Introduction to the Pandemic’s Impact on Health Insurers
By Christopher Snowbeck, The Minnesota Star Tribune
Claire Lindell had to wait months for treatment when doctors in April 2020 were forced to suddenly cancel the little girl’s spine surgery.
The delay was particularly stressful because the operation addressed several issues, including the 4-year-old’s high risk of respiratory infection — such as from the emerging COVID-19 virus.
“That was a tough period,” recalled her father, A.J. Lindell of Prior Lake, Minnesota.
Five years later, Claire’s health care journey has gone well. And the Lindells, who always kept paying health insurance premiums even when care was unavailable, help illustrate an intriguing financial backstory with the pandemic.
Claire Lindell, 9, is pictured with her family, from the left, dad A.J. Lindell, brother Owen Lindell and mom Michelle Lindell at home in Prior Lake, Minnesota, on Monday, March 17, 2025. (Renée Jones Schneider/The Minnesota Star Tribune/TNS)
The Pandemic’s Financial Impact on Health Insurers
Hospitals and clinics across the country were frantically preparing five years ago this spring to conserve resources for an expected surge of COVID-19 patients that some feared could overwhelm the health care system.
Yet the first year of the pandemic was historic not only for COVID-19, but for a surprising side effect — the health system known for inexorable growth actually provided less care in most categories. Elective procedures were put on hold due to emergency orders, and even after they lifted, many patients still opted to stay away.
Health insurers were huge financial beneficiaries of this surprise.
Their profits increased 52% as they continued collecting insurance premiums while fewer patients went to the doctor. Whereas health plans across the country collectively reported an average of $27 billion in operating profit per year between 2017 and 2019, operating earnings across the industry in 2020 surged to $41.4 billion, according to a Minnesota Star Tribune analysis of data provided by Mark Farrah Associates, a Pennsylvania-based analytics firm that tracks data across all U.S. states and territories.
Financial Performance of Insurers During the Pandemic
In 2020, customers paid about $1 trillion to health insurers, so the earnings worked out to operating profit of just over 4 cents per dollar of revenue, the analysis shows. That’s even after federal law forced them to return some excess profit via record rebates.
Minnesota-based UnitedHealth Group, parent company of health insurance giant UnitedHealthcare, saw its second quarter profit double that year. In Minnesota, three of the state’s four largest nonprofit health insurers — Blue Cross and Blue Shield of Minnesota, HealthPartners and UCare — saw a noticeable improvement in 2020 financial results.
All four of those insurers plus others across the industry announced at the time financial relief packages for customers and cash-strapped health care providers that effectively reduced their rebate requirements under the 2010 Affordable Care Act. UnitedHealth Group alone provided $4 billion in premium credits, cost-sharing waivers, payments to providers and other assistance.
Post-Pandemic Rate Increases
Fast forward past the end of the pandemic, and the health care finance story has changed dramatically — premiums are rising much faster now, amid a health care cost surge that includes costly new GLP-1 medications for diabetes and weight loss.
Those $41.4 billion profits from the first year of COVID are so far in the rearview mirror they can’t provide much cushion against today’s trends, said Cynthia Cox, a researcher who follows the individual health insurance market for California-based KFF.
“The benefits were already kind of paid out, I guess you could say,” Cox said.
“During the pandemic, basically what insurers were doing was offering cost-sharing waivers and premium waivers. And then following the pandemic, they raised premiums by less than they otherwise would have, for those first couple of years,” she said. “But now health care costs are going up again and rising faster than usual, in part because of inflation.”
Factors Influencing Rate Increases
For group health plans, premiums across the country increased an average of 7.8% this year before employers made benefit design changes to moderate the jumps, said Brooks Deibele, an executive vice president in the Twin Cities office of Holmes Murphy, a benefits consultant.
The increase was the biggest in more than a decade, Deibele said, and was driven by higher health care prices plus expanded use of costly prescription drugs. Initially with the pandemic, higher profits might have allowed some health insurers to absorb a portion of rate increases for customers the following year or two, he said. But that time is done.
“Any financial tailwinds that the carriers had from the pandemic — we’re well beyond that, at this point,” said Deibele, who is employee benefits practice leader at the Iowa-based company.
Medical Loss Ratio and Its Impact
In 2020, the U.S. health care system saw a big decline in utilization of preventive services like colonoscopy and mammography as well as cuts to certain elective surgeries, said Christine Eibner, director of the health care payment, cost and coverage program at California-based RAND Corp. There was a large increase at the time of doctors providing care via telehealth, Eibner said, but it wasn’t enough to offset the decline in office visits.
“Some clinics and health care providers closed services or limited access to certain procedures, and patients sought to avoid health care settings because they wanted to reduce their exposure to a highly virulent virus,” said Stefan Gildemeister, health care economist with the Minnesota Department of Health.
The end result shows up in the medical loss ratio (MLR), a key metric for health insurers that shows the percentage of premium revenue they spend on patients’ medical expenses.
Across the country, this ratio fell from 87.2% in the pre-pandemic period to 85% in 2020, according to Mark Farrah Associates.
Conclusion
Health insurers made significant profits during the pandemic due to reduced healthcare utilization, but those profits are not enough to cushion the current rate increases. The main drivers of these increases are higher healthcare costs, including costly new medications, and inflation. Insurers are subject to minimum loss ratio requirements, which means they cannot hoard excess profits and must pass some of it back to consumers in the form of rebates. As the healthcare landscape continues to evolve, it is essential to monitor the financial performance of health insurers and their impact on consumers.
FAQs
Q: Why did health insurers make significant profits during the pandemic?
A: Health insurers made significant profits during the pandemic due to reduced healthcare utilization, as elective procedures were put on hold and patients opted to stay away from healthcare settings.
Q: What are the main drivers of the current rate increases?
A: The main drivers of the current rate increases are higher healthcare costs, including costly new medications, and inflation.
Q: What is the medical loss ratio, and how does it impact health insurers?
A: The medical loss ratio is a key metric for health insurers that shows the percentage of premium revenue they spend on patients’ medical expenses. Health insurers are subject to minimum loss ratio requirements, which means they cannot hoard excess profits and must pass some of it back to consumers in the form of rebates.
