Health Insurers Navigate — Sometimes Profitably — an Unusual Year

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The story is a familiar one by now: hospitals across the U.S., hammered by COVID-19, began directing resources toward fighting the pandemic last spring and curtailed elective and non-emergency procedures. Meanwhile, patients, even when sick, stayed away from medical practices out of fear of infection.

As a result, health insurers continued to reap premiums while paying out millions of dollars less in medical claims. Some of the largest companies reported second-quarter earnings about double what they were a year ago. Anthem’s net income soared to $2.3 billion for the second quarter, up from $1.1 billion in 2019, while UnitedHealth reported net income of $6.7 billion, compared to $3.4 billion last year. Humana’s second-quarter net income rose from $940 million in 2019 to $1.8 billion in 2020.

But the issue is a complex one, especially in Massachusetts, where laws governing insurance are different, said Keith Ledoux, vice president of Commercial Line of Business, Sales, Marketing, and Business Development for Health New England, a 166,000-member health plan based in Springfield.

For example, HNE did see lower utilization for medical services among its members in the early months of the pandemic; however, at the same time, it saw an increase in prescription-drug fills as members made sure they had their medications during stay-at-home orders.

“On the pharmaceutical side, we saw a small spike in claims and overall costs starting at the end of March and the beginning of April because we had relaxed our rules on allowing folks to fill prescriptions early, or to get a greater supply,” Ledoux told BusinessWest.

Meanwhile, “after April, on the medical side, we saw a significant reduction in claims, but starting in probably June, we started to see that pick back up — almost back to what we would consider to be somewhat normal.”

At the same time, the pandemic brought about a significant increase in telehealth utilization; through April, HNE had processed 114,000 telehealth visits for its members versus 900 in all of 2019, accounting for $12 million in costs for Health New England.

“One reason that’s so costly for us is that we’re mandated by the government to pay the same rate for telehealth as we would for an in-person visit, and typically telehealth is cheaper than in person,” Ledoux said, adding that future state negotiations will likely alter that formula as telemedicine continues to gain traction in healthcare.

“The silver lining is not the cost, but the behavior shift of so many members embracing the idea of telemedicine, which does broaden your ability to access non-invasive care. There’s definitely an opening for systems to adopt a new approach and potentially increase their revenue stream using telemedicine.”

Massachusetts-based Tufts Health Plan reported that COVID-19 treatment costs were one factor in actually recording a drop in net income between the first six months of 2019 to and the six months of June 2020.

Keith Ledoux

“After April, on the medical side, we saw a significant reduction in claims, but starting in probably June, we started to see that pick back up — almost back to what we would consider to be somewhat normal.”

“Tufts Health Plan proudly serves all segments of the market, regardless of a person’s age or life circumstance,” Chief Financial Officer Umesh Kurpad noted in a statement. “This diversity in our business translates into different financial pressures, such as significantly higher COVID-19 infection rates and treatment costs for our members, particularly those who rely on both Medicare and Medicaid.

“Year-to-date, our earnings were challenging, with the increased costs of COVID-19-related expenses across virtually all of our businesses,” he went on, projecting COVID-19 expenses to reach $220 million for the full year. “The pandemic cost tail is anticipated to be long with the lingering impact of COVID-19 survivors and increased morbidity from deferred care.”

In short, there’s no one trend common among health insurers in a year where they, like all industries, have learned to expect the unexpected.

Appointment Viewing

Another Massachusetts-based insurer, Harvard Pilgrim Health Care, reported little change in second-quarter net income from 2019 ($36.2 million) to 2020 ($40.9 million). It also encouraged members not to avoid medical services they need.

“Now more than ever, our focus remains on the health and well-being of our members and the communities we serve,” President and CEO Michael Carson said. “Many people have deferred care over the past several months, and it is incredibly important that they not neglect their health. Healthcare providers have implemented stringent safety precautions, and we encourage our members to seek routine and preventive care, including checkups, health screenings, and vaccinations.”

Ledoux told BusinessWest that HNE typically doesn’t know the performance of a year until probably three or four months after the year has closed.

In its planning for 2021, he explained, the company must consider uncertainties with expenses, which include utilization continuing to pre-COVID levels; increased use of high-cost technology; and costs of new pharmaceuticals, vaccines and testing, as well as increased costs for certain behavioral healthcare for children and adolescents.

Consumers are protected to an extent by state and federal laws that require health plans to rebate customers annually if the percent of premiums spent on medical expenses falls below a certain threshold.

Under the Affordable Care Act, insurers are required to use a fixed percentage of the money they take in from premiums for their customers’ medical expenses — at least 80 cents of every dollar they collect in premiums from small businesses and individuals, and 85 cents per dollar for large employers. The remaining 15% to 20% percent is what they are allowed under the ACA to spend on administrative costs like overhead and marketing, and to keep as profit. Excess revenues are to be returned to consumers in the form of rebates.

“If we perform even 0.1% better than 88%, we have to rebate that excess margin back to the market. In a regular year, our target margin is around 1.9%, which we hardly ever achieve. All these variables make it difficult to make a profit.”

Under Massachusetts’ health-insurance law, that number rises to 88 cents on the dollar. “If we perform even 0.1% better than 88%, we have to rebate that excess margin back to the market,” Ledoux said, adding that, “in a regular year, our target margin is around 1.9%, which we hardly ever achieve. All these variables make it difficult to make a profit.”

Some of those variables emerged this year in the form of concessions to the pandemic and the stress it has placed on families, he noted. “We relaxed a lot of rules on how we collect premiums. Normally it’s a 30-day grace period, and we expanded that another 30 days.” HNE also allowed furloughed employees to stay on their companies’ health plans.

“We continue to evaluate our position in the market,” he added. “There are already protections in place, profits above what would be considered reasonable, and a mandate to rebate that back to the market. We already know it self-corrects on its own.”

Meredith Wise, president of the Employers Assoc. of the NorthEast, told BusinessWest that health-insurance premiums haven’t been a big topic among EANE’s members. “We’ve heard from some employers who are getting refunds, but it hasn’t been a major thing that anyone is focusing on at the moment.”

Nationally, insurers are spending a far lower portion of premium revenue on their customers’ healthcare costs. For example, CVS said its medical-benefits ratio was 70% for the second quarter, compared to 84% over the same period in 2019.

According to a report in the New York Times, the ACA gives companies a three-year window to calculate how much to return, so members probably shouldn’t expect relief anytime soon, especially because it’s hard to tell what the rest of the year will bring, with COVID-19 numbers still fluctuating dramatically from state to state, as well as the impact of potentially expensive new vaccines or treatments around the corner. At the same time, many people who postponed getting medical attention could surge back into doctors’ offices and submit more bills for coverage.

“The second half of the year could see a lot more care, and higher costs, than the first half of 2020,” according to a statement by America’s Health Insurance Plans (AHIP). “However, if these costs never materialize and remain below certain levels, American consumers, businesses, and taxpayers are protected by provisions in federal and state laws that require health-insurance providers to deliver premium rebates and put money back into their pockets.”

Community Focus

In addition to changes in patient volume and the bottom line, the pandemic shifted the priorities of Health New England in other ways, Ledoux said.

For instance, it contributed $300,000 in grants for COVID-19 relief efforts throughout Western Mass. to help residents with access to food, mental healthcare, child care, housing, and basic needs.

The company has also made benefit adjustments that make it easier for members to get the care they need, such as eliminating out-of-pocket costs for all telehealth services and for COVID-19 diagnostic testing ordered by a medical professional, no prior authorizations for members receiving medical care for COVID-19, and flexibility with payment plans and adjusted underwriting guidelines to ease the burden for employer-group customers and members.

Meanwhile, as it approaches Medicare’s annual enrollment season, Health New England is holding online Zoom sessions and drive-up events, and has added staff to its call center, to help educate people about their Medicare options.

“The second half of the year could see a lot more care, and higher costs, than the first half of 2020.”

Tufts has implemented a number of changes as well, including compensating providers 100% of an in-office rate for telehealth, working with providers on a case-by-case basis to address their concerns regarding payment stability, extending premium payment periods for employers who need more time to make payments, and contributing $2 million to support those affected by the coronavirus outbreak in Massachusetts, Rhode Island, New Hampshire, and Connecticut.

Certainly, reports of soaring profits may persuade some lawmakers to revive proposals to cap insurers’ profits even more, but insurers say they are using their financial strength to help customers, hospitals, and doctors. In the New York Times report, AHIP also cited trends like waiving co-payments for COVID testing and treatment and paying for telemedicine visits, some of which the government has mandated be covered.

“From the very beginning,” AHIP CEO Matt Eyles said, “health-insurance providers have focused on being part of the solution.”

Joseph Bednar can be reached at [email protected]