Though initial estimates of the impact of the COVID-19 pandemic on health insurance premiums may have been overstated, there's still no concrete picture of what the final effect of the pandemic will be. Though insurers right now are benefiting from a significant decline in routine and elective care (and passing those savings back to consumers, in some cases), those delays could create more expensive issues later. In addition, while the cost of covering COVID-19-related claims so far has been offset by the decrease in claims, a second outbreak later in the year could add tip the scales.

As such, there's no clear picture for what to expect health insurance premiums to look like next year, given the number of variables and potential risks at play. Even without knowing those, however, there are actions the government could take, and possibly include in future stimulus bills, that would mitigate insurers' risk and encourage them to hold premiums stable for 2021. These actions were explored by the American Academy of Actuaries in a recent issue brief.

"As policymakers consider different risk mitigation mechanisms, it's important to understand how they would work and what risks they are intended to address," said Cori Uccello, the Academy's senior health fellow and primary drafter of the issue brief. "Depending on how they are structured, risk mitigation mechanisms such as risk corridors could help with the increased uncertainty health insurers face due to COVID-19. But they won't address other risks in the health system such as declining provider revenues and increased pressures on state Medicaid programs."

Earlier this year, health insurers scored a big ($12 billion) win when the Supreme Court ruled in their favor on unpaid risk-corridor payments from the federal government. Such payments incentivized insurers to participate in the ACA exchanges by shielding them from excess losses, and a similar model could be used now to discourage insurers from making major changes to premiums or coverage.

"If implemented for 2021, risk corridors would protect insurers from the pricing risk they face because of the continued uncertainty regarding whether and how COVID-19 will affect 2021 claims," the authors write. "By providing a backstop, risk corridors could result in lower premiums, through reductions in risk charges and less-conservative pricing assumptions."

Such backstop would be straightforward for fully insured plans but less so for self-funded plans, the authors note. In addition, risk-corridor payments may mitigate the risk associated with medical claims but wouldn't address changes in administrative expenses, which are also expected to fluctuate as consumers drop off employer plans and switch to Medicaid plans. The fixed costs that are spread out over plan enrollees will increase on a per-person basis when there are fewer enrollees but decrease as the number of enrollees grows.

Reinsurance, a strategy already employed by a number of states in their individual exchanges, offers another avenue to mitigate market risk in 2021. A federal reinsurance program could provide funding for insurers to cover high-cost claimants, or could be targeted specifically to cover COVID-19 related expenses.

Such a program could result in lower 2021 premiums, but the authors note, "reinsurance wouldn't necessarily address the pricing risk that insurers face because of the continuing uncertainty regarding how COVID-19 will affect 2021 health spending."

There are a lot of other variables at play, the authors write, including whether a second wave of the COVID-19 and how severe it will be; how the current financial losses of providers will affect access to care for patients; and the changing enrollment in both employer-sponsored and Medicaid insurance plans.

"Because risk mitigation mechanisms are focused on health insurer financial results and are not structured to address all of the issues facing the economy and the health system, other efforts may be needed, such as COBRA subsidies, changes to risk adjustment mechanisms, or increased payments to providers or states."

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Stabilizing insurance premiums amid COVID-19 uncertainty

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