Projecting 2021 Medical Costs Now That the Vaccine Is Here

The Wall Street Journal reported that 20 million people will likely be vaccinated in December with a targeted ramp-up of an additional 20 million vaccinated each subsequent month. The first to be vaccinated will be assisted living and nursing home residents and medical workers – first to those dealing with COVID-19 patients and then to others. Subsequent priorities will be to older Americans and then to progressively less at-risk populations. By early in the second quarter, it is expected the United States should start seeing a lessening of the spread of the virus and a significant reduction in hospitalizations.

Earlier this year, we predicted correctly that healthcare costs would be suppressed in 2020 due to the various impacts of the virus, but we were far less certain about 2021. 

Viewpoints from Craig Hasday & Davin Millholland

We couldn’t predict the resumption of deferred claims and, more importantly, whether and to what extent there would be a second wave of the virus. Well, as has been widely reported, the second wave is here – and its impact might be a tsunami.

Meanwhile, medical costs seem to be bouncing back moderately.

There doesn’t appear to be a large spike; instead, claim costs are returning to levels similar to those expected prior to the pandemic. What we haven’t really seen is the impact of deferred, delayed, or missed follow-up care for chronic procedures. We certainly have seen much more conservative pricing in stop-loss renewals, which indicates that entities bearing the risk of the cost of large claims are being conservative in their estimate of the catastrophic claim levels which will emerge in 2021.

Another source of uncertainty is the impact on claims of the continuing cost of COVID-19 care.

Since the vaccine will largely be funded by the U.S. government, at least initially, costs to health plans will be for vaccine administration, which we estimate to be around $8.33 per employee per month. It’s possible that the cost for employers could subsidize government payers – similar to what we saw with Remdesivir, with the drug being offered up to 25% lower than the Gilead’s commercial price. This is something we are keeping an eye on.

And while claims incidence is spiking, severity is much less acute than expected at the onset of the pandemic.

There have been far more hospitalizations, but they have been less severe and less costly. Specifically, many COVID-19-related inpatient visits are coming in under $200,000, which would not generate a stop-loss event for many large, self-insured employers, but the downside is the uptick in catastrophic claims frequency within employers’ retained claims. Of course, members with comorbidities – such as asthma and chronic obstructive pulmonary disease (COPD), or older populations – have seen higher costs that do trigger stop-loss reimbursements. This frequency is contributing to the stop-loss renewals mentioned earlier.

Testing costs will also be significant, as until we have enough Americans vaccinated, U.S. officials are recommending asymptomatic testing.

Some business models are being built around the ability for people to take an instant test before attending an event or flying on an airplane. And now health plans are deciding whether to cover non-medically necessary testing. Based on my interaction with a non-statistical sample of plans it seems that most have decided to cover testing for any reason.

There are still a lot of moving parts to the medical cost projection dilemma, but I remain cautiously optimistic that 2021 will not be that out-of-line with 2020.

I won’t go so far as to expect normal trend, but I would certainly add a few points of margin to reflect the remaining COVID-19 uncertainty. On a positive note, perhaps we will see continued telehealth utilization at a higher rate than pre-pandemic levels. Hopefully, this will correlate to lower unit costs depending on the mix of providers. Increased usage of telehealth could also play a role in reducing unnecessary visits to the more costly emergency room and other outpatient facilities or redirect subsequent in-person care to more appropriate settings.

But since 2020 looks like it will be flat-to-negative as compared with 2019, that means I am expecting a reasonably favorable result in 2021. Just a hunch. Time will tell.

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