Insights from Gallagher’s Healthcare Analytics Practice

The information in this article is current as of March 28, 2020. As the situation evolves, we will continue to update our models and projections for the impact of COVID-19 on an employer’s healthcare costs. We acknowledge that the facts will change and invite you to revisit this page for the most up-to-date information.

The wide-ranging impacts of COVID-19 continue to evolve rapidly. Gallagher’s Healthcare Analytics team has developed a model to estimate the overall impact to 2020 healthcare costs for self-funded employers. Our model reflects the following considerations, assumptions and sources:

  1. Copays for all COVID-19 related office visits, telehealth utilization and testing are assumed to be waived and paid by the employer.
  2. Eventual testing rates and overall incidence of infection in the United States are a substantial unknown and dependent on a number of factors. Therefore, the model does not attempt to provide a single point estimate, but rather a range of potential impacts across a spectrum of prevalence scenarios.
  3. While it has become clear that the availability and prevalence of testing varies depending on location, the infection rate amongst those not tested remains an unknown.  While we believe telehealth use will increase amongst the untested population, these impacts on overall employer costs will likely be immaterial.
  4. Between ten percent (10%) and twenty percent (20%) of tests are assumed to result in a positive diagnosis of COVID-19 infection. The positive test rate is assumed to increase as expected infection prevalence increases.  Accurate testing data is not yet widely available, but these rates are in line with reported results across the US.
  5. Cost assumptions have not been adjusted by geographic region or client-specific seasonality, as we anticipate these adjustments would have a relatively minor impact on the overall results.
  6. While workforce reductions are an inevitable result of the COVID-19 pandemic for many employers, cost impacts calculated in our model do not account for changes in population demographics based on these reductions.
  7. Cost and severity assumptions are attributed to multiple sources, including the FAIR Health healthcare cost database, the Journal of the American Medical Association, the New England Journal of Medicine, and Gallagher’s own internal claims data warehouse. All external sources and assumptions are explicitly linked in our previous cost of care article.

Summary of Model Results

Incidence of Infection
 0.5% 1.0% 2.5%  5.0% 10.0%

Testing Rate

 5.0%  10.0%  20%  33.0% 50.0%

Impact of COVID-19 Testing & Treatment

0.5% 1.1% 2.5%  4.8% 9.1%

Impact of Non COVID-19 Utilization

 -2.7%  -3.2%  -4.4%  -5.4%  -7.1%

 Overall 2020 Cost Impact

 -2.2%  -2.1%  -1.9%  -0.6%  2.1%

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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