Personal Finance
How Covid-19 might affect future healthcare costs
The healthcare political advocacy association, AHIP listed some of the ways health insurance providers are taking action to help you on their website.
Last month, Congress passed legislation that made COVID-19 testing and all testing-related services free of charge, regardless of whether or not you are covered by health insurance. Read a summary of the key provisions here. However, this legislation only covers a small portion of the healthcare costs incurred by COVID-19. Read about how becoming sick with COVID-19 could cost you. Yet these costs likely won’t be limited to the short-term. At the moment, experts are uncertain as to how the costs absorbed by the healthcare industry now are going to affect future healthcare costs, such as insurance premiums.
Impact of COVID-19 on future premiums
The uncertainty of the global situation has left many industries questioning their future prospects, and this includes health insurance providers. As insurance companies expect claims costs to rise this year, it is likely that they will incur some financial losses. Four questions need to be answered before we can estimate what will happen to premiums in 2021:
- Is the pandemic over by 2021 or is it still going?
Do insurers need to dip into their financial reserves to cover coronavirus costs?
How many elective surgeries end up getting postponed into 2021?
Does Congress do anything to help health insurers absorb their losses from the pandemic?
Since older adults are particularly susceptible to COVID-19 complications, and virtually all adults ages 65 and older are covered by the Medicare program, it is likely that Medicare spending will increase, yet the magnitude of this increase is unclear for now. It will probably result in an increase in Medicare beneficiaries’ future out-of-pocket spending, as well as higher premiums, deductibles and other cost sharing requirements.
In the next couple of months, commercial insurers must submit premiums for 2021 for review and approval. Fortunately, insurers are not allowed to increase premiums based on assumptions about claims costs this year. Rather, they must justify premium increases based on assumptions about claims costs next calendar year. Still, though, insurers may need to replenish their surpluses in the coming years in order to stay afloat.
One analysis done by Covered California estimates that healthcare costs will rise anywhere from $30 - $250 billion over the next year. This rise in costs could result in premium increases of 20% or more.
Although no federal stimulus package has been directed specifically towards the healthcare industry yet, the $2 trillion stimulus package passed in mid-march included more than $100 billion in emergency funds to compensate for some costs incurred by the industry.
The additional $484 billion stimulus package that was approved by the Senate on Tuesday also provides additional healthcare-related aid that will help reduce the effects. The package currently proposes $75 billion in hospital funding and $25 billion in testing funding, but we can’t accurately predict how these subsidies will affect future insurance premiums.
Long-term effect of COVID-19 on health insurance providers
Despite the likelihood of an influx of claims and a dramatic increase in claims costs (and consequently premiums and out-of-pocket costs), the long-term prospects for health insurance providers may not be as bleak as they seem.
Laura J. Hay, Global Head of Insurance at KPMG International believes that the COVID-19 crisis may have a number of positive long-term effects on the sector.
- As the number of patients rises and people’s ability to visit the clinic decreases, health services are being pressured to provide more telehealth services, offering consultancy to patients via phone or online video services. In the long run, this will help healthcare providers reach more remote and less affluent populations including the under- or uninsured.
- The COVID-19 pandemic itself may cause more people to reconsider their own health insurance. For example, in the wake of the SARS epidemic, we saw a temporary spike in critical illness policy sales in Asia. We may begin to see this phenomenon carry over to a post-coronavirus world, with rising health insurance sales across the world.
And so, health insurance companies can expect a rise in hospitalization claims, and they will likely incur some costs in the short-term. However, as history has shown with the SARS and Swine Flu pandemics, purchases of health insurance will only increase in the long run. Carriers who sustain these hard times may well be placed for higher growth in the future.
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