Claims expenses, insurance premiums, innovation and change, new insurance models, and risk of insolvency are five areas of health insurance for which COVID-19 would have long-term impacts.
1. CLAIMS EXPENSES
- The COVID-19 pandemic is causing significant financial and personal implications for the average American and a major disruption of the national economy. However, this disruption is felt the most in the health care sector and inadvertently has implications for the health insurance industry.
- Private health insurance will see significantly increased claims expenses in the short term, including higher ER intake, ICU overflows, and hospital staffing. While these costs will emerge more significantly in 2020, they are expected to continue into future years.
- Insurers are evaluating their claims reserves given the COVID-19 pandemic and are expected to continue to do so as fact patterns emerge.
2. INSURANCE PREMIUMS
- Premiums for 2021 are currently being developed by insurers and are dependent on whether significant COVID-19 related costs would be incurred in that year.
- Insurance premiums in 2021 may not increase significantly and might only be affected by an uptick in nonessential services deferred from 2020 or vaccination spending, which would typically kick off in 2021.
- However, since the pandemic could continue until 2021, insurers would look to offset financial losses in 2020 by utilizing existing surpluses. As such, margins in 2021 might need to be increased to allow them to rebuild surplus over the next few years.
- Covered California projects that insurance premiums in the individual and employer markets for 2021 could see an increase of 40% or more due to COVID-19 costs alone, in the absence of federal action.
3. INNOVATION AND CHANGE
- Health insurers have been responding to COVID-19 by significantly expanding their initiatives in telehealth delivery. This is due to the increasing pressure on health services in light of the growing number of patients.
- Telehealth is thus expected to be one of the constructive long-term effects of the pandemic. It would allow healthcare to reach the remote and less affluent populations, as well as under or uninsured people.
- As an estimated 25-43 million people are expected to lose their employer-insurance coverage, and with increased unemployment in most markets, many households are facing an uncertain financial future.
- Stay-at-home orders, social isolation, and the work environment transitions that have and will follow in the future will lead to an increased need for mental health services. As such, “health actuaries will be increasingly interested in the utilization of mental health benefits for their insured population.”
- Furthermore, insurers are looking to provide their consumers with new products tailored to pandemics or epidemics, and that would be payable following such an event in the future.
4. NEW INSURANCE MODELS
- With the 30 million newly unemployed Americans and others that will continue to lose their jobs and health insurance as a result of the COVID-19 pandemic, the prospect of the traditional employer-based health insurance is becoming less relevant.
- During the pandemic, the only individuals in the US who do not have to worry about health insurance are those on Medicare or covered by the Department of Veterans Affairs or the Military Health System.
- Congress’s actions to curtail the impact of the pandemic on the insurance status of those who have their jobs is only serving as a band-aid.
- As such, recent events have revealed another inadequacy in the health insurance model being adopted in the US. Thus, it is expected that these concerns would be addressed in the future.
- The proposals made regarding a change to the health insurance model in the US include switching over to a universal health insurance model or assigning insurers a tax to fund an emergency response.
5. RISK OF INSOLVENCY
- According to the modeling provided by the Society of Actuaries and Virginia Commissioner Scott White, small insurers such as life, health, or property/casualty insurance companies risk insolvency. They are expected to struggle more to remain solvent in light of the COVID-19 pandemic compared to more highly capitalized ones.
- Commissioner White believes that should only a few companies would be at risk of solvency if the number of COVID-19 cases rise gradually (a flattening of the curve), but believes that following a steep rise, the smaller healthcare insurers would become stretched out and might become insolvent.
- Should the latter happen, and such companies close, covered consumers would be at financial risk. The competition that benefits consumers and employers who make insurance purchases for millions of Americans would also be severely damaged.
IMPACT OF COVID-19 ON ACCESS TO HEALTHCARE PROVIDERS IN THE US
- Americans are expressing concern regarding the impact of the COVID-19 pandemic on their health and finances and are acting accordingly.
- According to the survey conducted by PwC’s Health Research Institute (HRI), 32% of consumers have made or are planning to make adjustments to what they spend on healthcare visits.
- About 78% of people in this category indicated that they would skip at least one of such visits including a “well visit, maintenance visit for a chronic illness, elective procedure, or recommended lab test or screening.”
- Some 22% of consumers reported that they made or were planning to make changes to their spending on medication. About 22% of people in this category said they would skip doses in order to stretch the medication.
- Another 52% of consumers stated that they were worried about accessing their prescriptions when they need them, with 17% of them reporting delays as the primary reason.
- Hospitals and clinics have reported a reduction of in-person clinic visits due to the COVID-19 pandemic and social distancing directives. Many patients are avoiding such visits because they do not want to risk exposure to the virus.
- However, there is a larger trend in the way in which people access care. The use of telehealth is a change in care delivery that is exploding in popularity, and which some say might be permanent.
- The “CEO of La Clínica de la Raza, a network of clinics in the East Bay,” Jane Garcia, has stated that they have been able to provide 90% of healthcare visits to consumers using telehealth.
- As a way of reducing the risk of transmitting the COVID-19 virus, healthcare providers, including hospitals and clinics, are halting all elective procedures and surgeries, as well as preventive visits en masse. There has also been a rapid decline in visits to primary care specialists and doctors.
- The Trump administration issued new guidance for the reintroduction of nonessential surgeries and medical procedures for phase 1 states or regions on April 19, 2020. Since then, several states in the US, including California, Ohio, and New York, have announced strategies to reintroduce elective procedures within their jurisdictions.
- As of April 23, 2020, about 30 states in the US had either resumed elective surgeries or announced plans to do so.
LIFTING QUARANTINES, REOPENING AND ITS IMPACT ON THE HEALTHCARE SECTOR
- “Bita Kash, professor at the Texas A&M University School of Public Health and joint associate professor in the Department of Internal Medicine at the Texas A&M College of Medicine,” noted workforce shortages and more rural hospital closures as the two major issues that the US health care system will face as quarantines lift.
- According to Kash, many nurses and physicians would either retire early or look for alternative work after the pandemic, due to the high levels of burnout that they are currently experiencing.
- The closures of rural hospitals in the US have been occurring devastatingly over the last decade and poses the most significant financial impact of the pandemic. It will create a continuously rising disparity crisis in rural areas across the country. As such, millions of Americans will be without immediate access to health care.
- Kash also believes that “there are likely to be several periods of states opening and closing due to community spread of the virus until a vaccine is produced.” The upcoming openings will be very cautious and are subject to change, rather than permanent ‘back-to-work’ policies.
- According to a study of 250 doctors in the US, 59% of them do not believe that their states are ready to reopen. Healthcare systems such as hospitals, caregivers, and nursing homes still do not have enough medical masks, gloves, and gowns.
- The director of the John Hopkin’s Center for Health Security Tom Inglesby said that a lot more diagnostic testing is required. Another physician in Georgia said, “there’s no way that anyone could possibly think that what is happening now is acceptable, even in its improved form. It’s still not enough.”
HOW THE PANDEMIC HAS IMPACTED THE WELLNESS OF PEOPLE IN THE US
- Although the extent to which the COVID-19 pandemic has affected the health status of people in the US is currently unknown, reduced preventive and chronic care spending, decreased adherence to medications, and procedure delays will have long-term ramifications on the wellness of people in the country.
- About 9% of people are planning to stop taking their medications, and 22% are looking to skip some doses to stretch out their drugs, mostly because of COVID-19 induced financial constraints.
- Other consumers plan to consider over-the-counter options and deliberate more before requesting a prescription from their physicians.
- About 45% of US adults reported that their mental health is being affected negatively due to stress or worry over the COVID-19 virus.
- Isolation and job loss, as well as fear of loved ones getting sick, are contributing to feelings of anxiety among the general populace.
- However, in terms of eating habits during the pandemic, 39% of Americans eat healthier foods than 40% of people eating indulgent and comfort foods.
- Alcohol consumption is relatively the same compared to how it was before the pandemic.
THE FINANCIAL IMPACT OF COVID-19 ON THE AVERAGE AMERICAN
- With most Americans living from paycheck to paycheck and not being able to afford a $400 emergency expense without selling items or borrowing, the average American was ill-prepared financially for the COVID-19 pandemic.
- About 41% of Americans expect that COVID-19 will impact their finances significantly compared to moderate (39%), and low impact expectations (15%).
- About 35% are taking money out of their retirement savings, 38% are looking to refinance, 41% will sell some assets in the next six months, 43% are accruing more credit card debt, and 45% are struggling to make rent or mortgage payments.
- “The average American household has $8,863 in an account, at a bank, or credit union.” However, that amount differs based on age brackets.
- Couples aged 34 years and younger who do not have kids have savings worth $4,727 compared to single persons without kids ($2,729).
- About 42% of people aged 18-29 years have no retirement savings compared to those aged 30-44 years (26%), 45-59 years (17%), and 60+ years (13%).
- The average retirement account in the US has an account balance of $60,000 and a conditional mean balance of $228,900.
- According to a 2017 study by the Center for Retirement Research, the average retirement savings of people differs by age bracket. People between the ages of 35-44 years have average retirement savings of $37,000, 45-54 years ($80,000), and 55-64 years ($104,000)
- However, these averages are insufficient coverage for the entire span of retirement, as medical costs alone for a retired couple is estimated at $200,000.