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Updated: June 29, 2020 Focus: Insurance

As 100-year pandemic wanes, employers ponder potential impacts on health insurance costs, design

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As Connecticut employers await 2021 health insurance rates in July, it’s anybody’s guess whether the COVID-19 pandemic will sock or soothe benefits budgets next year.

Insurers, which have seen claims activity fall steeply since March, say they’re modeling numerous scenarios as they prepare their annual rate filings for the Connecticut Insurance Department.

Key questions insurers are asking themselves include: Will there be a second wave of the virus in the year ahead? How many elective procedures delayed in recent months will actually be performed? Will a vaccine come in 2021? Will fewer patients feel comfortable going to the doctor or hospital?

Neil Kelsey, Chief Actuary, ConnectiCare

“All of that adds a whole lot of uncertainty,” said Neil Kelsey, chief actuary for Farmington-based health insurer ConnectiCare.

The answer to those questions could cause major changes in healthcare use and spending.

Trying to project those trends when Obamacare took effect about a decade ago was similarly challenging, Kelsey recalled.

“We overcame that,” he said. “We missed on some things and got some other things right. I kind of look at this the same way.”

Meanwhile, area benefits brokers are hoping that vastly reduced healthcare usage in Connecticut during the pandemic — a result of elective surgeries being postponed and some patients, even those with serious conditions, avoiding the emergency room or other care — will translate into lower prices for businesses in the year ahead.

However, skepticism abounds, as employers and brokers worry that hospital financial distress will lead health systems to demand price hikes from insurers, if not in 2021 then in the next few years, depending on when contract agreements expire.

Connecticut hospitals said they expect to lose a combined $1.5 billion this year because of the slowdown caused by the coronavirus.

Chris Ulbrich, Chairman and CEO, Ulbrich Stainless Steels & Special Metals Inc.

“I wonder how the hospitals will make that money up and if employers like me will have to foot the bill,” said Chris Ulbrich, Chairman and CEO of North Haven-based Ulbrich Stainless Steels & Special Metals Inc., which employs 700 people, including about 300 in Connecticut.

Some brokers, hardened by years of near-constant rate increases, suspect insurers will overstate expected future costs stemming from the crisis.

Jason Gutcheon, Partner, Professional Business Insurers

“What’s going to happen? The usual,” said Jason Gutcheon, a partner at Professional Business Insurers in West Hartford.

Gutcheon said insurers will likely place emphasis on a wave of delayed elective procedures driving up claims, even though it’s tough to predict whether consumers will be as willing to go to the doctor in the year ahead.

“They’re going to overinflate the backlog,” he predicted.

Insurers have been sitting on extra cash because of the lack of claims activity in recent months.

In fact, they’ve been able to give away free healthcare services during the pandemic, waiving copays and other costs for telehealth and other treatments, to improve access to care and also stay in compliance with Obamacare loss-ratio rules that require a certain percentage of premium revenue each year to be spent on medical care.

Rob Kosior, Chief Operating Officer, ConnectiCare

“We have seen an incredible reduction in the utilization of healthcare services, mostly with respect to elective procedures,” said Rob Kosior, ConnectiCare’s chief operating officer. “We weren’t sure whether we would see New York City infection levels, and fortunately we have not.”

Potential for consolidation, higher costs

Hospital and physician group mergers have been the norm in Connecticut and many other states over the past decade or more, and studies have shown that increased provider market power has led to higher healthcare costs.

As providers reel to varying extents from the financial impacts of COVID-19, there aren’t signs yet of a local distressed consolidation wave, but some predict that it’s coming nationally.

Stuart Altman, a health economist and professor at Brandeis University, predicted “massive consolidation” of U.S. academic medical centers during a May 20 virtual panel discussion hosted by Catalyst for Payment Reform, which represents large employers looking to improve healthcare quality and reduce costs.

“There will be no hesitation to raise prices,” Altman said. “Employers are going to need to get much stronger as a group or else they are going to get run over by these price increases.”

Kosior, the ConnectiCare COO, said it’s “certainly possible” that hospitals’ financial struggles will impact upcoming contract renewals, but he sought to downplay it.

“I’m trying right now to be a little bit more optimistic with respect to that,” he said. “We have a good relationship with our hospitals and we have been supportive during and prior to the pandemic.”

He noted ongoing state-level deliberations to cap, or “benchmark,” annual healthcare cost increases, which has been done in several other states.

“I think everyone recognizes now that there will be more visibility to the rate of increasing costs,” he said. “Historically, that increase has been overwhelmingly driven by unit cost increases and not necessarily by utilization increases.”

Ironically, fee-for-service healthcare contracts — which have been long maligned by healthcare reformers as a driver of higher costs, but still remain the norm in Connecticut — were likely a blow to providers as billable services dried up starting in March.

Kosior said he is unsure whether the experience of the pandemic might push some providers to embrace alternative payment models, including ones that guarantee a certain level of revenue, but also have downside financial risk if doctors miss quality and cost targets.

“The negative financial toll many providers experience today would have been avoided for the most part if they were guaranteed a steady and predictable income stream,” he said.

Levers to pull

Employers — especially those in the fully insured market, where plan customization is limited and a low claims year doesn’t necessarily translate into future savings — can only do so much to control rising health insurance costs.

One option, made possible last year by the Trump administration, is to give workers a subsidy and send them to the individual market to handle their own insurance needs.

That so-called individual coverage Health Reimbursement Arrangement (HRA) is gaining some traction, according to Gutcheon, the West Hartford broker, but there are downsides. For example, workers who collect Obamacare tax credits aren’t eligible to participate.

Silas Warner, a senior benefits consultant at OneDigital Health and Benefits’ Farmington office, said employers — at least his middle-market clients — are unlikely to drop their benefit plans.

“Companies with 50-plus workers are still competing really hard for talent,” Warner said.

Another strategy employers have used over the years is to shift more costs onto their workers through higher premiums, deductibles, copays or coinsurance.

“I don’t have a sense there is much of an employer appetite right now to increase workers’ out-of-pocket costs,” said John O’Connell, the healthcare practice lead of insurance and financial services firm Alera Group Inc.’s Hartford office.

However, whether a company will make that choice depends on its financial situation and how competitive it needs to be to attract and retain the right workforce, he added.

Another possibility is that employers embrace narrow network designs, which have been slow to catch on in Connecticut, as they restrict where patients can go for care.

Ulbrich, the CEO of Ulbrich Stainless Steels & Special Metals Inc., which has seen a double-digit reduction in new orders in recent months and received a Paycheck Protection Program loan, said he wants to see a greater focus on care quality coming out of this pandemic.

He supports health plans that incentivize employees to go to providers that offer the best service at the most competitive cost.

Ulbrich Stainless Steels spends about $10 million annually on health care for its employees, and its self-insured plan has seen relatively modest cost increases in recent years that have matched the rate of inflation.

Ulbrich said he hopes costs remain stable in the years ahead but he’s worried about the market power held by the state’s large hospital systems.

“The bigger question is, ‘how can we get more competition with hospitals and better quality and outcomes,’ ” he said.

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