Large health insurers appear immune to COVID-19

The largest national health insurers emerged from the first quarter of the year without so much as a scratch from the COVID-19 crisis. And while it’s unclear how long the pandemic will last and how many people will become infected, insurers are betting they ultimately will come out on top.

Publicly traded insurers reported feeling little to no effects from the coronavirus pandemic on their bottom lines as the crisis began ramping up in late March. Even though they cautioned that greater COVID-19 costs could begin to emerge in later quarters, each of the seven major insurers reaffirmed their previous 2020 earnings projections. One of them—Centene Corp.—even said it expected to bring in billions more in revenue than previously thought as the growing unemployment rate pushes more people into Medicaid.

Though the pandemic threatens to cripple hospitals and physician practices, which postponed non-urgent procedures and appointments to free up resources needed for a potential influx of coronavirus-stricken patients, the absence of those procedures is working in favor of health insurers. The companies continue to collect premiums from customers, but very little is going out the door to pay for medical care. Meanwhile, the costs associated with COVID-19 tests and treatments have not been substantial.

“It very well could be that under the circumstances, deferrals of services outweigh COVID-19 costs,” UnitedHealth Group CEO David Wichmann told investment analysts during the company’s first-quarter earnings call in April.

A recent analysis by ratings agency Moody’s Investors Service concluded that at an infection rate of 2% in the U.S.—about 6 million to 8 million people—health insurers’ bottom lines would ultimately benefit from the pandemic. Even with an infection rate of 10%, health insurers would remain profitable, according to the analysis.

With more than 1.2 million reported COVID-19 cases as of last week, the U.S. infection rate is less than 1%.

“The industry, according to our estimates, could have a net benefit as the benefit of lower utilization elsewhere more than offsets the cost of the coronavirus. We think it’s possible, and what we’re hearing from the companies is that it’s possible,” said Dean Ungar, a Moody’s vice president.

Collectively, the seven largest for-profit health insurers covering 175 million people reported revenue in the first quarter of $248.8 billion, an increase of about 11% over the same three months in 2019. Their combined profit totaled $8.9 billion, a decrease of roughly 3%. The decrease wasn’t related to COVID-19.

While health insurers have waived cost-sharing for coronavirus tests and treatment and invested funds to support providers and their communities, those expenses have been more than offset by the reduced use of non-urgent healthcare services, which insurers expect will continue throughout the second quarter. Humana and Aetna noted they have seen use of medical services drop by at least 30%.

The pandemic may help some insurers more than others. Medicaid- and ACA exchange-focused companies, such as  Molina Healthcare and Centene, could see membership gains as Americans who lose job-based coverage amid the economic downturn enroll in the safety-net program. On April 30, Long Beach, Calif.-based Molina said it expected to add 30,000 more Medicaid members just in the month of April, an increase it attributed to states suspending eligibility redeterminations. Anthem also reported a “slight uptick” in Medicaid enrollment in early April.

Centene hiked its revenue guidance by $4 billion because it expects to see membership growth as unemployment surges. More than 33 million people have filed jobless claims since mid-March. Insurers focused on the commercial market, meanwhile, could lose membership for the same reason, but many of those also participate in Medicaid and other lines of business where they could pick up new members.

Health insurers have also been raising capital to ensure access to cash in case of a crisis, which could increase their spending on interest. The economic recession could also weaken insurers’ investment income. Moody’s analysts, however, did not expect those factors to matter much to insurers’ financial results.

Large insurers’ experience so far has prompted skepticism toward the sector’s calls for government help.

“If I had to look into the crystal ball, I would say they’re well-positioned at this point versus a hospital,” said Ipsita Smolinski, managing director at Capitol Street.

Insurer lobbying groups America’s Health Insurance Plans and the Blue Cross and Blue Shield Association have asked Congress to fund subsidies to help employers and employees maintain health benefits and create a national special enrollment period so the uninsured can get coverage.

The trade groups have also asked the federal government to provide a risk-mitigation program to protect insurers from “extraordinary, unplanned costs in 2020 and 2021 due to COVID-19.”

They pointed to a March analysis by California’s insurance exchange, Covered California, which estimated that COVID-19 costs to commercial insurers could range from $34 billion to $251 billion for just one year. That analysis did not account for how reductions in elective care might offset those costs, however.

An AHIP spokeswoman told Modern Healthcare that it’s too soon to know what the financial impact of COVID-19 will be. She said most legislative solutions that AHIP has proposed are to help employers and employees—not health insurers—and are targeted and temporary. Still, it’s true that insurers would ultimately benefit from funds that subsidize employer healthcare premiums.

“We aren’t through this crisis yet. Thousands more illnesses continue to be announced. And while elective and nonurgent procedures may not be occurring right now, we must assume that care will merely be delayed and will be delivered and paid for later,” she said in an email.

Some experts, however, said it’s likely that not all deferred healthcare utilization will come back. A chest cold, for instance, may get better on its own, eliminating the need to go to the doctor, said Tim Nimmer, global chief actuary of consultancy Aon. He estimated that most self-funded employers would spend less money than budgeted if the suspension of core healthcare services lasts two to three months.

Consultancy Willis Towers Watson also estimated that the COVID-19 pandemic could reduce large employer healthcare costs by as much as 4% this year.

The experience of the largest publicly traded health insurers doesn’t necessarily represent all health insurers, particularly regional ones with members residing in COVID-19 hotspots.

Not-for-profit HealthFirst, which serves 1.4 million people primarily in New York City and Long Island, is one insurer reeling from the crisis. New York—the nation’s epicenter of the COVID-19 pandemic—has reported more than 327,000 cases and 26,000 deaths. Nearly 1,000 of those deaths were of HealthFirst members, and there may be many more the insurer doesn’t yet know about, said Dr. Jay Schechtman, the company’s chief clinical officer.

“We’ve seen significant hospitalizations and significant deaths in our population,” Schechtman said. “It’s hard trying to explain to other parts of the country how serious a condition this is and how severely our members are being affected.”

Most of the insurer’s members are minorities and low-income and are being disproportionately affected by the pandemic.

Since access to the healthcare system for non-COVID conditions has evaporated, HealthFirst has ramped up telehealth services and ensured access to medications through 90-day prescriptions and delivery services. It has also reached out to members at risk for food insecurity and other unmet needs to connect them with community organizations that can help.

At this point, HealthFirst doesn’t know how things will shake out financially. While it knows when its members are hospitalized, it is only just beginning to receive claims for reimbursement. HealthFirst has experienced a big reduction in outpatient services, but it isn’t clear if that’ll be enough to mitigate COVID-19 costs. On top of the pandemic woes, New York is facing a budget crisis and slashing Medicaid rates. Schechtman’s best guess? “It’s not going to be a catastrophic event, but it will be a significant financial drag for the rest of the year.”

Karen Ignagni, CEO of New York-based not-for-profit EmblemHealth, said the health plan has experienced a “significant financial impact” from the pandemic. The insurer covers a large number of COVID-19 patients and has waived patient costs for tests and treatment. It has also expanded telemedicine and is providing grace periods and payment flexibility to individuals and employers suffering from the pandemic’s economic consequences.

EmblemHealth also owns a large primary- and specialty-care practice, which is losing revenue from the suspension of non-essential procedures, Ignagni said in an email. The insurer declined to provide specific figures on the volume and cost of coronavirus-related claims and did not say whether the benefit of deferred elective procedures would outweigh those costs.

“National companies with multistate locations are in very different circumstances than regional plans, particularly those in hard-hit areas,” Ignagni said.

About 150 miles north of New York City, things are very different. Albany, N.Y.-based Capital District Physicians’ Health Plan, whose 375,000 members are spread across upstate New York, hasn’t experienced nearly the number of hospitalizations and deaths as some other insurers. About 4,000 of its members have been tested for the coronavirus, and those claims haven’t been steep, said CEO Dr. John Bennett. Roughly 100 members have been hospitalized from COVID-19 and 12 have died.

CDPHP has also seen a large drop in claims for elective procedures, which Bennett said would “more than offset” COVID-19 related costs. “The claims that we’re seeing coming in the door have dropped significantly, and quite frankly, the cash out the door has dropped,” he said.

Eventually, claims costs for elective procedures will rebound, though it’s anybody’s guess when that will occur. It’s unclear when state governments will green-light elective procedures again or when patients will be comfortable using the healthcare system, Bennett said. Some insurers predicted that procedures would ramp up in the second half of 2020; others predict a rebound in 2021. Several insurance executives warned that costs could be driven higher by people whose conditions worsened while the nation was on lockdown.

The myriad unknowns make it difficult for health plans to accurately set premiums for 2021, which must be submitted as early as this month for individual and small employer plans in some states. That uncertainty could drive premiums higher.

“It’s not clear whether insurers are going to have all the information they need to accurately set premiums, and that means they may be inclined to price cautiously,” meaning higher than they otherwise would, explained Cynthia Cox, vice president at the Kaiser Family Foundation.

Cox said it’s “entirely possible” that insurers will increase premiums in 2021 to account for any postponed elective care that may be resumed next year. And in statements to investors, large insurers have made it clear that they may hike premiums to account for COVID-19 test and treatment costs.

“We would price for this for 2021, to the extent there’s any meaningful impact. I would imagine the industry will as well,” Brian Kane, chief financial officer at Humana, said during a March virtual conference held by investment firm Barclays.

Insurers noted that the Affordable Care Act medical-loss ratio requirements, which stipulate that plans must spend a minimum percentage of premium revenue on medical care, should keep them from profiting too much. Those that don’t meet those requirements must pay rebates to plan members.

Some companies, including Humana and UnitedHealthcare, suggested they could also lower premiums or add benefits if they profit excessively from the reduction in elective healthcare services.

“It remains to be seen whether or not we are able to do so and to what extent. But it is something that we’re deeply committed to doing,” UnitedHealth’s Wichmann said.