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Spring 2021 McGriff Market Update: Employee Benefits

Last year, we wrote about how it was not clear how healthcare utilization and spending would change as a result of the COVID-19 pandemic. There were signs that overall utilization and costs would go down in 2020, with a likely rebound in 2021.

In spring of 2020, healthcare use and spending did drop due to cancellations of elective care to increase hospital capacity and social distancing measures to mitigate community spread. Telemedicine use increased sharply, but not enough to compensate for the drop in in-person care. Healthcare use and spending began to rebound as the year progressed and as in-person care resumed for hospital and lab services. However, overall health spending appears to have dropped slightly in 2020, the first time in recorded history. 

The drop in health spending in 2020 reflects a decrease in non-COVID medical care. Particularly early in the pandemic, it appears many people delayed or went without medical care they otherwise would have received. Although healthcare use picked up toward the end of the year, it was not enough to compensate for missed care earlier in the year. Additionally, the cost of COVID-19 vaccine administration will likely lead to higher claims costs in 2021.

Although social distancing and hospital capacity concerns drove the drop in health spending in 2020, job loss and other economic concerns also played a role. In fact, the COVID-19 recession was the first of the past five recessions in which there was a year-over-year decline in health spending. 

How did insurers respond to the uncertainty of the pandemic? Of the individual market insurers that cited a rate impact due to the pandemic, most said the pandemic would have a net-zero effect on their costs in 2021. Some insurers said they expected costs to drop while others said costs would likely rise. This variation illustrates the ongoing uncertainty related to the pandemic and its effect on the U.S. health system in the future. Due to the suppression of claims in 2020, many insurance carriers will likely owe Medical Loss Ratio rebates, resulting in better than expected financial results for fully-insured business. 

Looking Ahead

  • Uncertainty remains, with fewer claims in January 2021 than a year ago
  • The pandemic will continue to be the top priority for the Biden administration well into 2021
    • The administration has set a goal of 70% of adults vaccinated by July 4
  •  The pandemic has driven change in healthcare delivery through telemedicine and other forms of remote care
  • Preventive screening has dropped, a worrisome trend since screenings often result in early treatment of disease 
  • Healthcare data analytics, artificial intelligence, and telemedicine have dramatically expanded to support COVID-19 response and recovery, a potentially positive pandemic-related outcome 

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