Expect Health Care Costs to Rise Sharply in 2021, Thanks to COVID-19

When employer health care costs rise, so do employee health care costs.
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News that President and Ms. Trump tested positive has shook the political world to its core.

Lying underneath the COVID radar screen is even a bigger issue heading into 2021 is the cost of health care.

According to a fresh Willis Towers Watson’s analysis of employer health care costs finds, health care costs are expected to increase in 2021, reversing a likely decline in health care spending in 2020, the first such decline in 50 years.

The study studied future patterns of COVID-19 infection and project cost of care based on four scenarios: early control, variable hot spots, widespread new infections, and widespread new infections with multiple peaks.

The results are interesting, given how tightly employer health care costs are tied to consumer health care costs.

The report pegs employer health care costs in 2020 between 3.3% and 8.8% lower than originally expected in the absence of the pandemic, as system capacity shifts and a fear of contracting the virus in medical settings continues to drive a significant volume of foregone and deferred care.

But that decline is over, Willis states.

In 2021, costs are expected to rise again, between 0.5% and 5.0% above non-pandemic projections due to continued care for COVID-19 patients and delivery of previously deferred non-COVID-19 care, the company reports. When 2020 and 2021 are combined, the study shows cost reductions of between 2.8% and 3.8% from non-pandemic levels across the four patterns it studied.

“COVID-19 has played havoc with all previous projections of health care utilization levels,” said Trevis Parson, chief actuary, Willis Towers Watson. “In 2020, we may see a reduction in national health care expenditures on a per capita basis for the first time since 1960. However, this reversal in trend is highly likely to be only temporary, despite the continued uncertainty about the virus, as previously deferred care returns in 2021.”

The analysis found the following cost changes under the four utilization patterns:

“The infection scenarios illustrate the uncertain nature of the virus and our ability to contain it,” said Jeff Levin-Scherz, M.D., North American co-leader at Willis Towers Watson. “While there are several vaccines in development, their testing and broad distribution will take time and make it difficult to ascertain the most likely scenario.”

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The report also stated the impact of COVID-19 on specific employer plans will differ based on a variety of factors that are geographically sensitive.

“Employers need to pay special attention to the impact of COVID-19 on their health care spending,” says Parson. “The pandemic is driving significant volatility, which demands effective measurement.”

“Broader changes to the health care system are likely to result, which will challenge employers as they look to drive value to employees through their health care plans. Employers will need to understand the rapidly changing health care market landscape and the shifting needs and risk profiles of their workforce.”

The takeaway? U.S. workers can expect to pay even more for health care costs in 20201, after seeing a rare decline in spending in 2020.

So, even after 2020 leaves the scene on December 31, its presence will be felt on the health care spending scene throughout 2021.