In a widely cited article, the New York Times recently warned that health “insurance premiums could spike as much as 40 percent next year.” Such a scenario would clearly add an enormous burden to businesses and individuals already struggling with hardship induced by the coronavirus. But the assumed average cost of treating coronavirus cases, on which the article was based, is highly inflated. In fact, overall, healthcare spending will likely fall significantly over the coming year, as the volume of other medical procedures falls significantly.
The underlying report was written by the government agency responsible for regulating the Obamacare market in the state of California. It projected one-year nationwide costs from coronavirus to private insurance ranging from $34 billion to $251 billion – ranging from 2% to 21% of premiums. The eye-catching 40% figure came from the dubious inference that two years’ worth of insurance losses at the top end of projections would be entirely financed through one year of premium increases.
Most of this additional cost comes from the report’s $29 billion to $216 billion estimate of the total costs of treating coronavirus patients admitted to hospital – a figure which seems to be wildly inflated. It is based on the assumption that insurers will be required to pay an average of $72,000 per patient hospitalized, that 4 to 15 million would be infected, and that 10% to 20% would be hospitalized.
A recent study by the Kaiser Family Foundation found that, in 2018, privately insured patients hospitalized with pneumonia without complications were billed an average of $9,763; those with major complications and comorbidities, an average of $20,292; and those requiring ventilator support for over 96 hours (as is most often the case with coronavirus patients needing intensive care), an average of $88,114. A mid-March CDC study of COVID-19 cases in the United States found that 10% of those aged under 65 testing positive for COVID-19 were hospitalized, but that only 2% required admission to intensive care.
Taking a mid-range estimate of 1.2 million hospitalizations in the California study, which seems in line with other current projections, hospitalization costs could be expected to be around $35 billion, in addition to $8 billion estimated for outpatient services and $8 billion for testing. In total, this would add $51 billion to private insurance spending (which was $1,243 billion in 2018) – an increase of roughly 4%.
Such an increase would likely be more than offset by the effect of declining utilization of other medical services as people increasingly stay at home – reducing the number of traffic accidents, the transmission of other diseases, and the number of visits to doctors. Indeed, the decline in elective procedures undertaken has been dramatic. Bon Secours Mercy Health, which operates in seven states, estimated that it would suffer a $100 million decline in revenue. Similarly, a Kentucky hospital system, which saw a 30% decline in business, has furloughed 500 staff. The CEO of a Michigan hospital system has estimated that the crisis has caused it to cancel 80% of projected surgeries to free up capacity for COVID-19 patients and other emergency cases. He argued this would lead to a 20% to 40% drop in revenue.
At this point, therefore, it seems more likely that the coronavirus will cause health insurance premiums to fall rather than increase overall.
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