Market recap: Fourth quarter 2021
We take a look at the S&P 500 Index, Russell 3000 Index, and others, along with the U.S. equity, non-U.S. equity, and U.S. fixed income.
This year’s 14th annual Northwest Benefits Survey comes at a strange time. The emergence of the COVID-19 pandemic has had a massive impact on the U.S. economy and workforce. Millions have been furloughed or laid off, while others have struggled to do their essential jobs or work from home amid limited child care, stay-at-home orders, and social distancing guidelines. Even as the nation slowly gets back to work, the pandemic will undoubtedly have long-lasting effects on the economy, and by extension on employee benefits.
The Northwest Benefits Survey—which includes data collected from February to April 2020 from 138 organizations located in Alaska, Idaho, Oregon, and Washington—captured the situation immediately before COVID-19 began affecting the United States. Although it’s impossible to predict how the pandemic will reshape employer benefits in the future, a few observations drawn from the survey’s results offer clues as to what might lie ahead.
Among the organizations included in Milliman’s 2020 survey, costs for employer-sponsored health coverage appear to be moderating. Average annual premiums for family health plans came to $23,282 this year, up 2.6% from last year, with workers on average paying $6,210 toward the cost of their coverage. The average deductible calculated was $1,233 for single coverage and $2,731 for family coverage, while the average out-of-pocket maximum was $3,350 and $7,058, respectively. These amounts are effectively the same as in 2019, with less than a 1% difference.1
Some of this moderation may be the result of cost-saving measures taken by employers to mitigate potential rate increases. For example, the survey showed more organizations using plans that required generic drug use by the employee when that option was available (29% compared with 21% in 2019) as well as more organizations (19% versus 12% in 2019) adjusting their health savings account/health reimbursement arrangement contribution amounts as a cost-saving measure.2
The issue of rising healthcare costs for employers will likely have a lesser role in the coming months as millions of Americans have lost or are in danger of losing their employer-sponsored healthcare benefits altogether. Of the estimated 160 million people nationwide under the age of 65 who had health insurance through their employer just before the COVID-19 pandemic hit, research indicates that an estimated 25 million or more could lose that insurance due to the pandemic’s impact.
Our 2020 Northwest Benefits Survey showed that telehealth availability within medical coverage increased from 53% to 76% of reporting organizations. This represents the largest increase since the survey began reporting this benefit in 2016, and includes all different types of health plans, including preferred provider organizations, health maintenance organizations, and high deductible health plans.
Telehealth has been on the rise in recent years, with insurance claims for non-hospital-based provider-to-patient telemedicine care growing nearly 1,400% from 2014 to 2019, according to one study.3 This growth accelerated greatly with the arrival of the COVID-19 pandemic as the Centers for Disease Control advocated for the use of telemedicine to reduce the risk of spreading the virus.4
The use of telehealth will likely continue to expand for the foreseeable future due to the need for continued social distancing. Researchers estimate that coronavirus-related virtual visits could approach 1 billion this year, while virtual visits for general medical care could top 200 million.5
A growing number of the organizations we surveyed are moving to self-funded health plans, rather than fully insured, as a way of keeping their costs down. Among 2020 survey respondents, 17% of organizations reported moving to a self-funded system compared to just 7% in our 2019 survey.6 Self-insured medical plans with stop-loss coverage, which protects the organization from paying claims above a certain amount, increased to 46% (from 39% in 2019). At the same time, 46% of organizations reported fully insured healthcare programs down from 54% in 2019.
Going forward, some self-funded employers could be faced with sharply rising costs this year as a result of COVID-19. The Families First Coronavirus Response Act and the Coronavirus Aid, Relief and Economic Security (CARES) Act both expanded coverage requirements for all health plans, whether self-insured or fully insured. While some major health insurance carriers have gone beyond this legislation, waiving all costs for COVID-19-related hospitalizations and treatments, self-insured employers must weigh such options alongside the pandemic’s economic impact, including the prospect of laying off or furloughing their employees.7
In 2019, the survey indicated that more employers implemented wellness benefits as a way of trying to contain health plan costs. The number of organizations adding a wellness component to their medical plans was up 4% this year from 2019 to a total of 73% of those surveyed. Among the wellness initiatives commonly offered were fitness programs (52%), stress management (50%), tobacco cessation (76%), and weight control (65%).
Lifestyle and behavior change initiatives could become increasingly important for employers to implement as they seek to improve the health of their employees and lower the mortality risk of those faced with COVID-19. Early observations have shown that the virus is significantly more dangerous for patients with pre-existing health conditions, including diabetes and hypertension.8
The 2019 survey indicated that many employers include more flexibility and paid time off (PTO) in their benefits packages as a key way of attracting and retaining employees.9 This trend continued into 2020, with an increasing percentage of respondents (19%) reporting that they offered paid maternity leave lasting an average of 37 days (compared to 30 in the 2019 survey), with slightly shorter durations for paternity and adoption leaves.
The prevalence of employer-funded benefits during this paid leave also saw a significant increase from last year, with 42% offering PTO accrual to employees during their maternity leave, compared with 32% in 2019, and 62% offering vacation accrual, compared with 48% in 2019.
This flexibility on the part of employers shows no sign of being less important in the future. Due to the far-reaching effects of COVID-19, organizations will likely need to take a flexible, people-centered approach when adjusting their benefits in order to better accommodate and support their employees in the face of these unprecedented challenges.
Elective surgeries have been cancelled en masse during the COVID-19 pandemic even as people avoid seeing doctors for all but the most urgent of reasons. Due to the resulting revenue losses for U.S. hospitals and healthcare systems—an estimated $200 billion through June 202010—more than 1 million health workers have lost their jobs or been furloughed.11
Even as health providers take this staggering economic hit, health insurers are experiencing a significant reduction in costs. If the widespread deferral and elimination of care continues through the end of 2020, Milliman analysts have projected a net reduction in medical costs for healthcare payers by at least $75 billion and as much as $575 billion.12
This may have implications for the cost of healthcare in the future. According to a report by Kaiser Health News, consumer advocates, regulators, and policy experts have predicted increasing pressure on insurers to hold down premiums, as well as deductibles and other out-of-pocket medical costs, given their increasing profits during the COVID-19 crisis.13 Some have suggested that health insurers even refund or roll forward premiums in light of underused services, similar to the way auto insurers have refunded portions of their customers’ premiums.14 One cost-saving measure already implemented was the IRS issuance of Notice 2020-33 in which an increased amount of the deferred dollars to Section 125 plans can now be carried over without penalty at the end of the year.
Despite the uncertainty of the moment, the observations from the 2020 Northwest Benefits Survey help clarify some strong trends that will likely have relevance in the future. From the expanded use of telehealth to the increasing importance of wellness benefits, employers may feel a need to re-examine their benefits in order to better support their employees and determine the way forward for their organizations during this global health crisis.
For more information, please contact Dave Evans at [email protected].
1Milliman Northwest Benefits Survey 2020. Retrieved on June 15, 2020, from https://www.salarysurveys.milliman.com/NorthwestBenefitSurvey
2Garret, B. and Gangopadhyaha, A., (May 4, 2020). How the COVID-19 Recession Could Affect Health Insurance Coverage. Robert Wood Johnson Foundation. Retrieved on June 10, 2020 from https://www.rwjf.org/en/library/research/2020/05/how-the-covid-19-recession-could-affect-health-insurance-coverage.html
3Dyson, Tauren, (July 22, 2019). Telemedicine use up 1,400 percent since 2014. UPI. Retrieved on June 10, 2020, from https://www.upi.com/Health_News/2019/07/22/Telemedicine-use-up-1400-percent-since-2014/9771563807244/.
4Healthcare Facilities: Preparing for Community Transmission. CDC.gov. Retrieved on June 10, 2020, from https://www.cdc.gov/coronavirus/2019-ncov/hcp/guidance-hcf.html.
5Coombs, Bertha. (April 4, 2020). Telehealth visits are booming as doctors and patients embrace distancing amid the coronavirus crisis. CNBC. Retrieved on June 10, 2020, from https://www.cnbc.com/2020/04/03/telehealth-visits-could-top-1-billion-in-2020-amid-the-coronavirus-crisis.html.
7Miller, Stephen. (April 7, 2020). Employers’ Health Care Costs Expected to Rise Due to Coronavirus. Society for Human Resource Management. . Retrieved on June 15, 2020, from https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/employers-health-care-costs-expected-to-rise-due-to-coronavirus.aspx.
8Guan, Wei-Jie et al. (May 14, 2020). Comorbidity and its impact on 1590 patients with COVID-19 in China: a nationwide analysis. European Respiratory Journal. Retrieved on June 10, 2020, from https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7098485/.
9Evans, David. (December 3, 2019). Five benefits trends from 2019 that we’ll continue to see in 2020. Milliman. Retrieved on June 10, 2020, from https://us.milliman.com/en/Insight/Five-benefit-trends-from-2019-that-well-continue-to-see-in-2020.
10Hospitals and Health Systems Face Unprecedented Financial Pressures Due to COVID-19. (May 2020). American Hospital Association. Retrieved on June 10, 2020, from https://www.aha.org/system/files/media/file/2020/05/aha-covid19-financial-impact-0520-FINAL.pdf.
11Fadel, Leila. (May 8, 2020). As Hospitals Lose Revenue, More Than a Million Health Care Workers Lose Jobs. NPR. Retrieved on June 10, 2020, from https://www.npr.org/2020/05/08/852435761/as-hospitals-lose-revenue-thousands-of-health-care-workers-face-furloughs-layoff.
12Rogers, Hayley M., Charlie Mills, and Matthew J. Kramer. (April 23, 2020). Estimating the impact of COVID-19 on healthcare costs in 2020: Key factors of the cost trajectory. Milliman. Retrieved on June 10, 2020, from https://us.milliman.com/en/insight/Estimating-the-impact-of-COVID19-on-healthcare-costs-in-2020.
13Appleby, Julie and Steven Findlay. (April 28, 2020). Health insurers prosper as COVID-19 deflates demand for elective treatments. Kaiser Health News. Retrieved on June 10, 2020, from https://khn.org/news/health-insurers-prosper-as-covid-19-deflates-demand-for-elective-treatments/.
14Root, Al. (May 4, 2020). Health Insurers May Give Cash Back to Customers Like Auto Insurers Did. Barron’s. Retrieved on June 10, 2020, from https://www.barrons.com/articles/auto-insurers-gave-cash-back-to-customers-health-insurers-may-do-the-same-51588590001.