COVID-19 has significantly impacted the U.S. health insurance industry. The slowing of claims has produced a cash reserve for most health insurers, though others are negatively affected by the loss of premium collection prompted by job loss. Those with a large cash reserve will not be able to preserve it beyond 2020 due to ACA requirements. The unknown types of treatment and testing that will be utilized in the future has produced uncertainty for insurers in terms of how rates should change; as a result, rates for 2021 are fluctuating by region and by plan. 26 million Americans have lost their insurance through their employer and are expected to seek insurance via the ACA marketplace or Medicaid (if they live in a state where it was expanded). Relative to the rest of the world, health insurers in the U.S. are expected to see significant revenue in the next few years due to favorable conditions.
Impact of COVID-19 on U.S. Health Insurance Companies
- COVID-19 has caused a significant amount of health insurance loss in the U.S. due to widespread job loss. As a result, premium collection has declined.
- One third of small businesses have indicated a need to stop health insurance offerings to their employees as of August 15 due to being unable to afford it. In other words, many Americans with jobs at small businesses have lost their health insurance and premium collection is being further affected.
- The decline of income from premiums has produced a strain on reserve balances necessary for financing claim payments. For some insurers, this causes further negative financial effects that are increasingly difficult to resolve.
- However, the lack of incoming claims has benefited health insurance companies with sufficient reserve balances due to a lack of need for immediate payment. As a result, they are “flush with money“.
Projected Impact of COVID-19 Looking Ahead
- The ACA requires health insurers to spend either 80 or 85 percent of their premiums on health care services, or to furnish the remainder to customers as a tax-free rebate if it does not reach this target by the end of the year. In other words, the reserves of cash built up by the lack of claims will not remain intact for most insurers.
- COVID-19 is making it difficult to calculate premium rates for 2021 due to the lack of consistency in occurrence across regions and the imbalanced impact on different health plans (due to serving different populations). This has caused ongoing issues with the rate development process for 2021 and potentially subsequent years if the pandemic continues to surge and fall.
- Rate changes for 2021 range from a 42 percent decrease to a 25.6 percent increase; half of the changes are between a more modest 3.5 percent decrease and a 4.6 percent increase.
- Of the 26 million Americans who have lost their insurance through their employer, most are expected to lose their insurance (especially if their state has not expanded Medicaid). They may seek COBRA coverage or subsidized insurance through the ACA (or Medicaid if they are in an eligible state). 79 percent of those who have lost their jobs are anticipated to qualify for subsidized insurance or Medicaid.
- The pandemic has caused 41 percent of Americans to delay health care for non-COVID-19 illnesses and chronic conditions. Due to this, some of these health conditions are worsening and will produce higher future claims (potentially higher than health insurance companies are anticipating).
- The cost of treatment for COVID-19 in 2021 is unknown as the treatments are likely to evolve and improve, which could increase premiums. Similarly, the cost of testing is unknown as new methods are likely to be developed. If insurers are required to cover testing, health insurance premiums will increase in 2021 and moving forward.
- As part of North America, the U.S. is anticipated to see the most favorable outcome for health insurance revenue in future years due to “favorable health reimbursement policies, high cost of medical products, and provision for mandatory health insurance of the employees.”