COVID-19 Testing and Treatment
The largest factor impacting 2020 healthcare cost implications of COVID-19 is infection rate. Based on available data as of March 28th, no major country yet has an infection rate substantially higher than 0.5%. Further, the United States currently has reported 69,197 confirmed cases – approximately 0.03% of the population. Therefore, all scenarios modeled assume substantial additional spread of the infection.
We are aware of studies estimating ultimate infection rates even beyond the scenarios currently accounted for in our model (20-40%). As the situation evolves, we will continue to provide revised projections based on available infection data, as appropriate.
Additional details on testing and treatment costs in the model can be found in our previous Cost of Care update.
Non COVID-19 Related Healthcare Costs
In the short term, we expect self-funded plans will see a reduction in non COVID-19 healthcare claims. There continue to be successful efforts by state and local governments to encourage providers to delay discretionary visits and elective procedures to preserve capacity and supplies for the anticipated volume of COVID-19 patients. In the current environment, with many Americans viewing the healthcare system as a potential infection risk, we expect the combined impact to be significant.
At an infection rate of 0.5%, our model assumes that overall incurred medical claims will decrease between 10%-20% each month through June 2020; at which time it is assumed that the prevalence curve of COVID-19 cases will have flattened even if the current crisis has not entirely abated.
At an infection rate of 10.0%, our model assumes similar decreases in incurred claims each month, but extended through October 2020 to reflect the assumed longevity of a heightened crisis.
Prescription drug claims are expected to initially increase by 10% with slight decreases throughout the remainder of the crisis period.
We are aware of some estimates that the reduction in non COVID-19 related healthcare costs will be more extreme than our assumptions indicate. Gallagher will be closely tracking overall plan costs and utilization for clients in the coming weeks and months, and if evidence of a more substantial reduction emerges we will update our model as appropriate.
Gallagher’s experience based on past crises and natural disasters is that a majority of the deferred elective services would be avoided entirely (60-70%). To account for the remainder, an assumed increase in future medical claims due to these deferrals is spread across the remaining months of 2020 after the crisis period.
The charts provided on the following page illustrate expected impacts to non COVID-19 claims for both medical and Rx under the 0.5% and 10.0% infection rate scenarios. Note that these trends would also be indicative of employer cash flow impacts related to healthcare spend, but would likely be shifted out several months due to the lag between when claims are incurred and when they are paid.
Total 2020 cost impact of Non COVID-19 claim reductions is -2.7% under the 0.5% Infection Rate scenario.
Total 2020 cost impact of Non COVID-19 claim reductions is -7.1% under the 10.0% Infection Rate scenario.
Other Considerations
Estimating the total healthcare cost impact of COVID-19 remains an imperfect science, as there still exist many unknowns related to long-term infection rates, time horizon of the crisis, testing availability and severity of the illness for the infected population. In addition, due to the assumed stress of the pandemic on the population, an increase in behavioral and mental health claims is possible, though not accounted for in our model.
Gallagher is also aware that stop loss coverage may dampen the impact of large claimants related to COVID-19 for self-funded employers during this time. However; those impacts will vary by organization and the contractual terms of their coverage. Our teams will be actively communicating with clients to address these variables.
Studies have also begun to emerge on the underlying risk factors that positively correlate with increased severity of illness upon contracting the COVID-19 virus. Gallagher’s Healthcare Analytics team is actively working to develop a proprietary Severity Model to supplement and customize the above estimates based on an organization’s specific demographics and underlying chronic conditions.
Further, Gallagher’s data warehouse has been successfully programmed to track COVID-19 related claims codes at a client and book-of-business level. Dashboards are in development to illustrate the impacts as data begins to emerge.
Consulting and insurance brokerage services to be provided by Gallagher Benefit Services, Inc. and/or its affiliate Gallagher Benefit Services (Canada) Group Inc. Gallagher Benefit Services, Inc., a non-investment firm and subsidiary of Arthur J. Gallagher & Co., is a licensed insurance agency that does business in California as “Gallagher Benefit Services of California Insurance Services” and in Massachusetts as ‘Gallagher Benefit Insurance Services.”.
This material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation.
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