BY JIM PURCELL (3)
Covered California released the first national projection of how the COVID-19 pandemic will affect employer health insurance. The report predicts that employer premiums will rise in 2021 by 40 percent or more, absent federal action, which is certain to alarm many employers.
As the former CEO of Blue Cross & Blue Shield of Rhode Island, I disagree with these ominous projections, and believe that in the wake of COVID-19, any rise in health premiums will be minimal, one-time events (which I explain below).
Moreover, I believe it’s time for employers to consider a more important question: whether they should pass any future rate increases to employees, which for years has become a common practice with profound ramifications for both employee well-being and employers’ bottom lines.
As a former healthcare CEO, I’ve taken part in the complexities of health insurance ratings for years. To better understand how the COVID-19 crisis might impact insurance premiums, I consulted with insurance actuaries about changes that may arise in the coming year.
Overall, I believe that COVID-19 will significantly increase claims expenses in line with Covered California’s projections, which will include higher ER intake and ICU overflows, and increased hospital staffing.
However, I do not believe that COVID-19 will lead to significantly higher employer insurance premiums in 2020, and definitely nowhere near the 21% increases predicted by Covered California.
Why? Because 2020 insurance rates have already been issued for most employers, and they include almost no COVID-19 claims expenses. This means most employers will see a minimal impact to their existing 2020 rates.
The real issue is how COVID-19 will affect 2021 premiums, which will be based on claims expenses over twelve-month periods ending June 30, 2020, and beyond that for policy renewal dates in the last three quarters of 2021.
For most employers, this means four or more months of COVID expenses will factor into their base. And while this may lead to some premium increases, I believe several countervailing factors will offset the COVID-19 expenses and minimize potential rate increases.
First, insurance regulators rarely include one-time events in base claims. Assuming that COVID-19 is a one-time event, this means that 2021 insurance rates are not likely to soar because of the current crisis.
Second, social distancing has lowered overall claims expenses in other areas. Since March 1, hospitals and physician offices have suffered enormous losses because of fewer elective surgeries, office visits, lab tests, outpatient care, and inpatient stays. This will, in my opinion, outweigh any increases from COVID-19.
Third, COVID-19 claims by seniors and the poor, the groups most severely affected by COVID-19, are largely paid for by federal Medicare and Medicaid programs. Their claims will not affect employer health coverage costs.
Insurers will experience significant losses from unpaid employer premiums. But because health insurers are required to maintain minimum “risk-based capital” reserves to cushion unforeseen disasters like COVID-19, this should cover related revenue shortfalls and not affect employer insurance rates.
Insurers are often criticized for amassing large reserves, which happened in Rhode Island for my Blue Cross plan. Yet, these reserves protect subscribers and providers during catastrophes and ensure that they can pay healthcare expenses regardless of higher claims or lower revenues not factored into current rates.
Bottom line: while worrisome, it won’t be all that bad. There should be little if any impact on 2020 or 2021 health insurance premiums because of COVID-19.
Passing Increases to Employees? Don’t Do It!
But that is not the end of the story.
Even though most employers should not see large premium increases, there will be some increases. And many employers will be tempted to pass any increases to their workforce to soften their financial losses from COVID-19.
The question arises: should employers expect workers to shoulder more of the burden by passing on health insurance cost increases? The answer is no.
Absorbing higher health coverage costs might be a bitter pill for employers. Yet, from a bottom-line perspective, there are good, evidence-based reasons employers should not pass health insurance costs increases to employees.
#1 It Hurts Employees
While employers have suffered, employees have suffered more, starting long before the current crisis.
Since 2009, average family health insurance premiums increased 54% with workers’ contributions increasing 71%, while employee wages only rose (26%) and with inflation going up (20%).
This means that employees are already choking on large deductibles and avoiding needed care because they can’t afford it. When lower-paid employees shoulder more of their healthcare costs, it harms their health and well-being.
#2 It Costs Employers More
Evidence shows that passing substantial healthcare costs onto employees hurts profits and far outweighs any financial benefits for employers.
Higher employee healthcare costs leads to skipping preventive care and doctor visits, which exacerbates long-term chronic illnesses, increases healthcare costs and creates a “claims spiral.”
Add to that rising stress and depression, already high before COVID-19, and declining physical and financial well-being, and it’s easy to see why further burdening struggling employees will hurt productivity, boost absenteeism and lead to higher future employer insurance costs.
#3 Lower Engagement and Loyalty
If employers hope to cultivate high employee well-being, which evidence shows leads to higher workplace engagement and many other bottom line benefits, first dollar, no-deductible health insurance is a primary component.
Dollar-for-dollar, employees value good health insurance coverage, even more than even salary increases. Families appreciate great first-dollar coverage. It provides security in scary times which has implications for employee stress, depression, and retention, all of which center on employee well-being.
Gallup has shown that employees who are engaged and who have high well-being are more loyal and productive. They are 30% more likely not to miss work days because of poor health in a given month, and miss 70% fewer work days because of poor health over the course of a year.
The same study found that employees who are engaged and have high well-being are 59% less likely to look for a new job with a different organization in the next 12 months. Many companies save much more from lowering turnover than passing health insurance increases onto workforces.
A Better Strategy
Employers must not pass further health insurance increases onto employees. Instead, they must approach this as an opportunity to support employees and their families during these hard times, which not only benefits employees but can help employers see bottom line returns.
According to research in the book, Firms of Endearment, Southwest Airlines, Costco, Patagonia and other employers saw a 1025% cumulative return over ten years, compared to 122% for S&P 500 companies, by protecting employees during hard times by refusing layoffs and continuing benefits.
If you are an employer and receive a premium increase, tell your employees the dollar amount of the increase, and that your company will cover it, in full, so their families need not worry about additional health coverage expenses from COVID-19 or whatever else this uncertain future will bring.
At the end of this crisis, employees will remember how your company treated them when they were most vulnerable. This can ultimately boost engagement, lower turnover and lead to better customer service with returns that will dwarf the cost of a COVID-19 or any other rate increase.
Steven Van Yoder, co-founder at Returns On Well-being Institute, provided editorial support to this article.
Jim Purcell is former CEO of Blue Cross & Blue Shield of RI and Co-Founder of Returns On Wellbeing Institute, LLC. We help employers design workplace wellbeing programs that generate measurable ROI through better employee engagement and productivity, and lower turnover and healthcare costs. Visit our website for more resources and take our free Employer Workplace Wellbeing Assessment to help you get organized and take action.
This article also appears in Forbes.