Health Care in 2020: The Only Thing That’s Certain is Uncertainty

Back in early March – which seems like eons ago – Blue Cross and Blue Shield of North Carolina (Blue Cross NC) announced our financial results for 2019. At the time, I also looked ahead to some of the uncertainties we were facing in 2020: health trends, the strength of the state and national economies, the political cycle.

Admittedly, these are some of the factors we generally face each year as we build a forecast of what our customers can expect in terms of premiums.

Since March, though, we have seen significant shifts in our operating environment – in health insurance claims, in public policy, in the financial markets, in just about everything.

As a not-for-profit, we have the opportunity and the responsibility to look beyond quarterly profits and to operate with a long-term view. This focus has been particularly meaningful during the challenging times we are facing. We try to anticipate the unexpected, accounting for fluctuations and adapting as necessary over time. For years, we’ve had a crisis plan in place which has allowed us to quickly respond and adapt to the developing health needs of our customers and communities.

As a health insurer, paying medical claims is only a part of what we do. Our larger goal is to promote the health of our state, making this a better place to live for all of us. That means anticipating the changing needs of our customers. Predicting the future – in this case, the next year – calls for forecasting health trends, legislation and regulation, economic fluctuations, and technology investments needed to continue serving our customers.

As our chief financial officer, my primary priorities are driving affordability for our customers and maintaining financial stability for our company so we can make investments and take actions that drive affordability. We have stayed true to these objectives, despite the volatility we’ve experienced this year. To a large extent, this year has been an affirming example of the importance of these objectives. Blue Cross NC’s progress on affordability and stability is reflected in the premiums we set for our customers.

2021 premiums

This week, we announced we are lowering our individual Affordable Care Act (ACA) customers’ 2021 rates by an average of about one percent. This is the third year in a row that Blue Cross NC has lowered rates for individual ACA customers, resulting in rates that are over 10 percent lower for these customers than they were in 2018.

I am proud of our efforts to lower rates for our customers. Our commitment to health care transformation – including driving affordability – continues during the pandemic and beyond. Indeed, COVID-19 makes this work more urgent than ever.

Financial Performance

Like most businesses, volatility in the economy and the financial markets has impacted us this year. Our company is managing this turmoil and remains financially strong to support our customers, even amid the uncertainty brought by COVID-19.

I want to highlight a few primary drivers impacting our company’s financial performance in 2020:

• The most significant driver is medical costs. Blue Cross NC expanded our reimbursement policies for COVID-19 testing and treatment, telehealth and prescription refills. More than halfway through the year, COVID-19 costs are becoming more measurable and we’re seeing them accelerate.From March to May, we saw a simultaneous decline in non-COVID-19 medical costs as our members cut back on elective health care. Since then, non-COVID-19 medical costs have rebounded, with June and July claims returning to pre-COVID levels. This quick rebound highlights the fact that there is significant uncertainty about the course of the pandemic and how it will impact medical costs in the remainder of this year and into 2021.

• Another factor is the state and national economies. Higher unemployment means the loss of employer-sponsored health insurance for many families. This only magnifies the need for affordable health care and insurance for both individuals and businesses. The impact of the recession on our membership has not been as great in 2020 as we might have previously expected, but we have seen the impacts and we anticipate more changes in membership as some customers shift from employer-sponsored coverage to individual and Medicaid plans.

• The final driver is the way we’ve adapted our operating approach during the pandemic. We are managing our operating expenses well below our initial expectations this year, limiting discretionary and project spending where appropriate. This is allowing us to meet emerging needs from the pandemic while remaining well positioned in the event of an extended recession.

To help meet these emerging needs, Blue Cross NC has spent and committed over $600 million to support our stakeholders, including our members, health care providers, local communities and our employees. We continue to be nimble, responding to the impact of COVID-19 on our state. As the business environment changes, we adapt.

Our Blue Premier payment model is a groundbreaking response to the changing health needs of our state. The goal is to reward health care providers for health outcomes instead of the number of tests and procedures they order. It is important that we pay for value, not volume.

Affordable health care means affordable health insurance, and a robust primary care system is vital to affordability. Blue Cross NC’s Accelerate to Value program provides financial support to independent primary care practices to weather the financial pressures created by the COVID-19 crisis.

What’s Next?

Our company’s long-term operating outlook means we must remain financially strong not only for our current customers but also for future customers. And so we return to the question of forecasting.

One year ago, few people would have predicted what’s happened in 2020. We run pandemic scenarios for our capital adequacy modeling and even so, I wouldn’t have predicted it. But while we may not have a clear view of the future, there are a few questions we’re considering:

• Is the recent jump in claims for non-COVID-19 health care an anomaly or a longer-term trend?
• How long and deep will the economic recession be?
• What will be the effects of major shifts across our business segments on our company’s financial performance this year?
• How will uncertainty in public policy and regulation affect our company’s ability to address affordability?
• How sticky will recent changes in care delivery like the wider adoption of telehealth be and will they help us drive sustained reductions in costs?

As our company’s chief financial officer, one of the challenges I face is helping us manage through the unknowns and constant risk in this business environment. But Blue Cross NC is not just in the insurance business, we’re in the assurance business. I’m proud of how we’ve provided stability for our customers for nearly a century and I’m confident in our ability to continue with that important work on behalf of everyone in North Carolina – no matter what challenges come our way.

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