What happens to health insurance costs when fearful patients flee care?

In March, a very unusual thing happened in the American medical business. When the pandemic struck, patients suddenly stopped going to the doctor. They postponed routine and preventive care and avoided elective hospital procedures, a hospital’s bread and butter. Patients weren’t spending money on typical medical services. Beyond hospital care for COVID-19, much of the health care world and its massive spending habits ground to a halt.

For decades leading up to the pandemic, medical costs and health insurance premiums have continued their relentless upward march, without much to stop them. The Peterson-KFF Health System Tracker shows that over the last decade, health costs incurred by families covered by large employers — including premium contributions and out-of-pocket spending on health services — increased 67%, from $4,617 to $7,726 a year. Over the same decade, average health costs paid on behalf of workers by large employers in the form of premium contributions for a family’s coverage increased 51%, from $10,008 to $15,159 a year.

Has the pandemic provided a turning point? Is the price of medical care finally going to come down because consumers have — out of necessity or choice — skipped months of preventive care and elective procedures? Might consumers finally get a price break on their health insurance for next year?

Don’t bet on it.

“Medical loss ratios have dropped like a rock,” says former insurance executive Wendell Potter, who now heads the advocacy group Business Leaders for Health Care Transformation and speaks out on behalf of consumers. Cigna, Potter’s old company, reported its second quarter medical loss ratio in 2020 was 70.5% percent compared to 81.6% a year ago. The company attributed the drop to “significantly” less use of medical care. UnitedHealth Group, the country’s largest health carrier, reported a similar drop, from 83.1% in the second quarter last year to 70.2% this year. The insurer similarly pointed to “the temporary deferral of care due to the pandemic.” Loss ratios measure how much a company spends on medical costs as a percentage of the premiums collected. In general, the higher the loss ratio, the better for policyholders.

That’s why the Affordable Care Act requires insurers to rebate some of the premiums on blocks of policies where the medical loss ratio is less than 80% (or 85% for large group insurance).

But lower medical loss ratios and substantial profits don’t mean that Cigna, United, and other carriers will lead to lower prices for health insurance next year. “We’ll see premiums up in spite of the windfall profits,” Potter predicts. He says the industry has been “extraordinarily profitable ever since the ACA was passed.” They’ve used the money to build their reserves and buyback shares of stock. “Premiums continue to go up even as the industry and employers pushed people into higher deductibles.” He cautions that although “people are fixated on the rising premiums,” they should also be focused on the “even more rapidly increasing out-of-pocket requirements.”

Dr. David Blumenthal, president of The Commonwealth Fund in New York City (an organization that also supports the Center for Health Journalism’s webinar series), says that while insurers have had a rise in expenses associated with COVID-19, “that reduction in their costs from reduced use of routine services will be much greater than the cost increases associated with care of COVID-19 patients. That means companies have realized substantial short-term profits.” Furthermore, he said, “Consumers shouldn’t assume they will get the benefit of the doubt. If there’s any doubt about how much the use of care will go up, insurance companies will assume the worst. That’s what their investors want.”

That’s what hospitals, leviathans in the health care cost battle, want too. Since their business has been down for these many months, are they likely to lower their prices to coax more patients to drop by for lucrative elective procedures? Dr. Sandeep Jauhar, a cardiologist at Northwell Health in New York and a New York Times contributor, told me that “hundreds of billions of dollars are spent unnecessarily on health care,” and that “hospitals in New York are saying ‘we need to ramp up care.’ Some departments are being told to not only resume care at pre-pandemic levels but to boost volume of care to make up for financial losses.” But Jauhar suggested the easing after the pandemic could be an opportunity. “First, we have to see if an argument can be made for rebooting in a different way.” That means rethinking whether a particular medical intervention is really necessary. He added, “It’s possible the outcomes after the pandemic don’t look so bad. Maybe they (patients) don't need as much care as we’ve been providing.”

“Consumers shouldn’t assume they will get the benefit of the doubt. If there’s any doubt about how much the use of care will go up, insurance companies will assume the worst. That’s what their investors want.”   — David Blumenthal, president, The Commonwealth Fund

But it’s unlikely hospitals will charge less for their services barring a new wave of national health reform. For months hospitals have argued they are in financial trouble and have received billions in bailouts and loans from the federal government in various stimulus packages. “The public safety net and rural hospitals haven’t been doing great,” said Bob Herman, who covers hospitals for Axios. “They’ve been underfunded and neglected for years. But that’s hardly news.” It’s a different story with the big, urban hospital systems. “They are sitting on large rainy-day funds, which were built up by high prices over the years,” he said. I asked Herman why these big, flush systems need money from the federal government. “They want to be made whole,” he said. “COVID put a wrench into some of their plans to expand and expansion is good for hospitals. They want to buy equipment, build new facilities, buy more medical practices.” They are crying poverty “but are paying consultants and lawyers millions of dollars to complete acquisitions.”

Physicians who have lost business during the pandemic, too, are hoping to make up their lost revenues and will surely lobby for as much of an increase in payments as they can get. In late August, David B. Hoyt, executive director of the American College of Surgeons, penned an op-ed for CNN Business Perspectives, arguing that planned cuts in Medicare payment rates to surgeons should be dropped because they will “force more surgeons to close their practices reducing patients’ timely access to quality care,” and “doctors need Congress to help them.” It’s the sort of argument doctors have made for years whenever Medicare has tried to tame health care costs for Medicare patients.  

At the same time, there’s pressure from employers to keep premium increases low. Actuaries at Milliman, the actuarial consulting firm, say although “rate increases filed so far for 2021 have been quite low,” there are signs of increased cost-sharing and narrower provider networks in both the employer and individual marketplaces. “I don’t see those going away,” said Hans Leida, a Milliman actuary, adding that to do away with them would mean increased pressure on premiums for everyone. The actuaries noted, “There could be something that changes and tips toward increases in costs, and there may be a bill to pay in 2021 when people are worse off from deferred care.” It’s still early, but we should have a better sense of coming increases over the new few weeks.

While predicting health care costs for next year is tricky and still speculative, there’s no disputing that the number of Americans unable to adequately insure themselves from both illness and financial hardship is growing larger. The strategy of shifting more costs to people who get sick through higher deductibles and higher coinsurance amounts is taking a toll on family finances, according to the latest biennial survey of families from The Commonwealth Fund’s look at Americans who are underinsured.

According to the survey, half of all adults who said they had spent any time being uninsured or underinsured had trouble paying medical bills or paying off debt over time. One quarter of people in employer plans are underinsured. That’s a huge number considering that employer-provided coverage is hailed as the bedrock of America’s health insurance system. Said Blumenthal: “The rate of increase in underinsurance is occurring most rapidly among people with employer-provided insurance. Small employers on the verge of bankruptcy will drop coverage or reduce the generosity of coverage.”

And as open enrollment approaches, more people who work for small employers will find themselves vulnerable. I interviewed the owners of two small businesses who represent the dilemma facing many small employers this fall.

Steve Schneider owns a digital marketing agency in Indiana and insures six people on the company policy — two employees plus their dependents for about $37,000 a year with what he says is an “ultra-high deductible” plan that includes some dental coverage. The family’s out-of-pocket maximum is $12,100 per year, and each person must rack up $6,050 in charges before the carrier pays for care. “Every year it’s how much can we offer and how much can employees pay. How high can I push the deductible to lower the premium?” He added, “This problem is so big the government has to intervene.”

In Stowe, Vermont, Jen Kimmich runs The Alchemist, a craft brewery, and provides health coverage to her 42 employees. She says health insurance is what keeps her up at night and that “premiums have continued to go up as coverage has worsened.” Kimmich has investigated all kinds of options, from association policies to short-term plans and has found those plans unacceptable for her workers. “Association plans don’t fit our belief that everyone deserves quality health care,” she says. “And all they do is increase costs for people not in the pool.”

She gives full coverage to all employees, even if they work as few as 10 hours a week. “They deserve it,” she says. “We are doing it, but it's expensive, and we don't know how much longer we can keep paying for it.” This year the brewery has paid $549 a month for single-person coverage for Vermont Blue Cross Blue Shield’s bronze plan. It goes up to $824 for a two-person family, and $1,269 for a family policy. Workers contribute a much smaller amount for their share of the cost.

There are thousands of small-business owners like Schneider and Kimmich and the millions of workers they insure. At what point will they become uninsured or underinsured because the price of insurance and price of care are simply too high?

Meanwhile, will premiums reflect the lower use of health services this year, or will big insurers pocket the profits from fearful patients forgoing care? I know how I’m betting.