Coming soon: Climate-risk cost adjustments to health insurance?
If you live in an area prone to flooding, hurricanes, or wildfires, you are probably aware of the cost impact of climate risks on homeowners’ insurance. But would you expect climate events to also impact the cost of your health insurance? A recent article on this topic sites a study linking a rise in hospitalizations to extreme heat and air pollution. The study found higher temperatures were associated with a greater incidence of heart attacks and strokes and that wildfire air pollution increased the risk of cancer and lung problems. It’s clear that higher healthcare utilization means more healthcare spending and ultimately higher rates for healthcare coverage. Which raises the questions of how much higher, and how soon?
The impact of climate change on healthcare cost is tough to estimate for several reasons. To start with, methodology used to predict healthcare costs is a look-back at historical claims experience and that may not be the best predictor of how future climate events will affect cost. Also, climate may be one of several contributing factors to adverse health events; it can be difficult to say a that heart attack that occurs during extreme heat was caused by the heat. In addition, a person’s health may be affected by more than one climate-related factor, such as a period of extreme heat and poor air quality from wildfires.
Natural disasters have always been a part of life in the US, but the frequency with which they occur these days is without precedent. The data point that really drove that home to me comes from the U.S. National Climate Assessment. In the 1980s, extreme climate disasters costing $1B or more (in inflation-adjusted dollars) occurred once every four months. Between 2018 and 2022, they occurred once every three weeks.
The impact of extreme climate on worker health is gaining visibility and will need to be addressed sooner rather than later. The Global Risks Report 2024 ranked a wide range of risks to businesses over the short- and long-term. Extreme weather events were the #2 short-term risk, looking out just 2 years, and the #1 long-term risk, looking out 10 years. In thinking about the ways that extreme climate may affect your people and your business, keep healthcare costs in mind. Extreme climate might be something to consider when setting rates and predicting future medical plan costs. Certainly, it’s something to put on your list for discussions with vendor partners and as you review your medical claims experience.