ROCHESTER, Minn. — So far, COVID-19 has been very, very good for the health insurance industry.
That's the takeaway from a new financial report on Minnesota health plans and hospitals, an analysis comparing the first nine months of 2020 with the same period in 2019.
It found that the average profit margin reported by the nine largest HMO plans in the state jumped more than tenfold between the first three quarters of COVID-19 and the same window during the year prior, from 0.3% to 3.7%.
"That's a huge difference," says Allan Baumgarten, healthcare analyst and author of the Minnesota Health Market Review 2020.
Other insurers, like Blue Cross and Medica, saw their profit margin jump as an average from 6.4% to 10.3% during this same period. The profits came from revenues rising 1%, while medical expenses decreased by 2.5%.
"There were several months in there in the spring and again in the fall where the hospitals said 'we're not going to do non-emergency procedures or surgeries,'" says Baumgarten. "There was a much lower level of claims going to the insurance companies, so they were out that much less."
"For the health insurance companies," he summarizes, "the pandemic has actually been kind to them."
It's a striking finding considering that, by the end of September, Minnesota had witnessed nearly 8,000 additional hospitalizations from COVID-19, over a quarter of those in an ICU setting, with many patients tethered to life support for weeks or even months at a time.
Those are treatments that could easily amass tens or hundreds of thousands of dollars in medical charges per patient.
Another thing the 2020 profit-taking among health plans suggests is that knee replacements, elective stents, invasive screening and other non-emergent procedures potentially consume more health care resources than the very scenario the public imagines needing population coveragefor the most — the cost of stabilizing waves of patients during a deadly novel pathogen.
"It appears that (the cost of COVID-19 care) was more than offset by other reductions in medical care provided," says Baumgarten.
"You had a lot of care delivered to these patients, but you also had that offset, whether it was due to hospitals delaying or cancelling these non-emergency surgeries, or because families were saying 'I don't want to go into the clinic or hospital, even for acute care, because I'm concerned that I'll get sick there.'"
The pandemic was initially depicted as capable of levying a penalty on the health insurance marketplace similar to that which natural disasters can levy on the property insurance industry.
"If you go back to March, I remember having conversations with colleagues and they were worried that there would be so many expensive COVID cases, that some of the insurance companies would be at risk of going bankrupt," Baumgarten says. "That proved to be not the case."
The first nine months of 2020 was so good for insurers, in fact, that some opted to cut premiums or other fees, capital dispensed for marketing purposes, although funds that insurers would have had to part with anyway, in order to comply with ACA requirements prohibiting excessive profit-taking.
"You had some insurers that tried to give some of the money back... kind of a rebate in advance," he says. "They did that for individuals, and certain groups, and even after that they had a much-improved profit margin."
Hospitals entered 2020 with ample cash, unready for COVID-19
The report also examined public costs charged by hospital systems in 2019 over 2018, showing the sometimes astonishing windfalls taken by health providers prior to the pandemic. Hospitals in Greater Minnesota netted $1.5 billion in profit in 2019, a double-digit (11.2%) profit margin.
Mayo Clinic hospitals statewide led this category, showing $944 million in net profit for the year 2019, with Mayo hospitals in Rochester being the driver, netting $949 million or a remarkable 33.4% profit margin.
Sanford Health netted $272 million in 2019, CentraCare netted $102.7 million, and Essentia netted $89.5 million.
By contrast, unaffiliated hospitals fared far less well according to the study. It found that, "in 2019, the independent hospitals had average margins of 0.9%" — while the critical access hospitals affiliated with systems had average margins of 4.9%.
The pandemic exposed multiple inadequacies in the America private healthcare marketplace, however, including, as the report noted, the scenario in which a widely-lauded "just in time" inventory method had left insufficient stockpiles of equipment and beds for an unexpected outbreak of infectious illness.
Faced with the need to quickly hospitalize hundreds of patients throughout the metro, Twin Cities hospitals were 72% occupied in the year before COVID-19.
As the report stated, instead of "just in time" accounting, health systems would also do wise to consider a "just in case" approach —having the means to serve the community just in case the unexpected occurs.
"As government leaders and health organizations identify and absorb the lessons learned from the pandemic and the mistakes made in responding to it," the report stated, "they will need to decide how much just in case capacity is needed. And then they will need to decide who is responsible for managing it and for paying for it."
"I don't think there's a case for building more beds to be used on special occasions," Baumgarten says. "I think hospitals demonstrated they were actually pretty nimble in being able to reconfigure other spaces in their hospitals to meet the increased need for intensive care level of care... On the equipment side, there's definitely a need, and that is a role government should play."