Low medical expenses
Insurers have mismodeled the cost of COVID-19 care and treatment associated with the lingering effects of infections, leading to inappropriate premium increases, Melnick said. A lack of competition has exacerbated that problem, he said.
“My premiums have probably gone up 20% since 2019, and I know my plan costs haven’t gone up 20%,” Melnick said. “What is happening here?”
Lower hospitalizations due to COVID-19, along with a drop in hospital stays, have led UnitedHealthcare, Cigna and UnitedHealth Group’s Humana to raise earnings expectations for this year. Insurers noted that emergency room visits remain below pre-pandemic levels, although commercially insured patients and some seniors seeking preventive care have driven volumes back to where they were in 2019.
“We don’t see any significant signs of pent-up demand or sharpness yet,” Cigna chief financial officer Brian Evanko said during the company’s second-quarter earnings call this month. Cigna did not respond to an interview request.
Lower medical expenses helped push Cigna’s net income up 6.2% to $1.5 billion in the second quarter. The company’s medical loss rate fell 3.7 percentage points to 80.7% from a year earlier, and has been declining since the first quarter, which “was unexpected and rare for Cigna,” it said. writes Cowen analyst Gary Taylor in a research note this month. Health insurers’ medical expenses typically increase as the year progresses and people pay deductibles and plan more care.
During the pandemic, insurers’ medical spending has fallen as waves of the COVID-19 virus caused patients to delay care and hospitals to limit procedures. Insurers have cited the threat of patients flooding doctors’ offices with more extreme conditions once the pandemic is over as justification for the premium hikes. So far, there’s been no evidence that commercial policyholders are postponing needed care and suffering more serious conditions as a result, Evanko said.
“One of the challenges for insurance companies is pricing, right? It’s very difficult to assess bounties for very uncertain use,” Ellis said. “That’s how these predictions are incorporated into the premiums we all pay in our insurance. If these do not materialize, insurance companies can make more money.
Health insurers argue that federal limits on the amount of premium revenue they can pocket serve to control excess profits. These medical loss ratio standards do not apply to self-insured group plans, which however cover more than half of US residents.
Health insurers are also monitoring usage trends in the rapidly growing Medicare Advantage market. By effectively managing the care of these patients, health insurers aim to retain more of the package paid to them to cover Medicare enrollees.
UnitedHealthcare is the nation’s largest Medicare Advantage insurer with 6.9 million members and has worked to ensure members receive routine care by increasing home visits. “We still don’t see any patterns indicating a shift in acuity,” UnitedHealth Group Chief Financial Officer John Rex said during the company’s second-quarter earnings call last month. UnitedHealthcare answered questions about patient utilization by directing Modern Healthcare to statements from executives on this earnings call.
Humana, the second-largest Medicare Advantage insurer with 5.1 million members, is also focused on providing care in the homes of Medicare beneficiaries: home visits increased 3.1% and palliative care increased by 5%, the company reported.
Seniors make up the majority of Humana’s membership, and its medical costs in the second quarter reflected the human toll of the pandemic, chief financial officer Susan Diamond said on an earnings call in July. The insurer responded to questions about patient utilization by referring Modern Healthcare to the earnings call.
“Higher mortality from COVID is impacting medical cost trends and overall utilization. Those who died from COVID tended to be heavy users, they had multiple comorbidities,” Diamond said. “We will see continued impacts of this in the future.”
Within Humana’s Medicare Advantage segment, usage differed between patients enrolled in individually-enrolled plans and those with group employer plans. Medicare Advantage group members are returning to care at a faster rate after delaying treatment, and surgical volumes rebounded 600 basis points ahead of individual Medicare Advantage members, Diamond said.
“What we thought was lower morbidity turned out to be more a reflection of delayed use and pent-up demand that is ongoing right now,” Diamond said.