Low medical spending
Insurers incorrectly modeled the cost of COVID-19 care and treatments associated with lingering effects of infections, which led to inappropriate premium increases, Melnick said. A lack of competition exacerbated this problem, he said.
“My premiums are probably up 20% since 2019, and I know that my plan costs are not up 20%,” Melnick said. “What’s going on here?”
The drop in hospitalizations because of COVID-19, along with a decline in inpatient stays, led UnitedHealth Group’s UnitedHealthcare, Cigna and Humana to raise profits expectations for this year. Insurers noted emergency visits remain below pre-pandemic levels, although commercially insured patients and some older adults seeking preventive care have caused volumes to return to where they were in 2019.
“We’re not yet seeing any meaningful signs of pent-up demand or acuity,” Cigna Chief Financial Officer Brian Evanko said during the company’s second-quarter earnings call this month. Cigna didn’t respond to an interview request.
The decline in medical spending helped boost Cigna’s net income 6.2% to $1.5 billion in the second quarter. The company’s medical loss ratio dipped 3.7 percentage points to 80.7% from a year before, and declined since the first quarter, which “was unexpected and rare for Cigna,” Cowen analyst Gary Taylor wrote in a research note this month. Health insurers’ medical spending typically rises as the year advances and people pay down deductibles and schedule more care.
During the pandemic, insurers medical spending receded as waves of the COVID-19 virus caused patients to defer care and hospitals to limit procedures. Insurers named the threat of patients flooding doctors offices with more extreme conditions once the pandemic ended as justification for raising premiums. So far, there is no indication that commercial policyholders put off needed care and have more severe conditions as a consequence, Evanko said.
“One of the difficulties that insurance companies have had is pricing, right? It’s very difficult to price the premiums for very uncertain utilization,” Ellis said. “That’s how these predictions are priced into the premiums that we all pay in our insurance. If those don’t come to fruition, then insurance companies can make more money.”
Health insurers contend that federal limits on how much premium revenue they can pocket serve as a check on excess profits. These medcial loss ratio standards do not apply to self-insured group plans, which cover more than half of U.S. residents, however.
Health insurers are also watching utilization trends in the fast-growing Medicare Advantage market. By effectively managing these patients’ care, health insurers aim to keep a larger portion of the flat fee they are paid to cover Medicare enrollees.
UnitedHealthcare is the nation’s largest Medicare Advantage insurer with 6.9 million members, and has worked to ensure members get routine care by ramping up home visits. “We are still not seeing patterns which indicate shifting acuity,” UnitedHealth Group Chief Financial Officer John Rex said during the company’s second-quarter earnings call last month. UnitedHealthcare responded to questions about patient utilization by directing Modern Healthcare to executive statements during that earnings call.
Humana, the second-largest Medicare Advantage insurer with 5.1 million members, is also focused on delivering care at Medicare beneficiaries’ residences: Home visits are up 3.1% and hospice care is up 5%, the company reported.
Older adults comprise the majority of Humana’s membership, and its medical costs during the second quarter reflected the human toll of the pandemic, Chief Financial Officer Susan Diamond said during an earnings call in July. The insurer responded to questions about patient utilization by referring Modern Healthcare to the earnings call.
“Higher mortality as a result of COVID has an impact on medical cost trends and overall utilization. Those that passed away due to COVID tended to be high utilizers, they had multiple comorbidities,” Diamond said. “We will see continued impacts from that going forward.”
Within Humana’s Medicare Advantage segment, utilization differed between patients individually enrolled in plans and those with group plans from employers. Group Medicare Advantage members are resuming care at a faster rate after deferring treatment, and surgical volumes rebounded 600 basis points ahead of individual Medicare Advantage members, Diamond said.
“What we thought was lower morbidity has turned out to be more reflective of deferred utilization and pent-up demand that’s working its way through now,” Diamond said.