Payers Prepare For Costs in 2021 After COVID-19 Deferred Care

In the year before the pandemic, the US spent a whopping $3.6 trillion on healthcare, with payer spending comprising a third, or $1,195 billion, of that, according to a report from the Congressional Research Service.

The report gives insights into where the healthcare industry was tracking in 2019 before COVID-19 hit and payer costs plummeted.

As the pandemic spread, payers speculated on what effect the high magnitude of deferred care would have on costs for the benefit years 2020 and 2021. In mid-June 2020, experts estimated $546.6 billion in COVID-19 costs for payers over the two benefit years.

The year before the pandemic told a different story, with mounting healthcare costs paralleling mounting coverage gains, the CRS report showed.

In 2019, group and individual private health insurance markets covered 55.4 percent and 13.1 percent of the population, respectively. Overall health consumption expenditures (HCE) accounted for 16.8 percent of the nation’s gross domestic product in 2019, and private payer spending made up one third of that year’s HCE.  

From 1960 to 2019, private health insurance spending as a percentage of total HCE increased by about 10 points. The report noted that this growth is partially due to increases in enrollment. Additionally, this increase in private payer spending corresponds with a drop in in out-of-pocket spending since 1960 when considered alongside the development and expansions of Medicare and Medicaid.

Unsurprisingly, hospital care contributed the highest amount of spending in 2019 for private payers. However, individuals were protected from these costs in out-of-pocket spending. Out-of-pocket spending among all individuals made up 11.3 percent of total HCE ($407 billion) in 2019.

Notably, most out-of-pocket healthcare spending went toward durable medical equipment (DME), according to the report. The second most costly category for out-of-pocket spending was physician and other professional service costs.

An estimated 58 million individuals (18.1 percent of the population) were enrolled in Medicare in 2019. The program accounted for 22.2 percent of overall HCE ($799 billion), an 11 percent jump compared to Medicare’s percentage of HCE in 1970. Like the private market, the majority of public spending in Medicare and Medicaid/state Children’s Health Insurance Program (CHIP) programs went toward hospital care.

The second most costly category for the Medicare program was physician and other professional services, followed by prescription drug expenditures, according to the report.

Medicaid and CHIP provided coverage to 19.8 percent of the population in 2019, an estimated 64 million individuals. The programs accounted for 17.6 percent of annual HCE ($633 billion). Second to hospital care, Medicaid/CHIP spending went predominantly towards long-term services and supports.

Increases in individual coverage and Medicaid/CHIP coverage that came as provisions of the Affordable Care Act (ACA) brought uninsurance rates down to 8.6 percent in 2016, a 6 percent drop from 2013. Since 2016, the uninsured rate has slowly increased, with approximately 30 million Americans, or 9.2 percent of the population, uninsured in 2019.

The report depicts the payer industry landscape prior to the pandemic, highlighting just how much uncertainty there is surrounding the future of care post-COVID-19. In mid-June 2020, experts estimated that COVID-19 costs for payers would come in at around $546.6 billion for benefit years 2020 and 2021. These approximate costs are mostly a result of the downstream impacts of deferred care that came with COVID-19.

“This relative stability in health care spending growth over the last four years preceded the COVID-19 pandemic in 2020,” Anne Martin, an economist in the CMS (Centers for Medicare and Medicaid Services) Office of the Actuary, noted in a 2020 Health Affairs article.

“The full impact of the pandemic on the health care sector is still not known, but it will certainly have profound consequences on the provision and consumption of health care in 2020 and perhaps beyond,” Martin continued.