Coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA) is available to terminated employees generally for 18 consecutive months. Typically, individuals have 60 days to elect COBRA continuation, and another 45 days to pay the initial premium, dating back to their qualifying event. In the wake of the pandemic that resulted in millions of furloughs and layoffs, the IRS and Department of Labor extended the time people have to elect COBRA and pay premiums, increasing the time-period to 60 days after the national emergency period ends (which is yet to be determined). For instance, assuming the emergency period ends on July 25, someone who received a COBRA notice on April 1 would have until late October to elect continuation coverage. The new, temporary regulation also extends the amount of time employers have to notify individuals of their right to elect COBRA continuation (usually 30 days) by the same amount of time. It also extends the amount of time an employee has to pay their COBRA premium before their coverage is canceled for nonpayment. While these changes are designed to provide continued healthcare coverage to the unemployed, they also open up employers to greater liability due to adverse selection. Typically, COBRA enrollees are more likely to have multiple chronic conditions and more than twice as likely to report poor health status.
Reduced Utilization of Hospitals
Hospital billing is significantly down amid the pandemic as individuals turn to telemedicine in place of ER visits and forgo elective procedures. To offset the loss of billing revenue, hospital systems will look to renegotiate their fees with providers for next year, which could ultimately impact employer-sponsored health care premiums. Hospital consolidations will also likely spike in the wake of reduced budgets as smaller hospital systems look for financially viable options to continue to provide services to their communities.
The Road Ahead
The potential impact of COVID-19 on the cost of healthcare plans remains fluid with major variables yet outstanding, including how long the pandemic will last, the number of people with serious conditions requiring the high cost of hospitalization, the number of unemployed who will lose employer-sponsored healthcare, and the amount of deferred or forgone care due to the pandemic. While insurance companies release forecasts for 2021 based on internal data, BKS Partners’ Health Intelligence Team will continue to analyze their outlooks to provide you with our assessment. Working with a discerning advisor group is more critical now more than ever.
The information and statements in this report are of a general nature and are not intended to address any particular individual or entity. While our intention is to give you accurate and timely information at the time it is distributed, there is no guarantee the information is accurate when it is received or that it will continue to be accurate at a future date. You should not act on this information without receiving guidance on your unique situation from a trusted professional, such as your BKS Partners Advisor.