Healthcare Activity in Pandemic - Q3 Update

I continue to watch the pandemic’s meaningful impact on the healthcare business and consumption of healthcare.  With third quarter data now reported, we can assess the trends and what the next few months may hold:

• The initial heat of the pandemic was mid-March through mid-May.  In the second quarter of 2020 (April-June) there was a reduction in non-emergent and elective healthcare services.  Largely this was considered a deferral of services but in reality a portion of it was non-consumption that will not happen later.  Health insurers experienced a 13% reduction in total claims cost for the second quarter, as compared to a year ago.  We know there were COVID-related healthcare costs in the 2020 numbers which likely added 2-3% costs for these payers.  This implies the pandemic’s impact on “normal” healthcare cost and procedure activity is to reduce it by about 15% in second quarter, when restricted activity across the country was at its highest level. 
• In the third quarter (July-Sept) the COVID restrictions lifted significantly and healthcare activity returned toward normal.  Third quarter claims data indicates about a 1% net reduction in healthcare spend.  Clearly COVID costs yielded an increase versus last year while the lower care patterns associated with the pandemic, I estimate about 5%, while virus related healthcare costs added back about 4% - to achieve the net reduction of 1% for the quarter.  So still slightly lower care patterns for consumers but nothing to the magnitude of Q2.
• Certain healthcare services continued to lag significantly compared to normal levels even in the third quarter, most notably emergency departments. Telehealth continues to perform strong and will have staying power.  “Touchless” remains a mega-trend of this pandemic and beyond, including in healthcare.
• As the nation has experienced a virus surge in November, leading to a much more restrictive environment, we can expect to see another trend downward on healthcare utilization.  At this point the heightened measures being taken are much more significant than in the third quarter, but less restrictive than in April.  Offsetting this development are two strong drivers of healthcare consumption.  First, December is a seasonally very high month of healthcare utilization, driven by the desire by consumers to leverage deductibles already met. The second is the impact of the significant deferrals of services during 2020 and the unknown impact that might have on fourth quarter consumption.  I suspect we will see a dip in non-emergent and elective healthcare services in fourth quarter, offset partially by much higher costs of treating COVID cases.
• We also see from third quarter data that there has been a reduction in the number of Americans with health insurance provided through their employers – to the tune of just over 1% decrease.  Hard to tell how much of this group transitioned to Medicaid plans.  Nonetheless this is a net negative impact for healthcare providers (more people on group insurance is a good thing for healthcare providers).

The pandemic is altering healthcare in many ways, some temporary and some permanent.  I will continue to watch the trends and provide updates.