Why COVID’s a Win-Win-Win for Health Insurers

Every once in a while something comes along that reaffirms your belief that healthcare is an industry like any other industry and that healthcare reacts the same way to economic trends that affect revenue, expenses and profits.

That something was this week when the Kaiser Family Foundation published a research brief on how the COVID-19 outbreak in the U.S. is affecting the financial fortunes of health insurance companies. You can download the brief here. 

Health insurance companies rarely lose money and, if they do, they make it up quickly the next quarter or insurance cycle by raising premiums, enrolling more members and/or negotiating favorable payment rates to providers.  Or, generically, ratcheting up prices, increasing sales and/or reducing expenses. Just like any other business in any other industry.

So how would a once-in-a-century viral pandemic that’s killed or sickened hundreds of thousands of people affect their business mindset? As it turns out, not much.

Confirming what we’ve seen in quarterly earnings reports from the big commercial insurers, COVID-19 to date has been a win-win-win for health insurers, according to the brief. 

Kaiser researchers analyzed data reported by health insurance companies to the National Association of Insurance Commissioners. They looked at changes in gross margins per member per month and medical loss ratios in the first six months of 2013 through 2020 for three private health insurance markets: the individual market; the group market; and the Medicare Advantage market. 

Here’s what the researchers found, comparing the first six months of last year to the first six months of this year: 

• Gross margins PMPM for Medicare Advantage plans rose 41 percent to $222 from $158
• Gross margins PMPM for group plans rose 23 percent to $106 from $86
• Gross margins PMPM for individual plans dropped less than 3 percent to $138 from $142

As for medical loss ratios, which are the percentages of premium income that plans paid out in medical claims, comparing the first six months of last year to the first six months of this year: 

• The MLR for Medicare Advantage plans dropped to 80 percent from 85 percent
• The MLR for group plans dropped to 78 percent from 81 percent
• The MLR for individual plans was unchanged at 72 percent during the same period each year

Profits rose. That’s a win. Expenses dropped. That’s a win. As for the third win, it’s public perception.

After the pandemic hit, many private health plans began covering all COVID-19 testing and treatment costs, covering all telemedicine costs, covering all behavioral health costs and waiving co-payments and deductibles for all of it. What on the surface appeared to be altruistic behavior during an unprecedented public health emergency really was a business tactic. Profits were rolling in so why not spend a fraction of it on COVID-related medical services for members now to reduce medical loss ratio liabilities later.

“By increasing their claims costs, insurers can proactively increase loss ratios and owe smaller rebates next year,” the brief said. 

That’s a win. It may be an even bigger win if the U.S. Supreme Court strikes down the ACA and takes the ACA’s mandated medical loss ratios with it. 

I really never lost faith in health insurers behaving as businesses with the singular mission of maximizing profits for their owners or shareholders. It’s just nice to know that you’re right.

Thanks for reading.

Stay home. Stay safe. Stay alive.