Most insurers on the Affordable Care Act’s (ACA's) insurance exchanges aren’t factoring COVID-19 into their 2021 rates or believe the pandemic will have a negligible effect, according to several experts.
Open enrollment for ACA exchanges on the individual market starts Nov. 1, and premiums are likely to either slightly rise or decline across the country. Insurers are trying to decipher how the pandemic will affect healthcare costs next year after COVID-19 caused a massive drop in use earlier this year.
“Our take was most insurers are taking a wait and see approach,” said Danny McDermott, a research associate with the Kaiser Family Foundation, referring to insurers' approach to factoring COVID-19 into their premiums.
The foundation recently published an analysis of ACA rate filings in 10 states. Of the 273 filings it examined, only 43% specified that COVID-19 had some effect on their rates for the next year.
“Among these insurers, the impact of COVID-19 on 2021 premiums ranges from a 3.4% decrease to an 8.4% increase, with half of insurers falling between no impact (0.0%) and 2.0% increases,” the study said.
The American Academy of Actuaries also did an analysis of 109 rate filings across seven states, with 46 of the rate filings in the individual market and 63 in the small group market. The analysis found COVID-19 had a negligible impact on 2021 premiums.
“The majority of impact was 2% or less and in some cases was negative,” said Donna Novak, a member of the academy’s individual and small group markets committee. “There were a couple of outliers and a couple of filings that had over 8% impact and one backed down to a 5-6% range.”
The reason some insurers believe COVID-19 will have a negligible impact on rates next year is that its effects on healthcare use could balance it out.
Kaiser’s study found that the most common ways COVID-19 could drive up costs were through COVID-19 testing, the costs of covering a vaccine and the rebounding of medical services delayed due to the pandemic.
But at the same time, insurers believe that healthcare use will remain lower than usual in the next year, which could offset the increased COVID-19 costs.
The onset of the pandemic back in March caused a massively sharp drop in elective procedures and preventive care as hospitals canceled surgeries and people were afraid to go to the doctor’s office. These volumes rebounded after shelter-in-place orders were lifted in May and June but have not returned to pre-pandemic levels.
Blue Cross and Blue Shield of North Carolina said in a statement to Fierce Healthcare that non-COVID-19 medical costs rebounded in the summer. The insurer lowered its premiums for ACA plans by an average 1% next year.
“We expect volatility for the rest of the year,” the insurer said.
But healthcare costs are not the only area of volatility for insurers.
Blue Cross NC’s chief financial officer said in a blog post that it is bracing for changes in its membership as the pandemic has caused widespread job losses and people who lose their employer-sponsored coverage head to the ACA exchanges.
“Some insurers in their rate filings cited that there will be more churn in the individual market next year as people lose coverage and matriculate into the individual market and gain work and leave again,” McDermott of Kaiser Family Foundation said.
But those insurers mostly expect the health of the enrollees to stay the same.
“They weren’t changing rates to compensate for adverse selection,” he said, referring to when too many sick people buy insurance.
Typically, people who have employer-sponsored insurance are healthier, so they would be less likely to incur additional expenses for an exchange plan, Novak said.
Size does matter
Experts say larger insurers are likely going to be able to weather any major changes in healthcare costs and adverse selection that could arise from COVID-19.
“It means different things for different insurers based on their book of business,” said Katherine Baicker, dean of the University of Chicago’s Harris School of Public Policy. “This uncertainty is particularly hard on small insurers with smaller pools to spread the risk across.”
Adverse selection wouldn’t be a new issue for ACA insurers. When the exchanges went online in 2014, insurers priced their plans too low and the exchange population was sicker than expected.
“That was a big problem for smaller insurers and less of an existential threat for larger insurers,” Baicker said.
Both small and larger insurers are also going to face an even more unpredictable roller coaster ride when they have to start thinking about rates for the 2022 coverage year.
Normally, insurers create rates based on healthcare spending from two years before, so the 2021 rates are based on 2019 spending. But the rates for 2022 will have to be based on spending in 2020, which has been thrown into whack due to the pandemic.
“2020 is not going to be a very good basis for that,” said Novak. “It is going to be a difficult thing to project."