What's Around the Bend for Health Plan Pricing


Considerations for the pricing of health insurance products amidst a global crisis.

Martin Graf and Jimmy Lee

8 min read

Editor’s Note: The following article is part of an ongoing series offering our strategic advice and expertise on what healthcare industry stakeholders should do in response to the rapidly evolving novel coronavirus (COVID-19) pandemic.

Over half a million people across the US to date have tested positive for COVID-19. Our nation’s healthcare system has been brought to its knees. There is incredible newfound gratitude for our healthcare workers, true heroes who risk their lives to save lives, all from the frontlines of a pandemic.

Many healthcare stakeholders have come together in extraordinary ways. New collaborations are emerging among providers, health plans, organizations, and government. Many health plans have stepped up to eliminate people’s anxiety throughout this crisis. For example, some health plans are covering their member’s out-of-pocket medical expenses during treatment, administering open enrollment periods, covering early prescription refills, waiving copays for telemedicine and text visits, and delivering food to patients.  

In the Meantime, Health Plans Must Plan Today for Tomorrow

While the crisis continues to unfold, health plans are now planning for 2021, in areas including product development, network and value-based designs, new reimbursement for care solutions, and the pricing of these products. Historically, health plans have relied heavily on prior experience as they develop new products. But the novel coronavirus is significantly impacting that experience, making it challenging to think ahead. Some health plans we talked to have expressed unanticipated 2020 Medical Loss Ratio (MLR) rebates given materially depressed claims levels (from a rapid reduction in non-COVID-19 patient visits) triggering three-year averages into rebate probabilities. Forgiving deductibles and copays for COVID-19 helps mitigate these rebate payments to some extent. Nonetheless, there are many new dynamics and uncertainties in developing and pricing health insurance products for 2021.

Each health plan will have different 2021 pricing objectives. Smaller plans will likely be concerned about surplus levels when all costs are accounted for. We believe plans should use this as an opportunity to approach the 2021 product and pricing exercise to gain more than a fair share of the market. Employer membership will drop given the economic impact. Membership gaps will be greater with an overly conservative pricing approach. This means plans who are forward-thinking and see the opportunity to deliver favorable pricing (as opposed to punitive pricing to recoup losses) could ultimately be big winners with employers, consumers, and the market at large.

2021 Health Plan Pricing Dynamics

Based on our discussions with health insurers, here are some key considerations for 2021 pricing:

1. Determining the claim cost impact from COVID-19 in 2020 and 2021. And, determining how to interpret this. (For example, consider one-time events and changes that continue to redefine our “new normal” with differences in patterns of utilization, telehealth, and the like.)

2. The level of claim reduction in 2020 due to delay or potential longer-term decline of elective procedures.

3. The level of elective procedure rebound in the latter half of 2020 and 2021 based on pent-up demand. (For example, how much will return?)

4. The impact on healthcare costs due to delays in elective procedures and tests. (For example, how much is deferred versus permanently lost volume?)

5. Some states and product lines won’t allow carriers to recoup 2020 losses in their 2021 pricing, which must instead be based on 2021’s anticipated costs.

6. Some health plans will be pressured based on risk-based capital reserve and surplus requirements to recoup either some or all of their 2020 losses in their 2021 pricing.

7. Health plans need to predict medical enrollment by segment (for example, individual, group, Medicare, or Medicaid) to price for administrative costs and selection amidst economic uncertainty. And, during a period of not knowing when and to what extent the economy will rebound and when the job market will recover.

8. There will be a need to create products/benefit designs and set prices that are competitive to attract and retain the membership levels desired at appropriate margins. And, there will be a need to do so in an environment where all competitors are facing these very same challenges when pricing their products, too. 

9. Predicting accelerated innovation in how and to what extent healthcare is delivered, including telemedicine, access to doctors over text, digital care solutions, condition management solutions, in-home care, remote patient monitoring, and the likely increased role of both government and public health. 

10. There will be uncertainty around regulations in specific segments in response to COVID-19. (For example, for Medicare Advantage plans, Healthcare Effectiveness Data and Information Set (HEDIS), and Star measurements and ratings with a subsequent impact on revenue.)

Think Near and Far

The pricing of health insurance products for 2021 is already underway and will need to be finalized before all of the currently unknown dynamics around timing and claims spend amidst a global crisis get sorted out. Health plans must rally their expertise in actuary, finance, underwriting, healthcare economics, behavioral health, medical directors, and executive leadership. And, they must also seek outside counsel to best understand these impacts to their organization, their 2021 objectives, and what longer-term strategic planning adjustments are required to truly thrive in the year ahead.