Industry Trends: 2021 Insurance Rates – Too Early to Predict

Industry Trends: 2021 Insurance Rates – Too Early to Predict

Dealing with the Coronavirus outbreak has been challenging and disruptive in so many ways for both employers and employees alike. Employers are starting to ask the question of what impact this will have on the health care system long term and ultimately our health insurance rates as we look to 2021. The brief answer is, it has, and will continue to cost the system significantly. If it doesn’t get under control soon, it might mean even more dramatic increases than we have seen in recent history.

Arguably, the most important variable for 2021 insurance premiums is whether the Covid-19 pandemic extends into next year or is brought under control before then.

That’s because legally, insurers can’t just hike their rates drastically next year to make up for those costs.  Their proposed rates are based on formulas that reflect their expected costs in 2021 using trend models, not on what they spend in 2020. State regulators can (and more than likely will) push back against proposed hikes that they don’t think are justified by the anticipated costs for the upcoming year.

Based on actuaries and other experts surveyed, four basic questions need to be answered before they could even begin to prognosticate what will happen with 2021 premiums:

  • Is the pandemic over or significantly diminished by 2021?

If we can end (or greatly contain) this virus then there is less justification to increase rates for 2021. Although some are predicting peaks by end of summer and into early fall, we don’t know if the virus will rebound even more in cooler months. The costs of Covid are still being understood as treatment plans evolve, but for people who end up in the hospital, we’re talking thousands of dollars even for a patient with no complications.  If there are major complications, bills could reach $40,000 to $67,000. If a vaccine comes to market, insurers could minimally account for these costs. The effect is unlikely to be zero, but the difference between a 4 percent Covid-19 hike and a 40 percent hike depends on controlling the pandemic as soon as possible.

  • How many elective procedures, non-essential medical or surgical procedures are postponed till 2021?

Per the CDC, all elective procedures, non-essential medical, surgical and dental procedures were delayed beginning in March and only have started to ramp up in the last month in many areas.  For routine doctor appointments telemedicine had taken over the role of in person visits.  This is a complicated formula and cuts both ways.  Insurers could price their 2021 rates expecting a surge in elective surgeries because people are delaying less urgent medical services.  On the other hand, if a decrease in other claims helps them financially ‘weather’ the coronavirus, their reserves will be stronger heading into 2021, which hurts the statutory justification for a big hike.

  • Do insures need to dip into their financial reserves to cover coronavirus costs?

Although insurers can’t site 2020 losses to justify 2021 rate hikes, they may need to dip into their capital reserves – the unspent funds they’ve built up over the years in case of an emergency such as this – to cover coronavirus’s cost.  If they eat too much into the reserves, they may have a legal obligation to increase rates so they can build those reserves back up for the next emergency. It will be up to the state regulator to determine if they have ample reserves or if an increase is necessary to re supply reserves.

  • Will Congress do anything to help insurers absorb their losses from the pandemic?

Federal funding is a difficult, if not impossible option to project. There has been a tremendous amount of federal money already provided for the pandemic and supporting insurance carriers could be last on Congress’ list of stimulus packages. However, if insurers get worried by exorbitant costs of coronavirus, they might decide to pull out of the individual insurance markets that cover about 20 million people. Lack of insurance options (and no insurance options in some counties) for 20 million Americans is not something that would be good for the economy at this time.  Insurance carriers do have some leverage and the end goal is not to prop up insurance carriers but to ensure that health care premiums do not spike, and that benefits are stable in the future.