Report: Uncertain COVID-19 costs pose major challenge to insurers in setting 2021 premiums

Insurers are under the gun to issue premium rates to state regulators in the next couple of months. But the unknown cost impact of COVID-19 poses a massive challenge, according to a new analysis. 

A report backed by America’s Health Insurance Plans estimates a wide range of costs to insurers based on infection rate: from $56 billion to $556 billion. That uncertainty could lead some to drop coverage entirely or to raise prices substantially, researchers at the Kaiser Family Foundation (KFF) warn

“The consequences of guessing wrong could be dire for some insurers,” the researchers wrote. “Insurers may have an incentive to over-price their plans, particularly on the individual market where many enrollees are subsidized and sheltered from premium increases.” 

If insurers are too wary, it could boost the number of bare counties on the exchanges where there is only one (or no) payer offering plans for open enrollment, according to the report. 

RELATED: Analysis—COVID-19 could raise Medicare spending by as much as $115B over the next year 

The analysts said earnings releases for the first quarter could offer a peek into health plans' financial performance in the early days of the COVID-19 pandemic and preview their thinking on rate filings. 

UnitedHealth Group kicked off earnings season for big national insurers Wednesday, and executives said they were planning for a decline in commercial membership and that the group has seen a notable increase in the number of customers seeking premium assistance in the past two months. 

The KFF researchers also note that the high costs associated with COVID-19 hospitalizations could be offset somewhat by the simultaneous decline in elective procedures and other types of care, a major source of hospital costs. 

These trends are likely to hold true for Medicare Advantage (MA) as well, which could have significant implications for members’ costs in 2021. Higher costs related to COVID-19 would boost payments to MA plan sponsors next year. 

“An increase in Medicare spending would have spillover effects for beneficiaries’ premiums, deductibles and cost-sharing, and come at a time when Medicare already faces long-term financing challenges,” the researchers wrote.