Payer Claims, Economics, Operations Will Suffer Due to COVID-19

March 24, 2020 - Health payers will be exposed to claims-based, economic, and operational challenges due to the COVID-19 pandemic, according to an AM Best report sent to HealthPayerIntelligence by email.

The report follows shortly after a previous report projecting a surge in claims.

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“On March 6, 2020, AM Best commented on the potential risk to health insurers due to claims from the coronavirus. As the coronavirus continues to spread in the US and the number of cases rise, AM Best is updating our prior statement,” the report explained.

In its most recent report, the credit rating agency found that payers will see a rise in the quantity of coronavirus-related claims and in severe claims. 

However, payers will also see other types of claims reimbursements shift in reaction to new regulations. 

For example, CMS recently recommended a cessation of unnecessary or elective surgeries. As a result, there will likely be a dip in claims that are not for severe health conditions. Some patients may even decide not to visit their providers.

Social efforts may also play a role in offsetting the jump in severe claims: as the nation attempts to “flatten the curve,” patients are more likely to stay home than venture to their provider’s office for the sake of social distancing.

Payers that cover high-risk populations, naturally, are more likely to receive severe claims. Long-term services and support, Medicare and Medicaid, and special needs populations are all high-risk and could lead to a steep incline in costs for health payers as the coronavirus pandemic continues. 

Geographic area can also have a significant impact on the severity of a payer’s claims. States like Washington, which recently received CMS approval for a section 1135 Medicaid demonstration waiver, have seen an enormous growth in coronavirus cases. Payers in these areas will expect heavy healthcare spending due to the quantity and severity of claims.

AM Best lists a few major economic effects, not directly related to claims, that could result from the coronavirus. 

Employer layoffs could cause low premiums and reduce membership.

A shift in priorities as the healthcare industry tries to throw all of its energies behind stopping the pandemic could stall sales that were starting to form when the crisis began. Partnerships have not come to a complete standstill, as evidenced by Aetna Medicare Advantage’s partnership with Lexington Clinic. But employers and individuals will likely stay in their current plans and not adjust.

Also, credit risk will rise. In particular, administrative services contracts and investments will be marked by higher credit risk.

Finally, dropping interest and plummeting equity and bond markets could lead to low investment income.

Healthcare payers will experience challenges in handling the increase in severe claims to process, especially as it sends employees out of the office to work from home.

Despite the challenges that coronavirus has caused, AM Best did not alter its outlook for 2020.

“AM Best’s outlook for the health insurance industry currently remains stable. AM Best acknowledges that there is a potential for deterioration in capital from both an earnings and investment perspective,” the report concluded. 

“However, the favorable earnings trends over the past few years has resulted in the strengthening of risk-adjusted capitalization for health insurers, which should aid in withstanding the financial impacts, both claims and investment market related, of the coronavirus. Furthermore, health insurer rates are set annually; if necessary, rates can be adjusted at renewal, so the financial impact to health insurers may be limited to 2020.”

AM Best emphasized that this unknown timeline would be a crucial factor in determining the claims-based, economic, and operational impacts of the virus. However, like many other outlets, did not estimate the length of time that the coronavirus pandemic would continue unabated in the US.