Consumers postponed nonessential health procedures during the initial COVID-19 outbreak, and that led to unusually high second-quarter earnings for publicly traded health insurers.
That was the word from Moody’s Investors Service, which reported publicly traded health insurers had net income of $26 billion, up 87% year over year.
However, medical costs are likely to run higher in the second half 2020 as deferred procedures return, COVID-19 treatment costs continue, and companies absorb the costs of assistance to customers and provider, Moody’s said.
Some highlights from Moody’s second-quarter report include:
The summer COVID-19 spike appears to be moderating. After moderating significantly in late May in states hit hard initially such as New York, the coronavirus spiked in the Sun Belt in late June into July. However, new cases and hospitalizations appear to be moderating, and surge-related costs should not have a significant adverse impact on third-quarter earnings.
Economic disruption impact could intensify. Commercial enrollment fell 2.6% and Medicaid enrollment increased by 6.3% in the second quarter. In both cases, the impact of the spike in unemployment was less than expected because of furloughs and grace periods in which unemployed workers temporarily maintained health insurance. In the second half 2020, Moody’s expects further declines in commercial enrollment, and increases in Medicaid and the individual market.
The presidential election and health care. The Democrats support increasing the Affordable Care Act's individual marketplace subsidies, lowering the age of Medicare eligibility, and a public option. These measures could increase enrollment but also add competition, Moody’s said. The Trump administration does not yet have a proposal, but has pledged to cover pre-existing conditions. Moody’s predicts changes to health care will be difficult to enact if the government is divided.
The ACA lawsuit adds further uncertainty. The Supreme Court is expected to rule on the constitutionality of the ACA after the election. An adverse ruling, which Moody’s does not expect, would eliminate coverage for about 20 million people, which would be credit negative for insurers with significant Medicaid expansion and Individual market exposure. How the law would be replaced depends on who is president and which party controls Congress.
Telehealth makes inroads. The COVID-19 crisis has demonstrated the utility of telehealth, with usage growing sharply during the pandemic, Moody’s said. Although telehealth cannot replace in-person visits, it is gaining widespread acceptance. Through improved engagement with members and greater ability to identify health problems, telehealth could save companies money in the long run.
In April, Moody’s health insurance outlook was stable. In that outlook, Moody’s discussed three scenarios related to COVID-19: mild, medium and severe. Moody’s concluded that the industry could remain profitable in the mild and medium scenarios.
In fact, Moody’s forecast that in the mild scenario, the industry would benefit as the deferral of nonessential procedures would more than offset the incremental costs of COVID-19. Moody’s estimated that the deferrals would last about three months. Deferrals were widespread in April and May. In June, health insurance usage was still running 10% below typical, according to anecdotal estimates from several management teams.
So far, the pandemic has been tracking most closely to Moody’s mild scenario, which projected between 800,000 and 1 million total hospitalizations. Moody’s estimates there have been about 500,000 hospitalizations to date.