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How Will COVID-19 Impact Health Insurance Rates?

Erica Lostritto • September 2, 2020

Health Insurance Deep Dive:
Renewals, Rates, and COVID-19

If your company provides access to group health insurance plans for employees or is considering doing so, it is important to become familiar with the health insurance renewal process. Health insurance renewals are an annual event when insurance carriers adjust their rates and offerings, allowing employers an opportunity to select new plans.

For insurance carriers, renewals are a time to make sure plans are up-to-date with current rules and regulations. They also are able to adjust pricing to take into account inflation in the health insurance industry and reassess the risk associated with each individual group. As an employer, renewals give you the chance to pick new plans and reset contributions. You can think of it as an opportunity to tailor your employee benefits to align with the needs of your team.

It's typical for employers to see increases in their rates when they go through the renewal process. Here, we'll explore why that is and what impact the COVID-19 pandemic may have on the renewal process for 2021 and beyond.

Company Factors that Impact Health Insurance Rates

When determining your rate for the upcoming plan year, insurance companies consider several factors specific to your business.

Plans offered: The types of plans you decide to offer will impact your rates over time. Insurance carriers want to ensure that the amount of premium collected through each plan can sufficiently cover the claims incurred under the plan throughout the year. Offering a variety of plans at different levels of richness and cost can help create a more even distribution of the number of employees across plan options at enrollment

Enrollment: On top of the plans you offer, the people who actually enroll in them matter too. Remember, enrollment in the plans you offer often changes throughout the year. For example, you may have hired new employees or had other employees leave your organization. Some employees may experience a Qualifying Life Event resulting in added or dropped dependents. Your new rate is reflective of your currently enrolled members and their dependents. In addition, the higher percentage of employees that are enrolled is considered to be less risky than if you have a limited number of employees participating.

Predicted plan usage: How your plans are used over time throughout the year will factor into your new rate. This is because insurance carriers use your current plan usage to predict how your enrolled members will use coverage in the future. By keeping employees educated about cost reduction techniques and how to get the most value out of their plans can lead to a lower insurance renewal trend savings your companies thousands in the process. Good examples would be the use of GoodRx for prescription drugs, Urgent Care for emergencies when viable, and Telehealth programs.

Economic Factors that Impact Health Insurance Rates

In addition, insurance companies also consider a number of macroeconomic factors when determining your rate for the upcoming plan year.

Overall industry performance: Insurers consider the overall performance of the health insurance industry at-large in addition to the performance of their business, both of which will impact plan prices for the upcoming year.

Geographic performance: Insurers also tend to benchmark their plan performance by geographic regions. How well their plans performed in your specific part of the country and how people are using healthcare in the state or region where your business is headquartered can also contribute to your plan prices for the upcoming year.

Government-mandated benefits: Each year, federal and state governments can mandate that health insurers provide coverage for certain healthcare treatments or prescription drugs. These requirements, while ultimately beneficial for the general public can lead to increased costs for health insurers that may be reflected in your rates. One well-known example of coverage requirements changing is the Affordable Care Act’s (ACA) dependent coverage mandate, which required all new health insurance plans to provide coverage for dependent children until the age of 26.

Prescription drug and specialty treatment costs: Prescription drug costs, as well as the costs for specialty treatments for serious conditions (like cancer, multiple sclerosis, or rheumatoid arthritis) have been consistently rising year-over-year. The more you can provide employees in terms of education on how to shop for prescription drugs the better position you will be in to prevent large increases due to pharmaceutical needs.

Overall inflation: Health insurers, like most businesses, factor overall inflation into their pricing changes each year. This is mostly attributed to the rise in overall costs charged by healthcare providers. It also factors in an aging employee base that naturally will require an increase in healthcare needs as time goes by.

The main thing to understand is that the cost of healthcare services (like any other product or service regulated by the economy) are subject to change over time. As these costs increase or decrease the changes will be reflected in your healthcare renewal rates.

The Still Unknown Potential Impact of COVID-19

During a recent webinar hosted by New York based PEO Justworks, Senior SVP of Health and Benefits at Aon Risk Solutions expanded on the topic of how Covid 19 may impact health insurance rates moving forward.

"I literally get asked on a daily basis what the impact of COVID-19 is going to be on renewals, The truth is, we really don't know the answer yet."

COVID-19 has created many unknown factors that will almost certainly impact healthcare costs and renewal rates for 2021.

The potential costs of COVID-19 include things like recurrence and testing, requirements for employers to cover potential preventative treatments or vaccines, and the potential higher ongoing costs of patients who recovered from COVID-19 after severe illness but are not back to "normal" (pre-COVID-19) claims cost levels.

In addition, there's the potential spillover of other care from 2020 to 2021 — in other words, people are putting off care now and waiting until next year, adding to future claims.

While it's hard to say for certain the impact all these factors will have on the health insurance market, it's safe to say that virus costs are coming.

Keeping all this in mind and being strategic about your company's health insurance offering today is vitally important.

How PEOs Can Help Reduce Renewal Increases

One strategy employers can use to contain benefits costs is to be proactive in evaluating your health insurance options. Regardless of when your renewals date is, exploring available alternatives now — including PEOs — may help you to choose the best option for your company in 2021.

PEOs like Justworks help you strengthen your benefits package by allowing you to gain access to nationwide insurance carriers with extensive networks of doctors, more choice and richer insurance plan options, and added benefits like mental health services and telemedicine — especially relevant in today's remote work climate.

For many employers, working with a PEO provides access to a master health plan that helps spread risk across multiple companies and add predictability to health insurance costs. By limiting insurance increases each year it will allow you to continue to offer more value to your employees via a robust selection of plan options at reduced rates than you might find elsewhere.

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