Health Insurance Overview: Business Environment
The focus of this research was to report a high-level overview of the US health insurance industry's business environment in the past year. Our research indicated that much of the information was readily available about the business statistics related to the health insurance industry, however, no information was available about how the Health Insurance Business Environment changed in the past year. The information available on the market changes in the past 6-12 months, was largely centered around issues associated with the pandemic. In this document, we covered internal and external issues faced by healthcare insurance providers, and overview of market changes in the past 6 months, in context with business growth and regulations.
Health Insurance Industry Internal Issues (in 2020):
According to research by PwC, some potential internal issues faced by health insurance industry are listed below:
1. Managing physical office spaces: During the pandemic, a limited workforce will be allowed to seek access to physical facilities to avoid contagious spread. Some employees might not have appropriate physical environments for remote work, or some employees might lack supervision and review processes and might feel challenged to work elsewhere.
2. Communications: The insurance industry workers might face a communications issue. The way the company responds to the pandemic, such as shifting the work environment and managing employee's health and safety concerns, might determine if the company faces reputational or litigation risks.
3. Cybersecurity: While most of the labor force is working remotely using their home-based internet, which is vulnerable to cyberattacks. The Data Security Regulatory Reform, the California Consumer Privacy Act of 2018 (CCPA) dictates that the Insurers must take cybersecurity measures to maintain data privacy. In the case of data breaches, the healthcare information of clients could be exposed and might raise concerns over various lawsuits or monetary compensation.
4. Managing spikes in service requests: Due to increased hospitalizations due to COVID, and most healthcare facilities operating at full capacity might spur growth in claims requests.
5. Third-party service providers: The IT and other support services may hamper because of internal challenges or vendor problems. Increased claims requests might lead to an increase in web and phone traffic, creating operational constraints or disruptions
6. Other challenges: Finance and liquidity issues, Tax and trade challenges, managing Strategy, and Brand. Refer to PwC's article for further reading.
7. Lacking Digital Skills: Within the insurance industry labor force, people with both digital skills and core skills are in short supply. According to the 2019 PwC survey, 81% of workers in the insurance industry reported that they were somewhat or very concerned about the availability of key digital skills.
8. Managing Workforce: In the insurance industry, nearly 12% of insurers underwent mandatory furloughs, while 42% of insurers went on a hiring freeze or reduced staff in some capacity. According to ZipRecruiter data, remote-based jobs such as Insurance claims adjuster, Medicare Insurance Specialist, Insurance Agent jobs have increased by 212%, 68%, and 71% respectively.
External Issues - Financial Risks facing Health Insurers:
- The pandemic has created a misalignment of claims paid and premiums collected. Due to rising unemployment, the number of uninsured Americans has also risen dramatically, which adversely affects premium collection. This might impact the insurer’s reserve balances to finance their claim payments.
- Additionally, some members might delay care while their health is deteriorating, which will eventually increase the claims than originally estimated at the initial stages of the disease.
- Premium deficiency reserves will be utilized when the unearned premium reserve is insufficient to cover future expected expenses.
- During the pandemic, employers and individuals seeking a certain health insurance program might delay premium payments to conserve cash.
- In addition, uncertainty in the volatile job market which has led to mass layoffs and furloughs has decreased the demand for health insurance, which negatively affects the premium volume.
- Health carrier actions have been aimed at providing relief to customers due to treatment disruptions related to COVID-19. That relief has come in the form of premium credits and refunds, cost-sharing waivers, and extended premium payment windows of 31 to 60 days.
- There is still cost uncertainty regarding emerging diagnostics and treatments related to COVID-19, such as the cost of antibody tests, treatment therapies, and vaccines.
- In addition, the cost of testing is also uncertain, because it is still not clear whether insurers are required to cover the cost due to public health, or occupational safety reasons. This factor would be important in determining the increase in health insurance premiums in 2021.
- A lot of uncertainties and unknown factors around the treatment of COVID-19 has led to difficulties in the premium rate calculation for 2021.
- Factors such as (i) long-term effects of COVID-19, (ii) upcoming waves of COVID infections, and (iii) changes in patterns of prescription drug spending, shall be decisive in determining the premium rates for the next year.
Market Changes in the Past six months - Business & Regulations:
- During the pandemic in 2020, there has been a sharp decline in elective care, which has dramatically reduced health care expenditures and soared profitable earnings for the health insurance companies.
- During the pandemic, insurers have received fewer medical claims, because expensive, and elective surgeries have been postponed in many places. Moreover, people do not seek routine doctor visits and avoid emergency room in fear of contagion.
- Some of the largest health care insurance companies such as Anthem, Humana, and United Health Group, have reported nearly doubled earnings in the second quarter (in 2020), compared to 2019.
- The United Health Group’s net income during the second quarter grew from $3.4 billion (in 2019) to $6.7 billion in 2020
- Anthem Inc’s net income during the second quarter increased from $1.1 billion (in 2019) to $2.3 billion (in 2020).
- Humana Inc's net income during the second quarter increased from $0.94 billion (in 2019) to $1.8 billion (in 2020)
- CVS Health, which owns Aetna Insurance, reported a $1 billion increase in the net income during the second quarter (in 2020) when compared with the net income during the second quarter in 2019.
- The insurance provider profits are capped under the Affordable Care Act. This legislature enables insurance companies to invest 80-85% of their revenue on medical care and health care quality improvement, leaving the remaining 20-15% for the company's profits. Any additional revenues are to be returned to consumers in the form of rebates.
- The Health and Human Services (HHS) Department advised health insurance companies to consider rebates, and reduce premiums, to help consumers navigate through the financial crisis.
- The government has mandated that the testing and treatment for coronavirus, and paying for telemedicine visits, should be covered by the insurer.
- Additional Reading about recommendations by Aetna, regarding a healthy workplace and workforce environment can be accessed here.
- Additional Reading about the regulatory requirements for Insurers in the USA, can be accessed here.
- Podcast on the Impact of COVID-19 on the Health Insurance Industry, can be freely accessed here.