In a normal year, I, and several other ACA nerds would be getting ready to start tracking ACA premium rate hikes. Initial filings are due in April, and the actuaries and plan designers have been looking at their 2019 experience with whatever information that 2020 could hint at to predict what costs and utilization would look like in 2021. If asked in the first week of January, I would expect, on average, for rates to have gone up by a fairly normal amount of inflation plus a point or two as there would have been no major policy shocks and the overpricing that happened in 2018 and 2019 is likely to have mostly worked its way out of the system with attendant large MLR rebates to be issued this fall.
HOWEVER, we’re not in normal times. COVID-19 will significantly mess up normal actuarial models.
Rates set for a future year are supposed to be sufficient to cover expected claims, administration, reserve accumulation as needed and produce a regular profit. They are not supposed to be used to make up for prior year losses. Prior year experience can be used however to inform revisions of estimates of utilization, costs and population profiles.
One of the big questions for all actuaries who are trying to figure out what type of rates to set for 2021 for any product line (Medicare Advantage, Medicaid Managed Care, Exchange, Employer Sponsored etc) is how elastic are services?
In 2020, utilization patterns were normal in January with a bit more flu than typical but it was well within normal variance, and lots of people getting their knees replaced, or shoulders repaired and the other 10,001 things that happen in hospitals. In February, normal utilization patterns were still happening. By the end of the month, some hospitals were starting to make initial plans to prepare for a COVID-19 surge. Some procedures were being diverted or cancelled. By early March, many hospitals had started to clear the decks in preperation for a crisis. My mom, the medical zebra, had four appointments scheduled for the 1st week of March. Two were cancelled outright, one became a virtual visit and the last one was an annual MRI that is needed to monitor the effects of previous surgery. This was not uncommon but not widespread. By March 20th, the hospitals that had committed to pre-planning were as empty as they were going to be as they sent everyone home who could go home. And now, the COVID-19 surges are coming. And the surges are likely to come for weeks or months.
People who need critical care will still have a chance of getting critical care. People who need care that can be provided at a distance may still get that care. People who need pharmaceutical interventions may still get that care, but a lot of people who have legitimate care needs that is not life nor death important won’t get that care right now. The hospitals are at full tilt with COVID-19 and will be at full tilt for weeks or months.
The actuaries need to figure out, guestimate, project, open up and appropriately read goat entrails, how much utilization that normally would have happened this year and did not will happen next year.
This calculation will vary. Acute care for sprained ankles that is now being treated by a phone call and a recommendation to rest, ice, compress and elevate in May 2020 instead of an urgent care visit won’t show up in a January 2021 urgent care claim. Someone who would have had their knee replaced in July in a normal year is likely (assuming they are alive and healthy) have it replaced sometime in 2021 instead. Actuaries have to figure out how elastic subsets of claims are and project that into next year’s premiums. This is challenging as there is some literature on this but always on a far smaller scale. In the ACA context, the most optimistic actuary is likely to price too low even as the optimistic actuary is what will drive and shape the market.