The Finance of Pandemics

COVID-19 Brings New Uncertainties to Health Care Spending and Health Insurers

How the calculus of this pandemic might impact the inherent actuarial assumptions of health insurers

New research from the American Academy of Actuaries.

WASHINGTON—As the COVID-19 pandemic spreads, its effects on U.S. health care spending and health insurers for 2020 and beyond are uncertain, according to FAQs on COVID-19 and Its Effects on Health Spending and Health Insurance, published today by the American Academy of Actuaries.

“The pandemic and policy responses to it are evolving rapidly, bringing uncertainty to how total national health spending will be affected and how costs of care for 2020 will compare to what insurers anticipated when they set premium rates for the year,” said Academy Senior Health Fellow Cori Uccello. “That uncertainty also applies to 2021 health spending projections, even as insurers are currently developing 2021 premiums.”

Factors affecting health spending include the ultimate hospitalization rate for COVID-19, access to COVID-19 treatments, and the degree to which increased spending for patients with COVID-19 will be offset by deferments or cancellations of nonessential services. These factors can vary by insurance market and geographic area. If COVID-19-related costs are concentrated in 2020, 2021 health spending might be affected only minimally, for instance due to an increase in nonessential services that were deferred from 2020 or from any newly available COVID-19 vaccines. However, if COVID-19 incidence and related costs are expected to continue into 2021, premiums for 2021 could be affected as well.

Implementing special enrollment periods (SEPs) for Affordable Care Act coverage could also affect insurer finances, depending on the extent to which those with higher expected health costs or risks due to COVID-19 are more likely to take advantage of the SEP.

Excerpts from the FAQ:

How can we expect the COVID-19 pandemic to affect health care spending in 2020? In 2021?
The ultimate effects on 2020 health spending are unknown and depend on many factors including: how many people contract COVID-19 and of those the share with severe symptoms requiring hospitalization; whether new treatments are found; whether health system supply constraints (e.g., the number of available hospital beds, availability of personal protective equipment) limit access to treatment; and the extent to which elective visits, treatments, and procedures are deferred or canceled. These factors could vary by insurance market (e.g., based on enrollee demographics) and geographic area (e.g., based on hospital capacity, rural vs. urban, population composition).

Will COVID-19-related outlays result in solvency issues for private health insurers?
Premiums for most 2020 private health insurance plans have already been finalized and cannot be changed during the year. Health spending for insurers could be higher than expected when they developed those premiums, both due to increased costs for COVID-related hospitalizations and other services as well as from waiving cost-sharing for COVID testing and related provider visits, especially if those higher costs are not offset by reductions in other health spending, for instance by reductions in nonessential services. Moreover, insurers could receive lower revenues if individuals and groups can no longer pay premiums, yet maintain coverage during grace periods. Both factors could lead to insurers experiencing financial losses in 2020.

The pandemic and policy responses to it are evolving rapidly, bringing uncertainty to how total national health spending will be affected and how costs of care for 2020 will compare to what insurers anticipated when they set premium rates for the year...

How will special enrollment periods under the Affordable Care Act (ACA) affect insurance plans?
The ACA requires that individuals who experience changes in circumstances, including a job loss or a change in eligibility for ACA premium subsidies, have access to a special enrollment period (SEP). In addition, many state-based insurance exchanges have reopened the ACA annual enrollment period to allow uninsured individuals to enroll in ACA individual market plans; the federal government is considering doing the same for states using the federal exchange. These provisions provide an important opportunity for uninsured individuals and those who may no longer have access to employer coverage10 to get insured and could increase enrollment in the ACA individual market. However, these provisions can also increase the risk of adverse selection—that is, people who expect they will have high health costs might be the ones most likely to take advantage of such enrollment opportunities. On the other hand, the availability of premium subsidies for those who are newly eligible for premium subsidies could help encourage enrollment and reduce adverse selection. The adverse selection risk would be even greater if SEPs were opened up solely for those who test positive for COVID-19.

Read the FAQ, developed by the Academy’s Health Practice Council, and learn more about COVID-19 resources compiled by the Academy on its “COVID-19 Resources webpage” at





About the American Academy of Actuaries
The American Academy of Actuaries is a 19,500-member professional association whose mission is to serve the public and the U.S. actuarial profession. For more than 50 years, the Academy has assisted public policymakers on all levels by providing leadership, objective expertise, and actuarial advice on risk and financial security issues. The Academy also sets qualification, practice, and professionalism standards for actuaries in the United States.