COVID-19 likely to cost insurers tens of billions and lead to dramatic rate increases

A report by Covered California, which oversees the insurance market in the state, projects that commercial insurers are likely to face significant losses this year and will need to dramatically increase premiums to remain solvent.

The study focused on the commercial market that includes up to 20 million high-risk people under age 60 who are at higher risk of having significant health needs due to the virus, and many in the commercial market who are not high-risk but will need testing and care when infected by COVID-19. As roughly half of the US population receives its health care coverage through employers, much of the COVID-19 testing and treatment will be paid through commercial health insurers.

Claims for testing, hospitalization, and other treatment will likely be a significant cost in 2020. Commercial-population insurance premium rates for 2020 were set six to nine months before January of this year and well before there was even any hint of the virus.

The major findings of the report include:

• The one-year projected costs in the national commercial market range from $34 billion to $251 billion for testing, treatment, and care specifically related to COVID-19 - with the potential that costs could be higher.
• Potential COVID-19 costs for 2020 would range from about 2 percent of premium to over 21 percent of premium if the full first-year costs of the epidemic had been priced into the premium.
• If carriers must recoup 2020 costs, price for the same level of costs next year, and protect their solvency, 2021 premium increases to individuals and employers from COVID-19 alone could range from 4 percent to more than 40 percent.

The potential impacts detailed in the report reflect what could happen absent decisive federal action. If these impacts are not mitigated, the public health and economic consequences to consumers, small and large employers and health insurers include:

• Consumers and employees not getting needed testing or treatments due to cost barriers, both for COVID-19 but also for other health conditions.
• Employers no longer being able to offer affordable coverage, or dramatically shifting costs to employees.
• Consumers and employers no longer being able to afford coverage, leading to employer groups dropping coverage or individuals deciding to go uninsured.
• Even more unsubsidized marketplace enrollees being priced out of individual markets.
• Small insurers risk insolvency, and if they close, put covered consumers at financial risk, damaging competition that benefits consumers and the employers that purchase on behalf of millions of Americans.
• Dramatic cost increases, many of which will be borne by the federal government in the form of higher Advanced Premium Tax Credits (APTC), or by both federal and state governments paying for increased Medicaid enrollment as individuals and employers drop coverage.