COVID-19 had an impact on both Medicare and the private insurer market, according to two recent reports from the Kaiser Family Foundation (KFF).

KFF: Early days of COVID-19 led to a 6% drop in Medicare spending in 2020

Spending for traditional Medicare beneficiaries dropped for the first time in more than two decades, according to a new KFF issue brief. Researchers, who analyzed data from the Centers for Medicare & Medicaid Services (CMS) to examine trends in spending and health care service use between 2010 and 2020, attributed the drop in spending to seniors staying home and not seeking health care services during the initial months of the COVID-19 pandemic. Inpatient hospital spending fell nearly $8 billion, outpatient hospital spending dropped $5 billion, and office visits declined $3.7 billion. The decline in spending is the first decrease in spending since 1999, which was the result of changes to Medicare provider payments enacted as part of the Balanced Budget Act of 1997. The decrease in 2020 was driven by a significant decrease in the use of health care services due to the COVID-19 pandemic.

Private insurers expect to pay $1B in consumer rebates for setting premiums too high

Another KFF analysis finds that private insurance companies expect to pay out $1 billion in rebates to consumers this fall under an Affordable Care Act (ACA) provision that requires insurers to spend the bulk of customers’ premium payments on care.

Rebates are based on insurers’ experiences over the previous three years. This year’s total is roughly half the size of last year’s $2 billion, in part because 2021 was a less profitable year and because the three-year window no longer includes 2018, when individual market insurers overpriced their ACA marketplace plans due to uncertainty caused by the repeal-and-replace debate and other ACA policies.

The rebates also reflect the impact of the COVID-19 pandemic, which led to a sharp reduction in health claims in 2020, when many people skipped care amid stay-at-home orders and medical offices’ closures.

Rebate amounts will vary by market. Individual market insurers are expected to pay out an estimated $603 million in rebates to more than 4 million people, including many covered through the ACA’s marketplaces. Small and large group insurers are expected to pay about $275 million and $168 million respectively to plans that cover about 4 million more people. The amounts are preliminary estimates, with final rebate data coming later this year.

The rebates are the result of insurance companies not meeting the ACA’s medical loss ratio threshold, which requires insurers to spend at least 80 percent of premium revenues (85 percent for large group plans) on health care claims or quality improvement activities. Higher loss ratios in 2021 could lead to steeper premium increases next year, as some insurers try to regain higher margins.

“The ACA never did much to reduce the rate of increase in national health spending, but it did a lot to make health care more affordable for consumers, from subsidizing coverage, to protecting people with pre-existing conditions, to requiring these rebates from insurers,” KFF President and CEO Drew Altman said in an announcement.

Not all policy holders are due rebates, but among those who are, this year’s rebates work out to roughly $141 per plan member in the individual market, $155 per member in the small group market, and $78 per member in the large group market, according to the KFF analysis of preliminary data reported by insurers to the National Association of Insurance Commissioners and compiled by Mark Farrah Associates. Insurers will issue the rebates to eligible consumers in the fall.