Viewpoints from Craig Hasday
It was no surprise to me that UnitedHealth Group (UHG) reported a second-quarter surge in earnings for 2020. During the onset of the pandemic lockdown, non-COVID-19 medical care screeched to a halt. UHG’s earnings from operations doubled to $9.2 billion on $62.1 billion of reported revenue for the three months ending on June 30. Margins increased to 10.7% up from 5.4% in Q2 2019 and 5.2% in Q1 2020. Of particular interest to me were the reported enrollment statistics. Despite historic unemployment, domestic covered lives decreased by only .5 million lives (to 43 million) year-over-year at the end of June 2020. Total commercial lives decreased by .6 million (to 26.8 million), while combined public-sector and senior lives increased by .3 million lives. This reflects increases in retirements and the shift of Medicare-eligible lives from employer plans to Medicare coverage during this turmoil.
Employment-based insurance held steady because many employers continued to carry insurance coverage for furloughed employees.
This number should show a marked decline after the federal subsidies end. Industries, such as the airlines, have announced major layoffs in the near future. At the same time, medical care, which normally accounts for 95% of premiums, fell to 60% during the quarter.
At the onset of the economic shutdown, the commercial insurers were reluctant to allow premium delays or reductions, but as the quarter emerged – and buckling to legislative pressure – UHG’s UnitedHealthcare and other insurance carriers waived certain cost-sharing and made other modifications to coverage rules.
UHG offered little guidance about the remainder of this year and no predictions for 2021. However, they do believe there will be a rebound of demand for medical services and certainly a reduction in covered lives. Additionally, the selection implication of the Consolidated Omnibus Budget Reconciliation Act (COBRA) members who are continuing coverage (with higher per capita costs) will no doubt cause margins to shrink and perhaps offset Q2 gains.
Uncertainty makes insurance carriers nervous and results in very conservative pricing.
We are seeing insurers give incentives to clients that do renew by offering rebates for 2020 premiums. This makes sense. It reduces the impact of the adverse optics of high profits, creates incentives for customers to renew, and retains higher premium levels which become the benchmark for next year’s renewal. I expect the January 2021 renewals will be much different than ever before. It will pay to have a very adept advisor on your side.
Check out our COVID-19 employer resources for employee benefits and risk management on the EPIC dedicated coronavirus webpage
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