2021 Healthcare Utilization and Spending May Trigger ACA’s Medical Loss Ratio Provision

Published on July 21, 2021

Early in the COVID-19 pandemic, it was not clear how healthcare utilization and spending would be impacted. Although health and social needs were exacerbated, several factors drove spending and utilization down, including cancellations of elective care, social distancing and general wariness of public settings.

Health spending data for 2020

Healthcare use and spending dropped precipitously in spring of 2020. Although telemedicine use increased sharply, it was not enough to offset the drop in in-person care. As the year progressed, in-person care resumed for hospital and lab services and COVID-19 testing became more widely available. As a result, healthcare use and spending began to rebound.

However, overall health spending in 2020 dropped slightly – by 1%, the first time in recorded history. Conversely, social services spending grew by 7% in 2020, indicating a higher level of social and economic need that could not be delayed or skipped.

Healthcare utilization and spending data for 2021

The drop in health spending in 2020 led many health insurers to expect a surge in healthcare utilization in 2021 to make up for the delayed or skipped care from 2020. Early indicators suggest healthcare utilization has indeed increased in the early parts of 2021. Surprisingly, however, the uptick has not offset the reduction in utilization from 2020.

Carrot Health analyzed the Quarterly Services Survey (QSS) data published by the U.S. Census Bureau (noting key trends in the table below). Comparing Q1 2021 to Q1 2019, health services revenue in the U.S. grew by 6%, and social services revenue grew by 13%. While Q1 2021 health services spending is up from 2020, the growth rate is consistent with pre-pandemic health spending growth observed in 2019.

Instead of a predicted, unprecedented growth rate to offset 2020’s decline in spending, this indicates a return back to steady state health services spending. The early data show the strongest rebound effect from COVID-19 might be in social services spending and not health services spending.

We also analyzed data from the U.S. Bureau of Economic Analysis (BEA) to understand how personal consumption expenditures on healthcare services has recovered since the start of the pandemic. From full-year 2019 to 2020, personal consumption expenditures on healthcare services fell by 6%. Comparing January to May 2021 with January to May 2019, personal consumption expenditures on healthcare services grew 2.5%. Although January to May 2021 personal consumption expenditures on healthcare services is elevated from the same period in 2020, these expenditures are consistent with pre-pandemic health spending (as observed in 2019).

Impact of utilization trends on health plans

Both analyses suggest 2021 healthcare utilization growth patterns look more like pre-COVID growth as opposed to unique, unprecedented post-COVID growth. So, what does this mean for health plans?

Health plans might be in jeopardy of ending the 2021 plan year below the minimum required medical loss ratio (MLR). This scenario would require health plans to pay rebates to members or increase investments in health quality improvement activities. As an example, according to a recent KFF analysis, commercial insurers are going to owe substantial rebates to consumers this year under the Affordable Care Act’s (ACA) Medical Loss Ratio provision.

What happens when health plans fall below the medical loss ratio (MLR)

The medical loss ratio (MLR) provision of the ACA is intended to ensure that a minimum percent of health insurance premiums fund claims and expenses focused on improving healthcare quality, thus limiting the amount insurers can allocate to administrative expenses and profits. This law requires insurance companies to pay annual rebates when the MLR for groups of health insurance policies issued in a state is below certain thresholds: less than 85% for large employer group and Medicare Advantage policies and 80% for most small employer group policies and individual policies.

Due to the precipitous decline in healthcare utilization during the pandemic and lack of a significant rebound to offsite that decline, health plans across the U.S. are in jeopardy of ending this year below the minimum MLR for their respective lines of business. As a result, health plans have two choices: pay rebates to members or regulatory agencies or increase investments in healthcare quality.

For the latter option, quality improvement activities (QIA) can include services that:

  • improve health outcomes,
  • prevent hospital readmissions,
  • boost patient safety and
  • increase wellness and promotion of health activities.

Consumer data for quality improvement activities

QIA may also include healthcare technology solutions that enhance the use of healthcare data to improve quality, transparency and outcomes. Given the post-pandemic climate, investments into consumer data and analytics solutions that enable proactive member engagement and health equity are a perfect fit. Additionally, with the increased uptake in telehealth, consumer insights that can support program and channel alignment for members of the plan will be critical. Carrot Health’s consumer data and analytics makes these kinds of insights possible.

We share a common mission with our healthcare partners: enabling a future with no barriers to better health. By partnering with health plans and healthcare organizations, our goal is to create a more effective and equitable healthcare system in which all consumers have access to the needed support to live their healthiest lives.

With the largest consumer dataset in the healthcare industry, Carrot Health empowers health plans and organizations to optimize their member experience at an individual level by creating a 360° view of each consumer across the U.S. Using our data-driven approach, health plans can improve health outcomes and reduce costs by proactively assessing each member’s risk, identifying those most likely to engage and their preferred modes of engagement (e.g., phone, mail, digital communications) and determining appropriate interventions and quality improvement programs.

To gain a 360-degree view for each individual in your population and to understand underlying SDOH risks, get in touch with our team!

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