3 pandemic-related trends will affect credit strength of health insurance industry

The coronavirus pandemic has changed the way consumers interact with health care, which will have a significant impact on the health insurance industry, according to a report from Moody’s Investors Service.

“The ability or inability of our rated health insurers to adapt to these changes in the next three to five years will be an important driver of credit strength,” the report said. “Health insurers that successfully adapt will boost their credit strength through lower medical cost trends than their peers. We expect the costs of a vaccine, which we believe is unlikely to be widely available until mid-2021, would be borne by health insurers, but those costs would be offset by lower coronavirus treatment costs and hospitalizations. Therefore a vaccine would not likely have a significant effect on health insurers’ earnings.”

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Moody’s pinpointed three key health-care trends that will affect insurers.

1. Increased focus on co-morbidities.

The number of people with high-cost chronic conditions such as hypertension, diabetes and cardiovascular disease in the United States has been growing, already posing a long-term challenge to the industry. This group is especially vulnerable to the coronavirus, further highlighting the need for proactive management on the part of health insurers.

The costs of these chronic illnesses are immense. In 2018, total medical expenditures were approximately $3.7 trillion, and chronic conditions are estimated to account for almost 90 percent of all spending. Managing co-morbidities already is a long-term challenge for health insurers. Although an increased focus on co-morbidities could result in beneficial early intervention in some cases, it also could lead to additional complex care, leading to pressure on health insurers to help contain costs, potentially at the expense of margins.

2. Acceleration of adoption of telehealth and remote monitoring.

The pandemic demonstrated the usefulness of technology such as telehealth services and remote monitoring when people could not or would not go to a doctor or hospital. Although large national players have the wherewithal to make significant investments in technology to advance telehealth and remote monitoring, it is not an insurmountable disadvantage for smaller regional players.

With many technology companies developing new products, the technology is available, and it is, therefore, a matter of choosing the right technology and effectively putting all the pieces together.

3. Transition to value-based care.

The health insurance industry has been transitioning from the traditional fee-for-service reimbursement model that pays providers for services performed to a value-based care model that pays for successful outcomes. Many providers have been reluctant to fully adopt this model because it entails risk, but doctors in value-based care arrangements had a much more stable flow of income during the lockdowns. The coronavirus experience should help accelerate the trend to value-based care.

Read more: 

• Will health insurers’ strong earnings performance continue?
• What health care micro-trends tell us about our new normal
• Employers, physicians and insurers all moving away from fee-for-service model