Health Insurers Face Doubt, Possible Mandatory Rebates

Craig Wilson Commentary

Health Insurers Face Doubt, Possible Mandatory Rebates

During the coronavirus pandemic, many Arkansans have been hunkering down and spending less time on the road. Fewer people on the road means fewer auto accidents and lower-than-anticipated auto insurance claims and payouts. In response to this phenomenon — and to avoid facing regulatory scrutiny over charging potentially excessive rates — auto insurers have offered customers relief by issuing refunds, premium discounts or credits that will apply upon renewal.

Although drastically different in many ways, the health insurance industry in Arkansas is experiencing a similar phenomenon. The state’s hospitals and doctors’ offices have had markedly less patient traffic. This is due in part to public health directives such as bans on elective surgical procedures and suspension of non-urgent dental care, but a contributing factor is that patients are deferring routine or planned care because they do not want to leave their homes and risk exposure. Health care provider finances have consequently been in flux, despite the inflow of federal funds as a stopgap measure.

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A Commonwealth Fund study published in May indicated that although patient traffic in medical clinics was slowly rebounding, it had declined by nearly 60% in the early months of the pandemic. In an April 2020 report, actuarial firm Milliman estimated that deferred care could result in up to $375 billion in reduced health care expenditures nationally through June. With such a drastic reduction, where are the premium dollars going?

Health insurers are examining their options under federal and state guidelines, and some of the nation’s for-profit insurers are already making moves. UnitedHealth Group has announced it will rebate premiums for some of its commercial customers. Humana and UnitedHealth Group have said they will waive some cost sharing for Medicare members.

In Arkansas, most insurers are offering some cost sharing protection for customers, with a particular focus on telehealth services to facilitate continued access to needed services remotely. Some are beefing up their philanthropic efforts to provide targeted relief to communities and organizations working to prevent and respond to the spread of COVID-19.

This activity is prodded both by a typical business rationale — the desire to retain customers during times of financial strain and maintain continuity of revenue for the provider network — and medical loss ratio requirements under the now decade-old Affordable Care Act. Beginning in 2012, medical loss ratio regulations required most major medical insurers covering individuals and small businesses to spend at least 80% of premium dollars (85% for large businesses) on medical claims and activities to improve beneficiaries’ quality of care. If insurers fail to meet the minimum requirement, they must provide rebates to policyholders. Arkansas medical insurers have fared well in hitting the target, and more than 90% of insurers in all U.S. markets met the requirements by 2016.

Risk aversion will likely prompt patients to continue deferring routine services for some time beyond the official loosening of public health restrictions, making it harder for insurers to meet established loss ratio thresholds. Providing premium discounts now may offer immediate relief to current policyholders amid economic uncertainty, while also offering the potential for insurers to avoid the specter next year of their having held onto large sums of premium dollars that have to be returned as rebates.

Insurers manage risk, and they are risk-averse by nature. In the midst of a continuing pandemic, the likes of which we have never seen, some health insurers are hesitant to act now because a great deal of uncertainty remains.

Will there be a second wave — or elongated first wave — of COVID-19 infections requiring hospitalizations? Will pent-up demand for routine care overwhelm clinics in the fall? Will deferral of routine care result in exacerbation of chronic conditions, requiring more complex and expensive treatment? How will all of this affect premiums in 2021?

We are opening up, and patient traffic will resume. That much is certain. But trying to predict when, how and in which lanes — digital or traditional — will be a high-stakes venture.

Craig Wilson is the director of health policy for the Arkansas Center for Health Improvement, an independent, nonpartisan health policy center in Little Rock.