Grand Rounds Blog

This blog post was written by Chris Lau, MA, PhD, Jason Freeman, MPP, ASA and Ami Parekh MD, JD. 

COVID-19 is likely to have long-lasting effects on employers and their employees. In addition to its impact on health and wellness, the outbreak and economic slowdown will undoubtedly place financial strain on many companies in the coming months.  

In light of these new realities, many of our peers, partners and customers are looking to better understand (1) how the pandemic will impact healthcare spend for their employees, and (2) how best to invest in the health and safety of their employees in the future.

To help answer these questions, we wanted to share our perspectives on how healthcare demand might evolve in the coming months and the key factors in play.

Expect an Increase in ER Utilization and Acute Hospitalizations

The current consensus is that COVID-19 will cause a spike in emergency room and inpatient hospital utilization. For hospitals, this spike will stretch capacity. For employers and plans, the increase in demand may mean higher healthcare spending. However, those increases will not be borne equally.

Among private insurers with a mix of fully insured commercial and Medicare Advantage plans, S&P Global forecasts the increased utilization is expected to drive a 3-4% cost increase in a moderate scenario and 10-12% in a severe one. [A] For a self-funded employer without retirees, Grand Rounds is expecting a lower impact, with a forecast of 5-7% increases in the severe scenario. The difference in our forecast is largely driven by differences in the following factors:

  • A younger age distribution (See graph below) and consequently fewer cases requiring the most advanced levels of treatment
  • After adjusting for the age distribution for a commercial population and assuming a 20% hospitalization rate, we’re expecting a 2-3 fold increase in hospitalizations relative to a normal year. [B] This is a dramatic increase, but it is lower than the rate increase expected for a population with Medicare Advantage members.
  • We also assumed a lower $14,000 average hospital stay cost, based on Kaiser Family Foundation data for pneumonia cases. S&P assumed $20,000, which could be reasonable if most hospitalizations involve complications. [C]


Grand Rounds population distribution and COVID-19 fatality rate

Age distribution for roughly 5 million Grand Rounds members at self-insured companies. We used fatality rate from existing studies as a proxy for case severity.


Another major factor that will impact total cost projections is exposure.  In our estimates, we followed S&P Global’s model assuming 30% of the population would be infected. However, each employer group is likely to face different exposure rates. Healthcare workers are most at risk, but so are retail and others who must continue to work in public or group settings. Different communities are also reacting with varied mitigation measures and expectations for social distancing.  Based on our estimates, every 1% increase/decrease in exposure changes the projected total increase/decrease by 0.2 percentage points.

Some Healthcare Will Be Avoided and/or Deferred

Some of the short-term increase in inpatient and ED use due to COVID-19 will be offset by healthcare spending reductions in other areas. For example, during the SARS pandemic, Taiwan saw an overall drop in demand for healthcare services across many condition categories [D]. We generally bucket the drivers of spend decrease into two camps: avoided care and deferred care. 

Avoided care is care that was not realized and will not be realized in the future. For example, we might expect to see fewer traffic accidents or sports injuries during a shelter-in-place order.  Perhaps less obvious, fewer individuals might use the emergency department for non-urgent care because of fear of contracting COVID-19. For some of Grand Rounds’ partners, we know that ~20% of emergency room visits are potentially non-emergent and that ~16% are due to injuries. While hard to forecast how much of this care might be avoided, these offsets will provide some upside for insurers and employers. 

Deferred care, on the other hand, is care that will not be realized in the short-term, but may be realized after the COVID-19 crisis improves. For example, an individual may choose to have an elective joint replacement surgery later in the year because many specialty physician offices are currently closed. Similarly, routine check-ups and preventive procedures may be postponed due to fear of exposure to the virus.

It is important to note that some deferred care could result in higher long-term costs and poorer health outcomes. For instance, COVID-19 may make it more difficult for patients to renew prescriptions in areas where offices are closed. While this will reduce prescription drug spending in the short term, medication adherence has been shown to improve outcomes and drive down overall spend [E]. Therefore, disruption in drug prescribing and fulfillment will likely have negative consequences for some individuals and overall long-term health spending.

What to Consider in Planning a COVID-19 Response

The gravity of COVID-19 demands immediate action from business now. Some of those actions are covered in an earlier post by our medical director and CDC-trained medical epidemiologist, Tista Ghosh. In general, any tactics that reduce exposure will have positive health and wellness benefits and reduce potential spending impacts.

Beyond reducing exposure, employers should consider tactics that help ensure continuity in care for their most vulnerable employees. We know from past crises that disruption in care for chronic conditions can have long-term ramifications. By providing telehealth services and finding ways to connect employees with chronic conditions with the care they need can help mitigate some of the effects.

In the longer term, the pandemic will likely have effects on employee needs. For example, the economic slowdown is expected to create an increased sense of financial insecurity. Given healthcare costs already drive many personal bankruptcies in the U.S., access to healthcare financial guidance, advocacy and support could prove very valuable for employees as they try to make hard choices going forward. Planning for the increased demand of these services may help employers better improve the overall health of their employees.


Connect with us to learn what Grand Rounds can do for your team during this time – click here.


[A] Banerjee, Deep, et al Morbidity Stress Test: How A Hypothetical Pandemic Could Affect U.S. Health Insurers March 12, 2020

[B] Waldman, Annie, et al. Are Hospitals Near Me Ready for Coronavirus? Here Are Nine Different Scenarios. March 17, 2020

[C] Rae, Matthew, et al. Potential costs of coronavirus treatment for people with employer coverage March 13, 2020

[D] Chang, Hong-Jen, et al. “The impact of the SARS epidemic on the utilization of medical services: SARS and the fear of SARS.American journal of public health 94.4 (2004): 562-564.

[E] Roebuck, MC, et al.  Medication Adherence Leads To Lower Health Care Use And Costs Despite Increased Drug Spending Health Affairs 30:1 (2011): 91-99.


Other things you might be interested in.
Expert Q&A: How to Support Your Transgender Employees’ Healthcare Needs
The Role of the Employer in the Fight Against Opioid Abuse
Integrating Behavioral and Physical Health Will Improve Outcomes and Reduce Costs