Are the Good Times Over for Health Insurers?

 It’s no secret that health insurers experienced increased profits in the early months of the COVID-19 pandemic. As elective and routine health services were postponed or canceled, insurers had unprecedented excess revenue. However, in the closing months of 2020, the financial good times appeared to be coming to an end.

Although overall insurers performed better financially in 2020 than they did in 2019, several major health insurers reported reduced profits or even losses in the fourth quarter of 2020. Humana posted a $274 million loss, a record for the insurer. Centene reported a $12 million loss in its fourth quarter and subsequently announced it will cut 3,000 employees from its staff. Other insurers including Aetna and UnitedHealth had a decrease in profits in the final months of 2020. While Cigna’s performance managed to outpace their third quarter earnings, the insurer reported that their profits were lower than expected for the fourth quarter in large part due to COVID-19 costs of care. Anthem’s performance was steady but their fourth quarter earnings were 41 percent less than their earnings in the final months of 2019 as expenses grew faster than their revenue. Insurers spent the fourth quarter simultaneously managing a surge of COVID-19 hospitalizations and increased utilization for postponed care that cut their 2020 financial windfall short.

COVID-19’s Winter Surge has Caught up to Insurers  

Costs associated with COVID-19 hospitalizations appear to have had a significant impact on most of the large insurers. After many people gathered with family during the holidays, surges of COVID-19 resulted in increased hospitalizations and even exceeded hospital capacity in some places. At the same time, many large insurers were still waiving all cost-sharing for COVID-19 care. Some insurers are now considering eliminating these waivers, leaving many concerned about the impact this may have on patients suffering from COVID-19.

COVID-19 related care accounted for 11 percent of all care in the fourth quarter, up from 6 percent in the third quarter for UnitedHealth. Centene also noted increased claims for COVID-19 services. They cited $3.6 billion spent in COVID-19 claims, compared with $2 billion spent in the third quarter. Cigna reported that savings from earlier in the pandemic did not make up for the COVID-19 hospitalization costs at the end of the year. Further, although COVID-19 has generally hit older Americans the hardest, Humana found that COVID-19 hospitalizations increased not just in its Medicare Advantage plans but across all of its lines of business.

As COVID-19 hospitalizations and cost-sharing waivers increased costs for insurers, the utilization of other care has also steadily increased. UnitedHealth reported utilization for non-COVID-19 services returning to normal levels in the fourth quarter. Routine care utilization also began to pick back up in the fourth quarter for Cigna’s members.

Insurers See Enrollment Growth in Government-Supported Plans

The job losses that accumulated throughout the pandemic have shifted many individuals to Medicaid or the ACA marketplaces. Although profit margins tend to be lower in these markets than in the commercial group market, insurers have been supportive of HealthCare.gov’s COVID-19 special enrollment period that began February 15, and insurers with significant footprints in the ACA marketplaces view this, as well as the pending COVID-19 relief package as an opportunity for growth. Molina told investors that the new reforms coming from Congress and the White House “couldn’t be better for government-sponsored managed care.” Aetna, which left the marketplaces in 2018, announced plans to re-enter the individual marketplaces for plan year 2022, indicating renewed optimism about profitability in ACA marketplaces.

Medicare Advantage also appeared to be a source of growth for payers. Anthem increased enrollment in their Medicare Advantage products in 2020 and UnitedHealth is planning to add 900,000 new members to its Medicare Advantage and dual eligible plans. Cigna has also seen rising enrollment in its Medicare Advantage population. Medicare Advantage’s rising popularity has been heightened by the pandemic as plans offer seniors extra benefits such as transportation, meal delivery services, and increased access to telehealth visits.

Keeping it in Context

Despite some reported losses, insurers were still in favorable positions overall at the end of 2020. While generating smaller profits than earlier in the year, many payers still ended up performing better than predicted for the fourth quarter. CVS, which owns Aetna, exceeded its own profit projections. UnitedHealth exceeded 2019 profits by earning $15.4 billion in 2020 compared to $13.8 billion in 2019. Even after a loss in the fourth quarter, Centene sees a bright future with the expansion of Medicare Advantage offerings and the special enrollment period in the ACA marketplaces. Ultimately, all the major national insurers were profitable overall in 2020. However, even as the pandemic begins to wane, there are many unknowns on the horizon, including the cost of COVID-19 testing and vaccines, as well as the long-term effects of delayed preventive, chronic disease, and mental health services.

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