Employers will need to respond carefully amid roller coaster of health costs during COVID-19

Despite the significant drop in the use of healthcare services in 2020, employer healthcare benefit costs are expected to bounce back up beyond non-pandemic projections as utilization increases again in 2021, a new analysis from Willis Towers Watson shows. (Getty/NicoElNino)

Employers will likely see drops in year-over-year medical costs in 2020 after large numbers of employees deferred healthcare services due to the COVID-19 pandemic.

Despite the significant drop in the use of healthcare services in 2020, employer healthcare benefit costs are expected to bounce back up beyond non-pandemic projections as utilization increases again in 2021, a new analysis from Willis Towers Watson shows.

However, that 2021 increase is not likely to completely undo the decrease seen in 2020, Trevis Parson, chief actuary at Willis Towers Watson, told Fierce Healthcare.

"We might see a decline. That’s unprecedented. I don’t think that’s ever happened to the trends in national healthcare expenditures, at least not back to the 1960s," Parson said. "So it just goes to show, we’re at a time here where things are happening that we’ve just not dealt with in recent times that require employers to pay particular attention."

It was just one of the takeaways from an analysis in which Willis Towers Watson actuaries estimate employer healthcare costs in 2020 could likely come in anywhere between 3.3% to 9.9% lower than expected for the year after looking at several different scenarios of COVID-19 infection rates across the country.  

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In 2021, costs are expected to rise somewhere between 0.5% and 5% above non-pandemic projections as utilization of healthcare services picks back up. When 2020 and 2021 are combined, the study shows cost reductions of between 2.8% to 3.8% from non-pandemic levels.

Given the volatility around healthcare utilization and costs, Parson warned: “It won’t be a good idea for employers to be lulled to sleep by the impact 2020 will perpetuate."

One lingering question, regardless of how employers fund their healthcare, is whether deferred care will lead to more serious health conditions that would cause a shift in utilization to more expensive services among their employees.

"As we move forward, one of the things we'll be wanting to help employers understand is not only: 'What's the overall level of utilization?' As it changes, post-pandemic, what does [utilization] look like in terms of the mix of services? Are we seeing increased virtual care, and is that a replacement? Those are things we need to watch," Parson said.

How will this translate to the changes in benefits offered by employers? 

He said they'll likely buckle down even more on measurement of their plan utilization and costs and may more seriously look at options to drive value such as direct contracting or narrow networks. 

"Employers maintain the difficult balance of trying to provide benefits of value for attraction and retention purposes, but also that are affordable," Parson said. "My strong suspicion is that employers will take this as an opportunity to step back and say: 'Look, there are risks here demonstrated by the volatility of the pandemic that we need to better understand.'"