Since 2020, Americans are managing to deal with the deadly COVID-19 pandemic. Among other factors, medical costs have been one of the key factors causing economic impact on employers, health insurance companies and patients.
DistilINFO closely looks into the factors that caused an escalation in the medical costs in pandemic time and what factors played deflators in bringing the costs down. The insurers must know them well to stay competitive and efficient.
1. Why do medical costs matter in decision-making?
In pre-pandemic era America’s per capita spending on healthcare was around $12,000 per annum and has been growing at a modest rate of 4.3-4.5% annually since 2017. But COVID-19 accelerated the spending on healthcare. As per the research conducted by PwC Health Research Institute on medical costs trends, the medical cost trends which had hit a decadal low of 5.5% in 2017, started to rise during COVID-19 years of 2020 and 2021. It projected the medical cost trends at 6% and 7% for 2020 and 2021 respectively. This indicates that per capita cost of the medical services and prescription medicines that affect commercial insurers’ large group plans and large, self-insured businesses. Insurers use this data to calculate their health plan premiums.
2. Return of deferred elective procedures
Major inflator: Since the start of the pandemic, patients and care seekers have preferred to defer their elective procedures out of caution to avoid exposure by visiting hospitals. However, after vaccinations picking up and acquired immunity through natural infection of COVID-19, patients may gain confidence to return to hospitals for elective procedures such as knee, back, dermatology, ENT or other non-emergency surgeries. This may lead to increase in healthcare spending, leading to increase in costs for the insurance companies.
3. Next-gen healthcare infrastructure
Add-on Inflator: Adoption of new digital tools will enable payers to unlock new opportunities in member engagement and effectively monitor and plan patient journeys. Interventions such as Customer Relationship Management (CRM) tools will enable smooth coordination with providers for outreach requirements. The deployment of technology will increase the costs on the initial run but will yield the desired results in a longer run. This would enable the payers to be better placed to monitor the member plans and their healthcare costs.
4. A deflator side of the Pandemic
Thanks to the pandemic, a growing number of members are starting to seek lower-cost and convenient care, thereby reducing the cost burden for the payers to some extent. Consumers are turning towards lower-cost sites of care, telehealth which has also reduced the no-show rates for the care providers. Further, the persistent COVID-19 infections cause deflation in emergency care utilization, which is lower by about 25% from pre-pandemic levels.
5. Technology a decisive deflator
New technologies would bring down the administrative and medical costs for payers and will eventually play a decisive role in their competitiveness and profitability. The deployment of tools, such as machine learning, artificial intelligence will help monitor and improve member health and save on preventable costs. Also, when employers prefer remote work for employees, it brings down the costs. This has helped health agencies to save on their physical infrastructure costs.
COVID-19 pandemic has made clear marking for the inflators and deflators for the health payers. For the past two years, pandemic has been the driver for these factors causing financial implications on the payers. While some factors cause medical costs to go up, there are factors eventually resulting in a deflator. A post-pandemic healthcare ecosystem will witness a mix of these inflators and deflators, while the payers will need to position themselves somewhere in-between them to be competitive and relevant.