The first-quarter 2020 earnings of publicly traded U.S. health insurance companies show that the impact of the COVID-19 pandemic has been less severe than anticipated, according to a new AM Best commentary.
The Best’s Commentary, titled, “COVID-19 Impact on Health Insurance Companies Smaller Than Expected,” notes that while there have been more than an estimated 1.5 million reported cases of COVID-19 across the United States, the majority of the individuals diagnosed have not been hospitalized and have been isolating at home. For health insurance companies, the decline in medical care for non-COVID conditions has more than offset the impact from COVID-19 claims. Sicne the deferral of medical care did not begin until the last few weeks of March, concurrent with the dramatic rise of COVID-19 cases, the impact was not meaningful in first-quarter statutory earnings. AM Best expects claims to increase in the second half of 2020, as many states re-open and allow providers to schedule elective procedures and conduct routine care office visits, assuming the pandemic subsides.
According to the commentary, first-quarter 2020 statutory earnings will decline year over year, primarily driven by the return of the health insurer fee (HIF), which is expensed in full in the first quarter. Health insurers largely pass on the HIF, which is approximately $15.5 billion in 2020, via premiums, and as a result, earnings will normalize over the course of the year.
Claims volumes could decline again if there were to be a second wave of COVID-19, which could again lead to the deferral of non-essential surgeries and visits. Additionally, consumers and providers have embraced tele-health/virtual visits as an alternative to in office care, a trend that is likely to continue. Certain carriers have reported that the number of tele-health visits increased substantially in the first quarter of 2020, and are even paying at parity in the short-term with an actual face-to-face office visit.
The impact from job losses also has not yet manifested into enrollment decline for health insurance companies; however, the risk of enrollment losses increases the longer the COVID-related closures persist. AM Best is maintaining a stable market segment outlook on the U.S. health insurance segment, and will continue to monitor enrollment, premium and new business trends as they develop in the second quarter.