Article by Tim Truncellito, The Rowley Agency, Inc.
Insurance carriers have created an environment of cynical forethought when it comes to premiums, especially in the fully insured market. “Unexpected” high claim year typically means an expected renewal increase. “Industry trend” can be understood as renewal increase. And “coronavirus relief” today can mean “we will get you next time.” Therefore, it is no surprise that employers are expecting to see fall out from 2020 in the form of premium increases, and in some cases, they are right. However, thanks to increased employee engagement and preparation by the insurance carriers, it might not be as bad as you expect.
Health Insurance
Carriers rely on a blend of data and experience to forecast their client renewals. That data and experience was heavily skewed over the past year, as people postponed elective procedures and the majority of U.S. physicians relied on telehealth to see patients during the pandemic. Actual claims related directly to COVID-19 patients and treatment varied by State, but everyone felt the impact.
To counter these unusual statistics, carriers brought it back to statistics class — they removed the outliers to model what a “typical” year would have looked like in a given demographic.
To counter these unusual statistics, carriers brought it back to statistics class — they removed the outliers to model what a “typical” year would have looked like in a given demographic. Replacing those three to four months at the height of lockdowns in the U.S. with filler data gives you the “COVID-19 Factor” — an attempt to stabilize claims data as to not disrupt renewal modeling and prevent significant overcorrections. For example, if your medical loss ratio (MLR) was 55% in 2020 due to COVID-19, traditional modeling would merit a flat or decreased renewal for 2021. However, as employees catch up on their delayed health care needs and claims surge, your 2021 MLR may soar back to over 90%. The carrier now delivers a huge increase for 2022, and your future premiums are indefinitely skewed towards higher, loftier rates.
Thankfully, many carriers have taken preventative measures against this overcorrection. If you are self-funded, level-funded or in a captive, I would anticipate your TPA has taken similar measures to not skew your specific and aggregate levels.
Employers can also help prevent future premiums by educating employees about the value of preventive health, telemedicine and mental health assistance programs. The expanded use of telehealth during the pandemic should remain a constant even after social distancing guidelines are relaxed, as it’s not only beneficial to your employees’ well-being but can help reduce future health care costs down the line.
For self-insured and captive groups there are many reputable companies to work with that will engage your employees and promote wellness and use of preventive care. If you are not promoting and sharing these programs with your population, there are very few employees who are going to seek them out on their own.
Schools with a membership that engages in preventive care are statistically less likely to have large high cost and chronic care claims. Discovering and starting treatment for something like high blood pressure, heart disease or diabetes, or catching cancer in early stages can lead to significantly lower claims in the long run. CDC data shows that employers who promote workplace health see significant reduction in chronic health issues. Most health insurance carriers have an abundance of underutilized wellness communication and incentive programs. For self-insured and captive groups there are many reputable companies to work with that will engage your employees and promote wellness and use of preventive care. If you are not promoting and sharing these programs with your population, there are very few employees who are going to seek them out on their own.
Another noted positive effect of the pandemic has been reduced transmission of the flu and the common cold. This may be attributed to mask-wearing, but it is also likely a side effect of increased handwashing and surface disinfecting. To help reduce future costs, employers should explicitly make these connections for employees and encourage a continued emphasis on these actions going forward. While this time has been traumatic for many, employers should examine what they have learned about health and wellness over the last year and use that knowledge to inform and educate their employees, because informed employees make better choices and are the strongest defense against future healthcare cost increases.
Ancillary Lines
Delayed care could cause a pile up of short-term disability claims while prolonged COVID-19 recoveries and increased mental health claims could impact long-term disability.
The pandemic’s impact on ancillary benefit premiums will vary between lines of coverage. Immediate relief was given by most dental carriers either through premium holidays or multi-year rate holds. Even with a postponement of visits, the timing and volume of dental procedures are predictable enough that most dental carriers felt comfortable holding their rates flat for another one, two or even three years. Short-term and long-term disability insurance is potentially going to be impacted by premium increases in the coming years. Delayed care could cause a pile up of short-term disability claims while prolonged COVID-19 recoveries and increased mental health claims could impact long-term disability. Depending on the size of your employee pool, an uptick in claims could have a significant impact on your disability renewal.
Workers Compensation
The shutdowns and restrictions of the last year forced many schools to either lay off or furlough employees. Since workers compensation is payroll-based, insurance carriers saw a decrease in premiums and less in reserve to pay for injuries; in some industries, such as hospitality and retail, these reductions were substantial. Workplace injuries in many industries similarly declined, but we still saw the severity of claims either maintain or increase. Combine this with a nearly decade-long trend of rates declining, it is evident that 2021 will have challenges around the need for premium increases.
As more industries attempt a return to pre-pandemic volumes, payrolls will increase and premiums will return, but not before the insurance carriers begin to try to off-set the losses of the past year. The greater impact of the pandemic will be seen with auto coverages and subsequently umbrella policies. Although total traffic volume was down, there was a historic and significant increase in auto claims and deadly accidents.
The total cost of the pandemic is still a major unknown. Subsequent waves of infection, residual hospitalizations due to “long haul” symptoms and complications, PTSD and pandemic fatigue are all going to have a lasting impact. Premium increases are almost always expected, but hopefully the emphasis on preventive care and the carriers’ adaptive modeling will reduce the likelihood those increases being unmanageable.
