How COVID-19 Impacts Your Health Insurance Premiums

As mandated by the Affordable Care Act (ACA), premium rates are finalized in the early fall and are based on events from two years before the pricing plan year. So, to know how 2023 rates were set this year, we’ll need to look back at 2021.

And if there’s one event we can associate with 2021, it’s COVID-19.

In summer and late fall to winter 2021, most of the U.S. experienced two peaks of COVID-19 infections that over-burdened hospitals and testing sites. The year’s health care crisis was worsened by highly contagious variant strains and significantly varied rates of vaccination and use of medical services by region.

Due to fluctuating health care costs and utilization that carried over from 2020 to 2021, insurers took a “wait-and-see” approach for setting premium rates. And while COVID-19 has a more predictable cost burden than in prior years, its presence still creates uncertainty for 2023.

For example, a new variant could increase the rate of COVID-19 cases, individuals may require ongoing medical care due to long-term effects of contracting COVID-19, and more individuals may seek care that they had deferred or avoided. The greater degree of uncertainty now than, say, 2019 classifies 2023 as another year of “wait-and-see.”

Factors that Impact Health Insurance Premiums

Premium rates are generally calculated based on projected medical claims and administrative costs for insured individuals and groups.

Projected medical claims include …

  • Unit cost — the true cost of providing a service, such as an adult physical exam or a specific medical procedure
  • Utilization level — how much or how often a service is used
  • Mix and intensity of services — the type of services provided by a plan

Premiums are also influenced by risk pool composition — the combined medical costs of individuals enrolled in a plan — and insurance-related laws and regulations. And these influencing factors, plus the ones below, have been significantly impacted by COVID-19.

Rates of Patients Seeking Medical Care

In 2021, about 20% of US adults reported that they or their household members delayed seeking medical care, or were unable to receive care, due to the pandemic. Now that vaccines are widely available and COVID-19 cases are more stable, Americans are expected to make greater use of their coverage. The surge in demand for services means increased costs for insurers that can be offset with higher premiums.

For example, California state officials announced that premium rates in 2023 would increase by a six-percent average for Covered California enrollees; four of these six percentage points were attributed to increased plan usage.

COVID-Related Public Policies

Changes in public policy, particularly the enactment of the American Rescue Plan Act (ARPA), have impacted the number of individuals seeking health care coverage on the open market.

ARPA was passed in 2021 to expand health insurance eligibility and subsidies to millions of Americans who lost their employer-sponsored coverage due to COVID-related layoffs. As a result, more people enrolled in Medicare and Medicaid, people with lower incomes were provided greater financial assistance, and people with incomes over 400% of the poverty line received subsidies.

While ARPA was set to expire by the end of 2022, the Inflation Reduction Act (IRA) was recently passed to ensure that ARPA subsidies will continue through 2025. Meanwhile, due to the federal declaration of COVID-19 as a Public Health Emergency (PHE), states have received increased Medicaid funding if they did not disenroll individuals while the PHE remained in effect.

However, since California declared that the state PHE would end in late February 2023, California may redetermine eligibility for current Medi-Cal enrollees. As a result, many people may shift from Medicaid to the individual market, employer group market, or become uninsured — which would affect risk pool composition and health care costs and utilization.

Inflation and Staffing Shortages

Inflation has increased to levels last experienced in 1982. Since small business owners need to increase employees’ wages and the price of goods and services, they may adjust health insurance offerings to compensate. For example, employers may stop offering coverage, reduce coverage levels, decrease employer contributions to insurance plans, or move to alternative coverage options.

Additionally, nurse staffing shortages have increased nursing salaries, which increase hospital costs. Since contracts between carriers and hospital systems have already been negotiated for 2023, the effect of inflation on premium rates may not be realized until 2024.

Increased Mental Health Care and Telehealth Visits

Telehealth experienced massive growth during the pandemic. More telehealth services and providers are covered by insurers, and more patients are opting for telemedicine — especially for mental health care. Will telehealth replace or bolster the use of in-person services? This shift in setting and accessibility could affect future insurance offerings and rates.

Find a Premium (and Plan) That Works For You

COVID-19 impacted every aspect of our lives, including health care costs and insurance premiums. While you can expect increased premium rates for 2023, you still have affordable health care options. Just contact a health insurance insurance agent at Regency West. We’ll help you find the right plan for your budget and health needs.