Insurers and their 2021 crystal balls

Insurers are currently submitting initial rate requests to state regulators. Insurers selling ACA qualified individual market plans are starting to file their initial rates. Once initial rates are filed, insurers and state regulators will go back and forth over the summer arguing over assumptions, incorporating new data and coming to a final approved rate before Labor Day.

I’ve been getting several calls from reporters asking a very important and basic question:

What are insurers doing in their 2021 rates for COVID-19?

And at this time, my answer is effectively ¯\_(ツ)_/¯

I’ve started to read the actuarial memos of the insurers that have already filed (yes, I know how to have a good time) A few insurers are adding in small morbidity adjustments that boost rates by about a point. One insurer in Vermont is trying to model a vaccine and deferred utilization as a modest rate bump. Most insurers are not identifying COVID as a specific pricing pressure for 2021. Quite a few of the insurers have language in their memo that states that COVID is out there and they are monitoring the data as it comes in and will adjust as need be. A few insurers’ memos don’t mention COVID at all.

Insurers are working with almost no information for this current round of rate filings. The actuarial models that are powering the rates are based on 2019 experience. Most of the models will incorporate some 2020 experience, but these models stop taking in new data several weeks before the rate filings are submitted. This means that most of the claims models are not looking at anything that happened in April or May. And even if the models are looking at April or May, most of those claims have not actually arrived nor been processed to completion.

I think I was wrong in April:

Right now as actuaries are preparing their initial rate filings, good faith error bands are going to be huge. I expect rate filings in May to have huge variation in initial rate increases between insurers with similar 2019 and 2020 rate structures just because Company A will be more optimistic than Company B on some measures as we won’t have any clue what is happening with COVID19.

Right now, looking at the first few states that have had their insurers file, the variance is fairly tight because most insurers are not even trying to price COVID in their initial rate filings. This could change as more states report, but this is interesting to watch insurers deal with the inherent uncertainty of pricing a pandemic.