Nearly every major insurer has announced that it will waive or significantly reduce the costs of testing and some associated services for COVID-19 coronavirus, easing concerns about access and the possibility that vulnerable individuals might avoid seeking necessary care. However, the doctors and health care workers performing these tests and seeing patients still need to be paid, and insurers eating the expense now could result in higher premiums next year.
It all comes down to the impact on medical loss ratios, the percentage of premiums that are required to go to medical care under provisions of the Affordable Care Act. If insurers see a significant uptick in spending on medical care due to the outbreak, they will likely increase premiums next year to recoup some of the losses. (Alternatively, we could see a significant decrease in the amount insurers pay out for MLR rebates, already at record highs.)
“We should expect to see some impact on the operating performance this year,” Bradley Ellis, a health insurance analyst for Fitch Ratings, told MarketWatch.
The situation is similar to the impact of flu season on insurers’ expenses. A particularly rough flu season results in an increase in health care utilization and expenses, while a more mild flu has less of an impact. As noted by MarketWatch, it’s part of the reason most insurers offer free flu shots–it’s less expensive to invest in a preventive measure than to pay for the health care services after an individual gets sick.
Unfortunately, with no vaccine available for coronavirus, insurers are instead trying to control costs by easing access to testing and telehealth services in an effort to control the spread of the virus. And unlike the flu, costs of testing and treatment for coronavirus have not been calculated into insurers’ budgets for the year.
It isn’t just health insurers who will feel the financial strain, either. Hospitals will also likely see decreased revenues, despite increased utilization by patients. Most coronavirus patients will end up in a hospital’s intensive care unit, which is expensive to operate and often results in a financial loss.
“Right now when you’re putting a patient in your most costly setting and you’re going to be paid below it, that puts a strain,” Rick Gundling, a vice president at the Healthcare Financial Management Association, told Modern Healthcare.
The federal government recently passed a $8.3 billion funding bill to combat the virus, some of which may lessen the impact on health insurers and hospital systems. But with so much dependent on how severe and widespread the outbreak of the virus is, it’s still too soon to tell what the financial consequences will be.