Actuaries project future virus surges, end of regulatory flexibility key drivers in 2022 rates

Uncertainty over future surges of COVID-19 and the end of regulatory flexibilities are going to be major drivers for 2022 premiums on the individual and small group markets, a new actuary report finds.

The report, released Thursday (PDF) by the American Academy of Actuaries, finds insurers face major uncertainties like the end of the public health emergency and the fate of enhanced subsidies for coverage on the Affordable Care Act's (ACA's) insurance exchanges.

“Greater degrees of uncertainty could lead to more conservative assumptions and risk margins for some insurers,” the report said. “Alternatively, carriers might lower risk margins, seeing an opportunity to capitalize on the increased enrollment due to the [American Rescue Plan Act] subsidies.”

Because of the high level of uncertainty surrounding the pandemic last year, most insurers included no COVID-19 adjustments in their rates. However, insurers are likely to include such adjustments because there is more information on how the pandemic has affected healthcare use and spending, but these adjustments are likely to not be material, the report said.

But there could be some other major unknowns for insurers that could factor into their rates.

For example, it remains unclear whether new waves of the virus will emerge later in 2021 or next year on a regional or national level. The more transmissible delta variant has caused cases of the virus to surge over the past few months.

“New COVID-19 variants and waves in 2021 or 2022 may influence regional variations in hospitalization utilization, increase the need for vaccine booster shots and impact how and where members seek or delay care,” the report said.

The pandemic likely won’t just affect healthcare utilization but also the risk pool for insurers.

The individual market’s risk pool is likely to be very different than the one that existed in 2020 due to several factors that include larger premium tax credits that expire after the 2022 coverage year.

Another key issue is what will happen with the COVID-19 public health emergency, which prevents states from dropping residents off the Medicaid rolls. If the emergency ends this year, this will cause Medicaid eligibility determinations to resume and move “many people off Medicaid rolls and into either the individual market or the uninsured population,” the report said.

Any increases the ACA’s insurance exchanges see for the 2022 coverage year could be offset by people leaving the individual market, either by becoming eligible for Medicaid or by obtaining employer-sponsored insurance because of an economic recovery, the actuaries say.

“These changes will depend on the characteristics of those leaving and those entering the market,” the report added.

Insurers are also likely factoring in the calculation of medical loss ratio (MLR) rebates. The ACA requires insurers to spend 85% of every premium dollar on medical claims and the rest on administration. If claims were below premiums, insurers are required to offer a rebate to consumers for the difference.

MLRs are calculated on a three-year average, and, because 2018 and 2019 had major MLR rebates, it could “increase the potential for 2020 rebates as well,” the actuaries said. “Issuers may consider projected MLR rebates when setting their 2022 rates, especially given the level of MLR rebates expected for 2020. This consideration could be given additional weight if the issuers anticipate owing 2020 rebates given their expectations regarding the net impact of COVID-19.”