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.