Health insurers prepare to change course and incorporate COVID costs into rates

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VSCosts to test, treat and vaccinate members for COVID-19 led to a sharp drop in revenue last year for Health priority and Michigan Blue Shield Blue Crossand both intend to incorporate ongoing pandemic-related expenses into their rate submissions for next year.

Grand Rapids-based Priority Health reported net income of $76.4 million for 2021 across all health plans, just over half of $143.2 million in net income for 2020.

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Much of the bottom line in 2021 came from the $43 million Priority Health earned in investment income. The health plan also generated $33.4 million in operating revenue from underwriting health policies for approximately 1 million members.

The 2021 results included $366 million Priority Health spent during the year to test, treat and deliver COVID-19 vaccines.

Health plans have generally eaten up those costs over the past two years. Neither Priority Health nor Blue Cross Blue Shield of Michigan — which make up most of the health insurance market in West Michigan — factored pandemic-related costs into pricing for 2021 or 2022.

That will change when rate proposals for 2023 are submitted to state regulators this summer and the pandemic is expected to become rampant.

“Our 2021 financial results directly reflect Priority Health’s commitment to putting our members first during the ongoing COVID-19 pandemic,” said Nick Gates, senior vice president of finance for Priority Health.

“When we were pricing in 2021, the vaccine had rolled out and there was a lot of optimism around the vaccine as well as cases going down, so we didn’t take into account the ongoing levels of the COVID pandemic that we see today,” Gates said. “Now, as we look at the rates for 2023, we are trying to understand and predict what it will look like in the endemic phase. We’re optimistic with the number of cases going down and we’re going to go endemic, but then we’re trying to figure out what those routine costs are and how much of that do we need to reflect in the rates for 2023? »

Pandemic-related costs for the two-year health plan totaled $500 million. Of that amount, $75 million was spent on testing, $406 million on treatment, and $19 million on administering vaccines.

Gates said it’s too early to tell how the inclusion of COVID costs will affect Priority Health’s pricing proposals for 2023, which will also need to consider the financial effects of deferring procedures and surgeries into 2021 when COVID cases have increased.

“We are doing everything we can to reduce the cost of care so that the financial burden is minimized,” Gates said.

Rate changes

For 2022, Priority Health implemented a 5% average statewide rate increase for small employers and reduced individual policy rates by 0.3%. Michigan’s Blue Cross Blue Shield increased its rates by an average of 7.9% in the small group market for 2022, and rates for HMO subsidiary Blue Care Network increased by 6.9%.

Jerry Konal, Senior Director of Health and Benefits at Willis Towers Watson plcfrom the Detroit area office, expects cost trends in 2022 “to be slightly higher as we begin to gather the appropriate data elements” for 2023 rates as this year advances.

“After the first quarter closes, we will have a better idea of ​​usage and the state of the pandemic, so definitely more to come,” Konal wrote in an email to MiBiz.

Current trends in medical claims are an important factor in setting rates for the coming year.

In a filing with state health insurance regulators, Blue Cross Blue Shield reported $7.09 billion in hospital and medical claims in 2021, an increase of 11.4%. Priority Health’s medical spending grew 18% in 2021 to $5.1 billion.

Incorporating COVID-related costs into 2023 rate proposals could result in 2023 adjustments exceeding recent trends, said Bob Hughes, director of Advantage Advantage Group Inc. in Grand Rapids.

“It’s been paid and now the bill is coming due,” Hughes said, noting that health plans were needed under public mandates to cover the cost of COVID testing, treatment and vaccine administration. “These services have been provided. You have to pay them. »

COVID costs hit profits

Overall, Priority Health generated $33.4 million in operating revenue in 2021 for all health plans, plus $43 million in investment income, with $5.82 billion in premium income . That compares to 2020, when Priority Health had an operating profit of $187.6 million with an investment loss of $41.4 million and $5.18 billion in premium income.

Michigan’s Blue Cross Blue Shield spent more than $860 million last year on COVID tests, treatments and vaccines, an amount that also wasn’t counted in the rates. COVID-related costs contributed to Blue Cross Blue Shield reporting a $374 million underwriting loss for 2021 in its core health insurance business.

Revenue from other non-healthcare businesses such as Lansing AF group, and strong investment income of $907 million, helped the company post an overall net profit of $360 million with $32.49 billion in total premium income. That compares to $646 million in net income with $30.1 billion in total premium income in 2020.

Costs related to COVID 2021 included more than $600 million for treatment, $185 million for testing, and $75 million to administer vaccines.

In the two years since the pandemic began, Blue Cross Blue Shield has paid $2.1 billion for COVID-related care that hasn’t been factored into current rates, the vice said. -Executive Chairman and Chief Financial Officer Paul Mozak. That will start to change next year for the insurer, which provides health coverage to more than 5.2 million people nationwide.

“Clearly last year the ability to predict what would happen in the ratings cycle was going to be very, very difficult, and so we chose to do the right thing and ignore those rate,” Mozak said. “Going forward, we think it is likely that COVID will become more rampant and we will be looking very carefully at how we factor in the rampant costs that will occur more regularly year over year into the rates. . But the decisions have not been finalized.

Mozak declined to identify how much Blue Cross Blue Shield had budgeted for COVID-related costs in 2022, saying those numbers were confidential.

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