Temporary savings: Pandemic lowers health care spending trends in 2020
Employers can expect a reprieve on health care spending this year, but it's temporary.
A new analysis finds the global COVID-19 pandemic could save employers some money this year due to a drop in medical claims. The study by Aon looked at projected medical spending and found that overall, medical spending is likely to increase at a rate 5% lower than what carriers had expected for the year, meaning that self-insured companies could see some savings in their health care budgets.
However, the analysis noted that the savings were likely to be temporary; many consumers have put off health care procedures and doctor visits because of the pandemic, and as a result, spending is likely to bounce back in 2021.
Related: Hospital costs drive overall 4.1% increase in health care costs
“During 2020 plan year, we believe most self-funded employers will spend less money than what they have budgeted per employee,” said Tim Nimmer, Aon’s chief global actuary for health solutions. “This is an historic occurrence for the U.S. health care industry, but there is still uncertainty regarding COVID-19’s impact on deferred treatments and long-term health care. While employers navigate through different outbreak phases, our current expectation is that medical plan utilization will continue to normalize during 2021.”
The report is based on data from a survey of 44 national and regional insurance carriers in the U.S. and was conducted in August and September of this year. The report noted that these are general industry trends—different companies may experience different results, depending on a wide variety of factors.
Savings primarily with medical, not pharmaceutical, spending
The claim savings were not across the board: the report noted that the pharmaceutical side of health benefits is projected to be largely unaffected.
“In general, carriers do not foresee a material impact from COVID-19 on prescription drug claim costs,” the report said. The report added that the rate of drug claim increases peaked in 2015 and has been decreasing since then.
However, other areas will see a decrease in projected claims for 2020. For medical claims, insurance carriers are expecting a 5% decrease on average, when long-term and short-term effects of the pandemic are accounted for.
“For example, if the average employer initially budgeted $12,500 per employee in 2020 medical claims, pharmacy claims, and administrative expenses (prior to COVID-19), then it is expected that employers would see a reduction of approximately $500 per employee due to COVID-19 net impacts on medical costs only (COVID-19 does not impact the Rx or administrative expenses),” the study said.
Dental, vision claim trends are also affected
Two other benefit areas will see claim trends decrease in the short term, the analysis said: dental and vision claims are expected to see less of an increase than the carriers were expecting. For dental claims, carriers are now expecting a 15% drop in claims from the previous trend. For vision claims, an 8% drop is expected. Carriers did not predict an impact from the COVID-19 pandemic on claims for 2021 in these areas.
The AON report underscores that these affects will be temporary, and that it’s difficult to predict the long-term implications for claim trends as the pandemic plays out.
“Affordability of health care will continue to be a major challenge for employers,” said Will Sneden, U.S. Health Solutions practice leader for Aon. “Despite the short-term cost savings for many payers this year, the COVID-19 pandemic will continue to provide a level of uncertainty that employers must monitor carefully. Employers must continue to be more creative with their health strategies to control costs and use more insightful tools to help them make better decisions, both for themselves and for their employees.”