Economic Fallout for Payers

The COVID-19 pandemic has created significant economic exposure for health plans. The most obvious economic impact is the potential cost of paying for hundreds of thousands of patients to be hospitalized—and possibly paying for millions of patients to be tested. At the same time, commercial plans face significant loss of premiums resulting from the unemployment of over 30 million Americans. A third factor that will affect health plans’ economics is the cost of paying for procedures that patients delayed in 2020. These pressures—along with uncertainty on healthcare demand and regulations limiting insurers’ ability to reflect past claims in premium increases—will challenge profits through 2022.

Implications for Biopharmaceutical Companies

Health plans have few short-term levers to cut costs. Their most effective tools for reacting to the profitability impact of COVID-19 require benefit design changes, such as changing covered services, provider networks and drug formularies. These changes can’t occur during a benefit year and may take more than one year to pull through. In the short-term, plans’ tools for reducing cost are limited to administrative tactics whose implementation doesn’t require regulatory oversight or new employer contracts. These short-term tools include expansion of pharmacy oversight of drugs administered under the medical benefit, specialty pharmacy mandates to reduce payments to physicians and incentives to providers to refer patients to infusion sites not owned by hospitals. Plans’ targets for costs control will likely include specialty drugs, particularly for autoimmune drugs, which account for the largest proportion of payers’ drug spending increase. Biopharmaceutical companies should expect health plans to deploy these administrative tools for the remainder of 2020 and into 2021. In the longer term, 2022 and beyond, health plans are likely to respond to employers’ COVID-19 related economic costs with less expensive health benefits that reduce premiums by limiting coverage and patient choices. As biopharmaceutical companies look beyond 2021, they should revisit market access landscape assumptions for new and in-line brands, particularly related to payer and distribution mixes, patient financial assistance requirements and site of care.