But analysts regard the blow-out quarter as an anomaly. They expect federal regulations limiting how much premium revenue insurers can pocket as profit to kick in, triggering rebates to plan members, employers and state governments. At risk of appearing to capitalize on a crisis, insurers have also promised to return excess profits over the course of the year.
Moreover, insurers and analysts expect patients will eventually begin to seek out the surgeries and routine care that was put off in the last few months. Already, healthcare utilization has creeped up to near-normal levels going into July.
"The big question coming out of the quarter is how much of that care is deferred, how much of it is foregone, when does it come back, and does it come back with a vengeance with respect to acuity?" said Stephen Tanal, managing director at SVB Leerink.
The drop in the use of healthcare services was dramatic, falling as much as 70% below normal levels in April before beginning to rebound. While the abrupt shut-off of expensive elective procedures drained many hospitals of income, it had the opposite effect on insurers.
Under an Affordable Care Act rule, companies are supposed to spend at least 80% of the premiums they collect on medical care or rebate the difference to plan members. Most insurers spent far less. Five of the seven largest health insurers reported a medical loss ratio—a measure reflecting the proportion of premiums spent on claims—of less than 80%, suggesting they'll owe big rebates in the future. Three insurers spent just 70 cents of every premium dollar on care.
"Some of these loss ratios are at historic lows for the second quarter, undoubtedly," said Deep Banerjee, a director at S&P Global.
But Banerjee said he expects insurers to start spending more on medical care throughout the rest of the year. While COVID-19 hasn't gone away and cases are escalating in certain areas of the country, healthcare providers aren't deferring elective procedures like they did in March and April. With the healthcare system accessible, some of the services that were postponed may start coming back in the second half of the year, Banerjee said.
Some patients' conditions may have worsened and become more costly to treat.
The steps insurers took to alleviate members' costs and prop up struggling providers could also begin to dampen earnings, which is what the insurers want.
"The companies really do everything they can to not exceed earnings expectations significantly. It's a reputational risk to have extremely good earnings for the year when there's a pandemic going on," Banerjee said.
Most insurers waived member costs for COVID-19 tests and treatment. Humana and Centene eliminated seniors' cost-sharing for primary care, behavioral health and telehealth services for the rest of the year. UnitedHealth and Anthem offered premium credits to customers. UnitedHealth sped payments to physicians. Humana delivered almost a million meals to members in need.
"A lot of the stuff they've done, especially the waivers of cost-sharing…wouldn't do much in a quarter where nobody used any services," Tanal said. The measures "are likely to have a much bigger impact on the financial results of these companies in the back half of the year."
Several insurers also expect to lose revenue as job-based plan members fall off their rolls in the slumping economy. They lost fewer commercial members than expected in the second quarter, because employers chose to temporarily furlough workers and allow them to keep their benefits rather than lay them off.
At the same time, insurers grew Medicaid membership because states that received additional Medicaid funding from the federal government were barred from disenrolling beneficiaries during the public health emergency. But as the economic downturn drags on and the federal stimulus money propping up businesses runs out, temporary furloughs could become permanent. New Medicaid members may not make up for those commercial losses for all insurers.
"You have this lagging effect because of the furloughs," Moody's analyst Stefan Kahandaliyanage said.
Still, absent a COVID curveball, insurers are likely to have a really good year. There's some risk of higher coronavirus costs in regional hotspots where cases are increasing. However, catastrophic scenarios seem to be off the table, thanks to the effects of social distancing and wearing masks.
"There are definitely ways in which this (could) end badly for the health insurance sector," Tanal said. "It's more likely it's going to end pretty well for them where they're probably going to be rebating money to governments and consumers and have pretty healthy earnings in the interim period."
