Heads Will Spin: Forecasting Plan Costs for 2021
For many years, employers have been conditioned to expect above-inflation-rate annual increases in the costs of their health care plans. Recent increases have tended not to vary dramatically, except for those of small self-insured employers. That’s because a few more, or less, catastrophic claims in one year than the year before could trigger dramatic spikes and dips in annual costs for these smaller organizations.
The novel coronavirus (COVID-19) pandemic, in addition to taking a significant toll in human suffering, is causing financial forecasters’ heads to spin. Yet with budgeting time around the corner, employers have little choice but to start making educated guesses. Ideally, when you do, the upper and lower limits of your projection range won’t be as wide as that of California’s Health Insurance Marketplace administrator, who recently predicted premium increases between 4% and 40% for 2021.
Your forecasting math needs to incorporate plan-design changes and underlying cost trends, as always, then adjust for COVID-19-related costs as best you can. And these variables may be interrelated with any plan-design changes specifically aimed at COVID-19 cases, such as free testing policies.
Pay now or later
If your health care plan is fully insured and your insurance carrier is sustaining losses this year because of the pandemic, but you’re protected by rates negotiated a year ago, you could be in for a substantial uptick in costs in 2021 when your insurer seeks to recoup those losses. Or maybe not.
The pandemic-induced reduction in many hospitals’ and medical offices’ capacity to deliver elective procedures has led to substantial savings for some big carriers and self-insured employers. Last month, UnitedHealth announced plans to grant premium credits ranging from 5% to 20% to fully insured employers to reflect these savings. (It’s unclear whether there will be a spike in demand next year for elective services not provided this year.)
Impact of plan design
Pre-pandemic forecasts for 2020 cost increases hovered around 5%. At that time, employers surveyed about anticipated plan-design changes expressed high hopes in the cost-moderating potential for several new areas of emphasis. Any that you might adopt should offer at least modest promise of “bending the cost curve” next year, net of any pandemic impact.
Here are several planned changes that rose to the top of Willis Towers Watson’s (WTW’s) most recent “Best Practices in Health Care” survey:
Value-based care incentives. By leveraging data and considering other factors, these incentives identify which treatments show the highest success rates and then lower employees’ out-of-pocket costs for them. The flip side is also used: employees’ out-of-pocket costs are sometimes increased for “commonly overused and sometimes unnecessary” medical services.
Enhancement of employees’ emotional wellbeing. The survey ranked mental health as the top clinical area of focus over the next three years. By 2021, a slight majority of surveyed employers plan to routinely measure employee stress levels and “offer apps to support sleep and relaxation.” Presumably, employee stress levels are higher today thanks to the pandemic than employers would have otherwise expected.
“Specialty” prescription drugs. The cost of such drugs, often administered by infusion in a clinical setting to treat chronic conditions, including cancer, varies widely based on where they’re administered. By next year, 55% of surveyed employers will focus on those variances in their plan designs and incorporate incentives accordingly.
A strategy not touched on in the WTW survey that has come into focus during the pandemic is telemedicine.
“Overnight, the novel coronavirus has changed the way we interact with one another … millions of households have now tried telemedicine, and many doctors and clinics are using it for the first time to deliver care,” wrote Kathleen Jordan, the chief medical officer of a San Francisco hospital, in the Washington Post. “When the pandemic passes, we should welcome this growth and continue to increase access.”
Telemedicine isn’t new, and it’s long been promoted as a tool to slow the growth in overall health plan costs — and even save money for employers by reducing employees’ time away from work to keep medical appointments at doctors’ offices. Its proponents also argue that the convenience of receiving “check-in” services remotely leads to greater utilization of preventive care, thereby reducing the incidence of serious medical problems down the road. Citing the experience of a large health care system, Dr. Jordan noted that “telemedicine drives quality in part because it leads to an acceleration of care and eliminates barriers to it.”
Once you’ve projected the impact of the strategies you plan to embrace in 2021 to create your baseline forecast, you can start building in factors specific to COVID-19. One of the most basic, of course, is your employee census. If you were forced by the economic slowdown to downsize (or plan to), how many employees do you expect will be back on the payroll next year?
Another factor is health care costs created by the pandemic. To gauge how COVID-19-related treatment will affect plan costs next year, start with what you already know based on any cases so far this year. Here are some average costs, including drugs, calculated by WTW:
- Mild cases: $250,
- Moderate cases: $2,500,
- Severe cases involving a hospital stay: $30,000, and
- Catastrophic cases requiring intensive care: $100,000.
Infection rates have varied widely across the United States, as have patterns of decline in the number of infections. To build your cost forecasts for a self-insured plan, you’ll need to look at what’s happening in your own area now and where the trend is likely to go over the next several months.
WTW’s actuaries project that COVID-19 cases by themselves will add between 1% and 3% to your health costs if the local infection rate is 10% or less. But even with a high infection rate — say 30% — your health benefit costs could rise “only” between 5% and 7% on top of a baseline increase unrelated to the pandemic.
In addition to the infection rate, two other critical variables will be 1) the cost and availability of therapeutic medicines to help those hospitalized because of the disease, and 2) an effective vaccine.
Finally, actions you take today on several fronts can play a role in determining what costs you’ll be facing next year. Consultants at The Segal Group are urging their clients to take the following steps:
- Pay for COVID-19 testing,
- Promote telemedicine,
- Expand mental health treatment coverage,
- Encourage mail order delivery of prescription drugs to limit exposure to at-risk populations,
- Adjust paid vacation leave to limit the prospect that sick employees, who have exhausted their paid leave allotment, will come to work and infect coworkers, and
- Consult with your advisor.
The feasibility of these steps may vary depending on the size of your organization and features of your health care plan.
Many moving parts
With so many “moving parts” potentially driving health care costs, any forecast for 2021 will be highly speculative and require regular adjustments as the value of each key variable becomes more evident. Work closely with your financial and benefits advisors to work up a detailed cost analysis that enables you to make informed, prudent decisions.