2020 Cost Projections and Beyond: Your Questions Answered  

In mid-May, Mercer’s Chief Actuary, Sunit Patel, blogged about the financial impacts of COVID-19. In that post he shared that while many financial estimates envision some scenarios leading to 2020 employer health plan costs lower than budgets, there are secondary consequences that could impact costs in 2021 and beyond. We thought it would be interesting to check in with Sunit to see what’s changed in the month since he blogged. Here’s what we learned.

You recently blogged that the last two weeks of March 2020 saw an estimated drop in medical claims of 30% - 40% and the drop in April was of a similar magnitude. What was the experience in May and what’s your current projection for 2020 claims?

SP: We reached a maximum point of avoidance in April where we saw approximately 40% lower spend versus expectations. Data through the end of May shows levels that are 20% lower than pre-COVID expectations. Overall, for employer-sponsored health programs, 2020 medical claims experience is expected to be close to flat, or modestly better than pre-COVID cost projections. But, there is notable variance that we see around the mean, so, for individual employers your experience may deviate significantly from the average data points.

What’s the projected financial impact of care that is “lost forever” or deferred to later this year?

SP: The amount of services deferred to date has been significant. We are still waiting to see what percent of claims will return versus those that are lost forever. We’re also watching the emerging secondary impacts of this deferred care and the high likelihood of adverse impact with respect to future illness. From an overall financial perspective, this could impact medical budgets adversely by as much as 1-2% in 2021. Additionally, hospitals and physicians have experienced a significant shortfall in revenue, due to reduction of services. The financial strain has led to a number of actions including hospitals requesting health plans to open up contracts, and some small group physician practices are reconsidering joining larger groups or health systems. These types of actions are almost certain to place upward pressure on employers’ unit costs.

We know employers have been waiting to see what impact COVID-19 testing and treatment would have on 2020 costs. What does the data show?

SP: We are testing approximately 500,000 individuals per day in the US. Adjusting the current run rate to reflect the experience in an employer population, we expect testing to add to employers’ health plan budgets a few tenths of a percent in 2020. We excluded antibody testing in our baseline cost estimates, as the reliability from these test results is questionable. Costs related to COVID-19 treatment are currently being driven by the subset of individuals who are going to require hospitalization. We are seeing hospitalization required in about 10% of cases. At that level, treatment costs are adding low single digit percentage points to total medical costs. We did not consider vaccines, emerging therapeutics and longer-term health implications in our current estimates, but we will continue to monitor their impact on cost.

Beyond medical, what are the trends you’re seeing in pharmacy and dental claims?

SP: With respect to pharmacy claims, we initially saw a small spike in March as individuals were filling scripts in advance of the shutdown and filling for a higher number of days. This spike was around 10% or so. Since then, pharmacy claims have only been modestly lower versus pre -COVID expectations, but we are expecting year over increases in the coming months. Then with respect to dental, we're seeing an even more dramatic drop off around 80%. As the country reopens there will be some pent up demand but some of that care will be lost forever. We'll have to keep an eye on how much claims rebound. When we compare pre-COVID 2020 budgets to 2021, we expect dental increases generally in line with previous years, around 4%.

Despite the flat to favorable cost projections, you still warn employers against becoming complacent.

SP: That’s correct. Although, 2020 cost projections on average are likely to be favorable, we expect 2021 and beyond to present higher cost pressures than in recent years. The short-term relief in costs should not distract from the importance of revisiting cost management strategies as actions taken now will be important in mitigating future cost pressures.