An Actuarial Perspective on COVID-19 – Apex Benefits

An Actuarial Perspective on COVID-19

Roger Greenawalt

With COVID-19, many employers are dealing with a variety of issues that few ever anticipated. While some employers are now managing work-at-home staffs, others have been forced to furlough or release employees until the world can again move beyond social distancing.

Rightfully, employers are concerned about the impact of the virus on their employees and the financial stability of their benefit plans.

While early reports, and some current reports, show case fatality rates of 3 or 4 percent, those numbers must be tempered. In most countries the incidence rate is underreported due to limited testing.

South Korea has more effectively controlled the spread of the virus by initially conducting much broader testing. However, South Korea has tested just less than 1 percent of its population. Although COVID-19 testing still is not widely available in the U.S., the country recently has seen expanded testing and has tested almost 2 million people. About 1 percent of the U.S. population is 3.3 million people.

It has been reported that up to 80 or 85 percent of those infected are asymptomatic or show mild symptoms. As such, many of these cases can go unreported.

The fatality rate of COVID-19 is much higher than regular influenza, but not nearly as high as SARS or MERS (both were also much less widespread). The case fatality rate of COVID-19 is likely in the range of about 0.7 to 1.5 percent. In contrast, the regular influenza rate is about 0.1 percent. Some reports show the fatality rate of SARS was 7 to 15 percent, while MERS was more than 30 percent.

Who is at greatest risk?

From the employer’s perspective, those at greatest risk are those of any age with comorbidities that compromise their immune system (asthma, HIV, some types of cancers, etc.) and those aged 65 or older with other contributing conditions.

Those 65 and older generally are retired, or if working, are reliant on Medicare for their healthcare coverage and are not part of the employer plan. The hospitalization rate of these individuals is five to six times higher than people ages 18-49.

For those in the working population, the rate of hospitalization for COVID-19 for those ages 50-64 is still three times that of those ages 18-49.

What will the impact be on the Employer Health Plan?

Near-term cost increases:
COVID-19 testing (physician evaluation and testing $250-$300)
ER visits for the more serious cases (ER visit with testing $2,000-$5,000)
Inpatient/ICU for the most serious cases (admission with potential for extended ICU $30,000-$120,000)

Near-term cost reductions:
Elective procedures (inpatient and outpatient)
Nonemergency admissions
Reduced testing (related to delayed procedures)
Reduced utilization across the board:

  • Office visits
  • Many ER visits (those that are true emergencies will still occur)
  • Urgent care visits (some of the office visits and urgent care visits will be offset by tele-visits, but this should result in a net reduction)

Longer-term cost increases (once social distancing ends and life returns to a recognizable level of normalcy):

  • Most elective procedures will be rescheduled—not all postponed procedures can occur at the same time (due to medical staff limitations), so this cost could be spread across a few months.
  • Mental health/substance abuse cases likely will rise due to stress.
  • Potentially some “at-risk” individuals will have experienced further deterioration due to limited access to appropriate medical care. This can drive overall costs higher for these individuals.

Cautionary note: Employers experiencing claim cost reductions need to recognize them not as permanent reductions, but as expenses that have been delayed.  As such, they should strengthen their reserves with the anticipation that the expenses likely will be incurred down the road.

What will the impact be on plan renewal?

Obviously, the answer will be different for every group, based on individual group experience. The longer the period of social distancing, the longer the “regular” claims level will be suppressed. While the costs may be lower for the employer in the short term, they also may be lower for reinsurers. Elective procedures, which can lead to costly complications, should be reduced.

In the nearer term, a treatment may become available to reduce the severity of the illness and, in turn, associated costs. But until an effective vaccine is produced in significant volume, the risk of a “second wave” or “third wave” will persist, which could impact reinsurer rates. Clearly, this year’s renewals will involve many more factors to be reviewed than in the past.

About the Author

Roger Greenawalt is health informatics actuary for Apex. He provides employers with comprehensive financial reporting regarding medical plans. With financial projections, modeling of alternative plans and contribution strategies, he helps the benefits manager more effectively control costs. Connect on LinkedIn.

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