UnitedHealth Group reported $6.6 billion in profit for the second quarter, beating Wall Street projections.
That’s also a significant increase in profit compared to the second quarter of 2019, where the healthcare giant brought in $3.3 billion, according to its earnings report (PDF) issued Wednesday.
UnitedHealth’s mid-year profits sit at $10 billion, compared to $6.8 billion in the first half of 2019.
The insurer also reported $62.1 billion in revenue for the quarter, an increase year-over-year but a number that fell short of analysts’ expectations. UnitedHealth brought in $60.6 billion in revenue in the second quarter of 2019.
Through the first half of 2020, UnitedHealth has earned $126.6 billion in revenue, up from $120.9 billion in the first six months of 2019.
The insurer attributes the unexpectedly high profit to large amounts of care deferral due to the coronavirus pandemic and said it’s likely to see that offset in future quarters as elective procedures and other services resume.
In the earnings release, CEO David Wichmann touted the company’s efforts to combat the pandemic in the second quarter.
“Our 325,000 dedicated team members, including the 120,000 clinicians serving on the front lines of care, have tirelessly responded to COVID-19 with agility, innovation and compassion,” Wichmann said in a statement.
“We moved swiftly to assist the people we serve and their care providers, including the provision of $3.5 billion in proactive voluntary customer assistance and accelerated care provider funding. We remain committed to taking further actions to address any future imbalances as a result of the pandemic,” he said.
Though COVID-19’s full impact on finances remains unclear, UnitedHealth maintained its full-year earnings guidance of between $15.45 and $15.75 per share.
As the Covid-19 pandemic and resulting economic slowdown strain company budgets, employers are trying to calculate how much they will spend on healthcare next year. Soon, they will be picking health plans for 2021, and the pandemic will certainly go into that calculus.
A new report by PricewaterhouseCoopers attempts to forecast healthcare costs for next year. But there are still lots of unknowns. According to the report, the medical cost trend could increase between 4% and 10% in 2021.
Researchers with PwC’s Health Research Institute interviewed health plan actuaries from 12 national and regional payers over the past three months. The consensus? They were still unsure about the pandemic’s effect on spending now and what it will mean for 2021.
PwC considered three potential scenarios:
Employers are already considering measures to reduce their costs next year. For instance, a growing number are looking at narrow-network plans as a way of negotiating down prices.
“As the pandemic continues and the economic pressures increase, the shift towards narrow network will likely continue and accelerate,” PwC Health Research Institute Leader Ben Isgur wrote in an email.
In particular, large companies with more than 5,000 employees are more likely to consider this strategy, with 25% offering narrow-network plans, according to a 2019 survey by PwC.
Walmart is a recent example. The company began offering “curated physician networks” in Arkansas, Florida and Texas in 2020. In March, the company indicated it would expand on its network strategies.
More companies are also expanding their telehealth services, in part a direct result of the pandemic. While this may not save them money in the short-term — most insurers are currently reimbursing the same for telehealth visits as in-office visits — in the long term, it is expected to reduce costs.
“Employers understand the benefits of telehealth including lower costs, easier access, less time away from work and a good consumer experience,” Isgur wrote. “89 percent of employers surveyed by PwC in spring 2019 offered telemedicine either through their medical vendor or a carve-out vendor, up from 56 percent in 2016. Over the past few months, we have seen telehealth accelerate even faster.”
A couple of ongoing factors could increase spending next year. Employers are adding mental health services to their health plans, and have seen increased demand for those services, especially in light of the pandemic. According to a recent survey by the Health Research Institute, 12% of individuals on employer plans said they had sought mental health services, and another 18% planned to do so.
Specialty drug spending is also expected to drive up costs, as the majority of pharmaceuticals planned for release next year are specialty drugs. This is not a new trend; of companies’ total drug spending, specialty drugs grew from 21% of the total in 2010 to 58% in 2017.
Many patients have delayed care as a result of the pandemic. Even as medical offices begin to offer in-person visits again, volumes are still down. It’s still too early to tell whether that will lead to a surge in spending next year due to postponed — but needed — procedures.
According to PwC, 22% of patients with employer-sponsored insurance have delayed care since March.
“We could see the population risk increase for 2021 if members with chronic conditions are not able to manage their health as effectively in 2020 due to Covid-19,” Amy Yao, senior vice president and chief actuary at Blue Shield of California, told PwC’s Health Research Institute.
The estimated costs for treating COVID-19 could add up as much as $547 billion for private insurers from 2020 to 2021 depending on the rate of infection, an updated report found.
The report, released Monday from consulting firm Wakely and commissioned by insurance lobbying group America’s Health Insurance Plans (AHIP), looks at the utilization of medical services associated with a COVID-19 infection and the costs for such services. The analysis is restricted to insurers operating in commercial, Medicare Advantage and Medicaid managed care markets.
Wakely estimates that the pandemic could cost insurers between $30 billion and $547 billion.
The report explores the costs of COVID-19 based on a series of potential infection rates, which represent the total population infected. The study modeled infection rates based on 10%, 20% and 60%, while acknowledging that the true infection rate could be far lower.
Wakely then looked at the total costs the plan is liable to cover based on each infection rate.
A 10% rate would lead to a total cost of $30 billion to $92 billion from 2020 to 2021, and a rate of 20% would be $60 billion to $182 billion.
But an infection rate of 60% would cost insurers the greatest, with a range of $180 billion to $547 billion.
“We assume that a higher volume of COVID related services will be incurred in 2020 and lower volume in 2021, distributing approximately 75% of the total services to 2020 and 25% to 2021,” the study said.
Wakely notes it did not model any long-term costs for treating people recovering from COVID-19 infections.
The firm also didn’t factor in vaccine mitigation in 2021 nor a scenario in which large-scale infections occur throughout 2021.
While private insurers have waived cost-sharing for COVID-19 treatments, it remains unclear how long the waivers will last. Anthem and Molina announced Monday they will extend their cost-sharing waivers through the rest of 2020.
The report is an update to an earlier one distributed by Wakely back in March at the onset of the pandemic. That report pegged the total COVID-19 costs between $56 billion and $556 billion.
The main reason for the decline is Wakely factored in deferred care due to the pandemic.
Wakely also reduced the overall assumed rate of hospitalizations for COVID-19-infected individuals to align with more recent studies. But the estimated unit cost for a hospital admission also increased, based on survey data from AHIP members.
People have been putting off necessary care for fear of going to a doctor’s office, and hospital systems have canceled or postponed elective surgical procedures for months.
Hospitals have slowly started to resume elective procedures, but only after installing stringent requirements on cleaning and testing.
Insurers are bracing for a wave of healthcare utilization some time later this year or in 2021 to deal with this pent-up demand.
The deferred care costs would differ based on the infection rate of the virus.
“We assumed, particularly for higher infection rate scenarios, that there may be limited capacity to make up care in 2021,” the report said.
The COVID-19 pandemic’s postponement of elective surgeries and regular care has created a surplus in revenue for insurers due to lower spending.
Health plans are mandated to spend at least 80% of their revenues on medical care. When they make more than that, they have to give money back to the purchasers.
Insurers are doing this now, rather than later, according to the Advisory Board’s practice manager Rachel Sokol, who spoke during the company’s weekly meeting on the impact of COVID-19 to payers.
Insurers want to create immediate value for members, instead of waiting for 2021, she said.
“That’s why we’re seeing the premium discounts now,” Sokol said.
Among those insurers refunding money, UnitedHealthcare said it would provide more than $1.5 billion in initial assistance, including customer premium credits, because its members have been unable to access routine or planned care due to the COVID-19 pandemic.
UnitedHealthcare has seen a lower volume of medical care being delivered than it anticipated when it set premiums.
Commercial fully insured individual and employer customers will get credits ranging from 5% to 20% – depending upon the specific plan – which will be applied to premium billings in June.
WHY THIS MATTERS
Insurers are mandated to provide refunds, but also they want to motivate members to return for regular care, to prevent more costly and complex outcomes later.
While hospitals have taken a financial hit from COVID-19, the major health insurers have shown minimal impact.
In fact, insurers could see a benefit to earnings in 2020 as medical services decline, according to Moody’s Investors Service.
THE LARGER TREND
Under the Affordable Care Act, insurers are required to rebate some premiums to their customers if medical claims fall short of expectations, based on a three-year average of medical costs.
The Medical Loss Ratio of the Affordable Care Act requires insurance companies that cover individuals and small businesses to spend at least 80% of their premium income on healthcare claims and quality improvement, leaving the remaining 20% for administration, marketing, and profit.
The MLR threshold is higher for large group insured plans, which must spend at least 85% of premium dollars on healthcare and quality improvement, according to the Kaiser Family Foundation.
Insurers may either issue rebates in the form of a premium credit or a check payment and, in the case of people with employer coverage, the rebate may be shared between the employer and the employee, Kaiser said.
Using preliminary data reported by insurers to state regulators and compiled by Market Farrah Associates, Kaiser estimates that insurers will be issuing a total of about $2.7 billion across all markets – nearly doubling the previous record high of $1.4 billion last year.
While health insurers have saved money by the cancellation of elective surgeries and many are currently refunding excess revenue under the Medical Loss Ratio, premiums for the 2021 plan year are still in question.
There is a lot of uncertainty, America’s Health Insurance Plans said. Without comprehensive data, insurers are working to estimate 2021 healthcare costs and must base their rates on projected costs, AHIP explained in an infographic.
It is too soon to know what the real healthcare costs of COVID-19 will be. Also, delayed elective and non-urgent care will likely be delivered – and paid for – later.
That care could be more complex and costly because it was delayed, AHIP said.
WHY THIS MATTERS
Insurers are working to meet state deadlines to file 2021 premiums in the individual market.
THE LARGER TREND
Federal law requires insurers to spend 80-85 cents of every premium dollar on medical services and care. The rest, under the Medical Loss Ratio, may go towards administrative expenses, regulatory costs, federal and state taxes, customer service and other expenses.
The COVID-19 pandemic’s postponement of elective surgeries and regular care has created a surplus in revenue for insurers due to lower spending, which many are refunding now.
ON THE RECORD
“COVID-19 has had a very real impact on the economic, physical, and mental health of millions of Americans,” said Jeanette Thornton, senior vice president of Product, Employer, and Commercial Policy at AHIP. “Our members are working through this uncertainty to strengthen access to affordable care as the fight against the coronavirus continues. COVID-19 dramatically changed the healthcare landscape–in 2020 and for years to come.