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The coronavirus already has wreaked havoc on many U.S.businesses, but a second wave of economic devastation is about tocrash down on American companies. The COVID-19 pandemic isinflicting massive health care costs that could drive up healthinsurance rates by 40 percent or more. Any assumption to thecontrary is a dangerous miscalculation that will leave employersexposed at this year's health insurance renewal.

Executives must understand that, despite conflicting analyses,the COVID-19 pandemic is almost certain to cause 2021 insurancerates to skyrocket. Companies must take immediate steps now tomanage their health care costs and benefits plans accordingly toavoid a major financial hit amid an economic crisis.

Deferral of care

Many health care brokers are touting an April 2020 report fromthe respected actuarial firm Milliman on COVID-19's effect onhealth care costs. Milliman predicts a net reduction in overallhealth care costs resulting from the deferral of non-essential andelective procedures.

Most states followed a March 18 recommendation from the federalCenters for Medicare and Medicaid Services (CMS) to ban"all elective surgeries, non-essential medical,surgical, and dental procedures."

If the "deferral and elimination of care" continues, Millimanprojects a total reduction in health care costs in 2020 between $75billion and $575 billion. By reducing their health care spending,this would represent a massive cash infusion for employers whosponsor group health plans.

If deferrals continue, this logic is sound; but those promotingMilliman's rosy outlook of lower health care costs are overlookingseveral salient facts.

The whole story

Demand for deferred elective and non-essential procedures doesnot disappear over time; it builds up. When deferrals end, healthcare spending will balloon due to pent-up demand. The savings inthe Milliman report are realistic only if the deferral of care wereto push those procedures into 2021.

On April 19, however, CMS announced guidelines for lifting theban on elective and non-essential procedures, prompting most statesto begin allowing these procedures to resume.

Since few people could schedule elective procedures during thefirst half of the year, a crush of patients is now demandingsurgery in the second half. To clear a backlog of over 80 cases,one neurosurgeon in Nashville, TN, told me he has been forced toadd weekends to his surgery schedule.

The cost of COVID

The 30,000 hospitalizations of COVID-19 patients in the U.S.through mid-June have cost somewhere between $1.17 billion and$2.24 billion, according to one authoritative source. Yet, as ofJune 15, only about 0.646 percent of Americans have been infected;if the infection rate hits 20 percent, the treatment cost couldsoar to between $237 billion and $454 billion.

The ACA health care exchange Covered California is warning thatinsurance premiums could increase by 40 percent or more in 2021 asa result of COVID-19 costs. Their one-year projected costs foremployer-sponsored health plans range from $34 billion to $251billion solely as a result of COVID-19 testing and treatment.

Further compounding the cost problem, many insurers (e.g., Aetnaand Horizon Blue Cross Blue Shield) suspended theirprior-authorization rules for hospital admission and treatment.That means hospitals are allowed to admit and treat patientswithout any review of medical necessity or appropriateness,resulting in increased health care costs due to unnecessaryadmissions and treatment.

The problem for employers

At the root of the health care cost issue is a big lie: "It isnot possible to control health care costs." For decades, insurancecompanies have spread this deception and reaped the benefits asexecutives ignored their company's health care costs.

Insurance companies perpetuate this lie for one reason: money.When executives believe they have no power over the cost of healthcare, they make no effort to negotiate prices. That enablesinsurers to allow costs to rise, which drives up premiums andensures their revenue and profits increase.

Health care costs are poised to explode in the coming months asthe deferral of elective procedures ends and COVID-19 treatmentcosts mount. Unless executives wise up to this big lie and takecontrol of their health care spend, their companies could face afinancial catastrophe.

Action steps

Forward-thinking CEOs and CFOs are solving their health carecost problem by forming partnerships with next-generation employeebenefits advisers. These advisers, contractually working for theemployer and not the insurance companies, show executives how toreclaim control of their health care budget, eliminate overspend,manage the quality and cost of care, and abolish employeeout-of-pocket costs.

Driven by COVID-19 treatment costs, insurance rates for 2021 areset for a monumental increase – during a recession. By forming theright partnership and seizing control of their health care,however, employers can shield their finances and their employeesfrom the coronavirus' second wave of economic devastation.

Nelson Griswold is the Managing Director ofthe NextGenBenefits Network, a national alliance of next-generationbenefits advisers; a monthly columnist at Employee Benefit Advisormagazine; and author of industry bestsellers NextGenerationHealthcare, Breaking Through The Status Quo and DO or DIE:Reinventing Your Benefits Agency for Post-Reform Success. Learnmore at NextGenBenefits.Network.