As employers evaluate their benefits packages for the coming year, the past 2 years are going to play a significant role in that conversation. Before the pandemic, setting health insurance rates followed a formulaic pattern.
But, with COVID-19 throwing healthcare costs for a 2-year loop, finding a relevant comparable year on which to set premiums is a major challenge.
The COVID Effect
COVID hit the health insurance industry in two meaningful ways: First, the cost to treat infected patients, particularly in the intensive care unit, has been astronomical. Many estimates put each stay in the ballpark of $70,000. And there have been a lot of stays. Early in the pandemic, many of the insurance companies were waiving the cost-share portion of caring for those COVID patients. But at this point, nearly every carrier has ended that waiver and is again passing along costs according to its policy schedules.
Second, for non-COVID patients, the pandemic has been a reason to defer care. Hospitals and clinics were scary places. Nurses were being siphoned off toward overburdened emergency departments. And with little understanding of how COVID spread, staying home was the safest option. But unfortunately, that meant many people just skipped their doctor’s appointments for the better part of a year or more. Many are still avoiding routine care.
Deferring care means the pricing models that base premiums on the past year’s usage won’t capture the pent-up demand that is likely to surge as the pandemic wanes.
Additionally, if patients have chronic health issues like diabetes or hypertension, going several years without doctors’ supervision means the condition could have gotten worse, and ultimately, the cost of care can go up.
Still, the insurance companies are going to set rates, and employers are going to have to share those costs with their employees. And those costs are substantial. Benefits of all stripes can account for as much as 40% of their total compensation.
But as tempting as it may seem, now may not be the time to start pulling back coverage and benefits, even if they are costly. Employers everywhere are struggling with keeping staffing levels up, so skimping on their insurance match is not likely to help with recruiting efforts.
That said, now may be an opportunity to examine the totality of what each employer offers. If an employer is offering a particularly costly benefit but the employees aren’t utilizing that benefit, that may be worth reexamining.
Some employers are also examining how to handle their employees who are opting out of COVID vaccines, especially considering the rollout of the federal vaccination mandate for large employers. To start, though, it is important to note that the vaccination status of an employer’s workforce will not relate to the premiums charged by the insurance company.
By law, rates need to be set in a way that doesn’t give different rates to different people with similar demographics. So, just like you can’t charge someone with a preexisting condition more for his or her insurance, you also can’t charge someone who is unvaccinated a higher premium. Rates are set between the insurance company and the state regulator, and those can’t change based on vaccination status.
That said, some companies are trying to use monetary means to encourage vaccination. The Equal Employment Opportunity Commission (EEOC) has allowed incentives as a way to encourage vaccination. And in that spirit, employers can offer to pay a larger percentage of the premium subsidy on behalf of vaccinated employees. In this way, the premium isn’t different, but the subsidy being offered does change.
Others are outright charging a surcharge to anyone who hasn’t gotten the shot. It is a good bet that the courts are going to weigh in on these cost differentials sooner than later.
Even though premiums can’t differ depending on vaccination status, in the biggest picture, vaccination status could theoretically—in a longer term—have an effect on premiums. That is because premiums are based on past claims history. For large employers, their employees can be lumped together for risk purposes. For smaller employers, the rates are set based on community risk.
So, if many members of a certain risk pool were to all avoid the vaccine and they ended up driving up healthcare costs in the short run, that will, in the long term, mean that rates will go up for the entire pool. But that would likely take at least a year—or more—to show up in the claims data.
In the immediate future, 2022 is going to be marked by uncertainty. What cost basis will insurers use to set the upcoming next few years’ premiums? What will the effect of deferring so much care for huge populations of chronically ill patients have on future healthcare usage? How will the courts handle the vaccine mandates and “incentives” being put in place to encourage people to get vaccinated, and will vaccination status have any measurable long-term effect on healthcare costs?
Staying flexible is going to be a key for success. And making sure that short-term goals, like reducing the cost of benefits, don’t end up harming the business in the long run is going to be essential. But, as we move into 2022, everyone agrees that with luck, we will move beyond COVID and move back into a health insurance market that makes more sense or is at least a little bit more predictable.
Michael Giusti, MBA, is a senior writer and analyst at InsuranceQuotes.com.