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PwC: Coronavirus outbreak making 2021 health care costs more uncertain than usual

Anjalee Khemlani
·Senior Reporter
·4 mins read

The coronavirus pandemic, which has suppressed health care inflation amid a tumble in elective procedures, is making the cost outlook for the coming year more difficult to predict than usual, according to PwC.

During the COVID-19 outbreak, health insurers reaped significant savings as patients put off elective surgeries that are more lucrative for doctors and hospitals. The shift has resulted in a significant number of premium savings, even as the insurers continue to cover coronavirus tests, inpatient visits and telehealth sessions that have replaced in-person primary care.

While those savings are also being seen in employer-sponsored plans, ongoing coronavirus uncertainty — especially with the resurgence in cases around the country — are likely to impact how risk actuaries calculate costs as premium rate-setting gets under way for 2021.

“You’re going to have a testing question, you’re going to have a vaccine question, you’re going to have a question around medical countermeasures (COVID-19 treatments),” Ben Isgur, who leads PwC’s Health Research Institute, told Yahoo Finance.

“For the first time in our history doing the report, we were not able to come up with a single national projection for medical cost trends for 2021,” Isgur explained. It’s because there are so many unknowns, and some of those are to do with the actual virus...but also geography.”

The outbreak means that the costs employers are facing are far more varied than any other year, he added. Yet from a macroeconomic perspective, “testing is a drop in the bucket compared to all the surgeries that didn’t happen,” Isgur said. “Going forward...the cost of a vaccine will seem reasonable to an employer, ultimately.”

Premium costs, however, are an open question.

“You have to create a premium that gives you enough cushion to deal with anything that may come your way. So I think its possible premiums are a little lower than in previous years,” Isgur said. But with a resurgence of cases in many states, and increased hospitalizations, there may be more pressure to keep premiums the same, at best, he added.

The lack of clarity makes the overall trend cloudy at best. Because the COVID-19 outbreak has hit certain areas more heavily than others, medical costs will be affected differently.

“A low-spending scenario, in which spending remains dampened in 2021, translates to a 4% medical cost trend,” according to PwC’s report.

“A medium-spending scenario, in which spending grows at roughly the same rate in 2021 as it did from 2014 to 2019, projects a 6% medical cost trend. And a high-spending scenario, in which spending grows significantly higher in 2021 after being down in 2020, forecasts a 10% medical cost trend,” the report added.

Watch these 4 things

So while there are still many uncertainties, four specific factors will definitely be impacting employer spend for 2021, according to a new PwC report. They include increased spend on mental health and new specialty drugs expected to hit the market, but also savings from increased telehealth use and narrower networks.

Narrow networks limit the providers that someone can visit, and has been an increasingly popular cost-cutting strategy in commercial insurance.

“Employers are eyeing narrow provider networks...as COVID-19 and the related economic downturn force employers to shed costs and make healthcare providers more willing in the short term to give price concessions or take on more risks in exchange for predictable cash flows,” PwC’s report said.

Telehealth, meanwhile, has seen a significant spike in use that many believe will stay. Isgur told Yahoo Finance that digital medicine gives providers a more efficient schedule to see patients, and fewer appointments are missed when virtual.

Many insurers have started to, or are considering, reimbursing telehealth visits at the same rate as in-person care. That creates more incentive for providers to sign on.

Meanwhile, specialty drugs that have been in the development pipeline are hitting the market in 2021, which will add to costs. And mental health, which has already been receiving increased attention in recent years, as a result of the opioid epidemic, will continue to see an increase in utilization.

That increased spending, along with chronic care, will add to expenses, according to Isgur. “There’s a 12x more spending on individuals with complex chronic diseases and mental illness than on healthy individuals,” he said.

Anjalee Khemlani is a reporter at Yahoo Finance. Follow her on Twitter: @AnjKhem

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