COVID-19’s impact on global healthcare spending
The global economic downturn this year is fuelled by a health crisis, yet global healthcare spending is forecasted to decrease. How much will global healthcare spending decrease by? Why is this predicted to be the case? Will there be regional differences? What impact will it have on healthcare sector employment? And what about the health insurance industry? In this Pacific Prime article, we take on these questions and more!
Global healthcare spending trends in 2020: A counterintuitive decline in spending
According to research by the Economist Intelligence Unit (EIU), the COVID-19 pandemic will negatively affect global healthcare spending. In the world’s 60 largest economies, global healthcare spending this year will fall by 1.1% in US dollar terms, although this can be partly attributed to the strengthening of the dollar.
A global healthcare spending trend that differs from other recessions
This trend is very different from previous recessions, where healthcare spending isn’t as affected. For example, the 2009 global financial crisis saw healthcare spending in the world’s 60 largest economies rise by 2.8% in US dollar terms. Albeit, this was lower than the growth prior to the crisis, but it was a contrast to the 1.8% decline in real Gross Domestic Product (GDP).
Given this, the prediction that global healthcare spending this year will fall by 1.1% in US dollar terms seems counterintuitive. After all, the economic fallout has been due to a health emergency. Nevertheless, while there has been more resources allocated to combating the virus, this decline in healthcare spending may have something to do with the following trends:
- Cancellation, postponement, and reduced number of non-urgent care for various other conditions
- Patients feeling reluctant to go to hospitals, due to fear of getting COVID-19 or burdening healthcare workers
- Lockdown-related measures, which make visiting dentists near-impossible
- And more.
On the optimistic side, global healthcare spending on non-COVID-19 care is predicted to recover into the next year, when healthcare spending will increase by 5.5% in US dollar terms. Moreover, when there is a vaccine or treatment available, this will add to the global healthcare expenditure.
Regional healthcare spending: Not all regions are equally affected
Although global healthcare spending is predicted to decline, there are regional variations in this trend. As per the EIU chart shows below, data from the world’s 60 largest economies show that Asia Pacific is the only region to see healthcare spending rise this year, while others have seen healthcare spending fall.
In light of this regional difference in spending, a Covered California policy brief highlights that consumers and employees in the US are not being able to access the testing or treatment they need for both COVID-19 and non-COVID-19 conditions, due to cost barriers. If there is an absence of federal action, public health and economic consequences to consumers, employers, and health insurers will be staggering.
Likewise, the World Health Organization (WHO) published a report for the Europe region stating that it is “possible to mitigate health and economic shocks through timely policy action” and that “shocks do not affect everyone equally”. It sets out three health financing actions countries can take to reduce the impact of the COVID-19 pandemic:
- Suspend all user chargers for non-COVID-19 health services, regardless of residence or insurance status.
- Reprioritize government budget to quickly deploy funds to healthcare, as well as ensure transparency and accountability.
- Give health service providers flexibility to respond by incentivizing them to surge capacity, ensuring stability in their revenue, and supporting innovation in service delivery.
Global healthcare spending and spillover effects in 2020: healthcare sector employment and health insurance industry
The large decline in global healthcare spending is bound to have repercussions on employment, but the extent of this depends on whether the country is dominated by a public or private healthcare sector. Likewise, health insurers have also been affected, seeing changes to do with costs and utilization, due to patients being reluctant to access non-COVID-19 care.
Healthcare sector employment: Public vs private healthcare
The EIU reports that in the US, where private healthcare dominates, the first quarter of this year saw a 4.8% contraction in GDP, driven partly by an 18% year-on-year fall in healthcare spending. By April, employment in the healthcare sector fell by a whopping 1.4 million, as per the information released by the US Bureau of Labor Statistics.
On the other hand, countries dominated by public healthcare haven’t seen as many job losses. In Germany, its government spending on health, environment, sport, and recreation amounted to US $1.2 billion in the first quarter of the year, up from US $600 million in the previous year, with nearly all of this coming via healthcare spending in March.
Impact on health insurers: Costs and utilization
Henner Group found that utilization of medical services during lockdown in France decreased – 67% less consumption across all medical services and 22% less in 2020 so far, compared to 2019. This is inline with most countries, where non-COVID-19 care has been delayed. As per the aforementioned information, this has contributed to the fall in global healthcare spending.
If people are not utilizing healthcare services at the moment, how will this reduction in medical services impact loss ratios and insurance performance? Based on Pacific Prime Singapore CEO Olivier Zeller’s analysis, health insurers will be impacted by this phenomena in the following ways:
- Delayed or cancelled treatments will have a positive effect on the performance of employee benefits medical insurance plans. However, in the long-term, when restrictions ease, a catch-up effect is to be expected, leading to an overall increase in claims spending.
- Insurers have also reported an increase in healthcare costs due to the added safety protocols and measures, Personal Protective Equipment (PPE) being used, increased utilization of private facilities, distancing between patients (through the use of private rooms), and more.
- Patients are also opting for telemedicine or virtual doctor services as there is a lower risk of virus transmission this way. Therefore, insurers are facing an increased demand for such services.
For an overview of the cost of health insurance in 2020 and 2021, check out our video below.
Contact Pacific Prime for health insurance information
These are unprecedented times, with interesting and fast-changing developments in healthcare and health insurance. As a global health insurance broker and employee benefits specialist, Pacific Prime helps our readers navigate these trends. In addition to our articles, we also publish reports, with our most recent one being the 2019-2020 State of Health Insurance report.
If you’d like to learn more about health insurance or would like to secure a policy yourself, you can also get in touch with us. Our team consists of knowledgeable, multilingual, and friendly advisors who take into account your unique situation and provide you with unbiased insurance consultation. No matter what your needs or budget, we find a solution that works for you.
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