Healthcare industry experts say the COVID-19 pandemic could soon drive nearly 27 million Americans off of employer-sponsored insurance coverage, leaving hospitals and drugmakers to make up the difference.

Of the millions expected to have become unemployed and uninsured as of May 2, about 12.7 million are eligible for Medicaid and 8.4 million are eligible for subsidies on the insurance marketplace, according to a May 13 report from nonpartisan policy organization the Kaiser Family Foundation.

Medicaid is the dual state- and federal-run health insurance program for people with low incomes, a wide population that includes the elderly and children. The U.S. Centers for Medicare and Medicaid Services estimated that Medicaid spending totaled $621 billion in 2019.

The government program does not cover the full cost of services, according to executives from top U.S. hospital companies HCA Healthcare Inc. and Universal Health Services Inc., but bills from Medicaid patients are at least partially paid.

Patients who have no form of coverage at all are a greater challenge for hospitals because hospital bills can end up going unpaid, Universal Health CFO Steve Filton said during an April 28 earnings call.

Prices from private insurance are typically used to make up for losses from patients covered by Medicaid or who are uninsured, according to the American Hospital Association, an industry trade group. Some hospitals also receive supplemental payments from government health insurance programs to cover uncompensated care, but the payments do not always cover the full amount.

A shift in healthcare coverage could also influence how patients shop for services and what patients' overall demand will be going forward, HCA CEO Samuel Hazen said during an April 21 earnings call.

"We don't have a sense of that yet, but those are variables that we're trying to understand," Hazen said.

'A net negative'

The pharmaceutical industry is also impacted by rising unemployment and the change in insurance status of millions of Americans. Companies like diabetes drugmaker Eli Lilly and Co. could see declines in revenue as rebates — concessions given by the manufacturer to the plan provider under Medicaid — allow for negligible profit on products such as insulin.

"In general, a move from a well-insured commercial patient to Medicaid is a net negative," Lilly CFO Joshua Smiley said on an April 23 earnings call. "We're looking at everything we can do to ensure that people can stay on our medications and have access to them and believe that some of these impacts will be temporary."

Before the pandemic, Lilly's patient insurance breakdown was about 10% Medicaid, 40% commercial insurance, 20% Medicare Part B and the rest a mix of hospital-based, uninsured and other volumes, Smiley said. Lilly's financial guidance for the year includes pricing impacts and potentially short-term moves to uninsurance or Medicaid, he added.

Danish insulin manufacturer Novo Nordisk A/S also foresees a negative impact from U.S. unemployment on profitability and potentially sales volume, CFO Karsten Munk Knudsen said on a May 6 earnings call.

AbbVie Inc., maker of Humira, the best-selling drug in the world in 2019, is using past economic recessions to inform the outcomes of this one in terms of payer mix, CEO Richard Gonzalez said on a May 1 earnings call. AbbVie has factored a potential shift in Humira sales into guidance for the year, but the unemployment levels now are much higher than what occurred during the last recession.

"During the 2008, 2009 recession, which is probably the best thing that we had to be able to compare it to, Medicaid went up about two points from 2007 to 2009 — two percentage points," Gonzalez said.

The way forward

How hospital giant HCA's revenue will be impacted by a jump in the number of patients covered by Medicaid or uninsured is unclear, said CFO William Rutherford during a May 12 presentation at the BofA Securities 2020 Health Care Conference.

Determining how many people will need Medicaid coverage or become uninsured based on the rising unemployment numbers is difficult because some companies are furloughing employees, allowing them to keep their employer-sponsored coverage, Ronald Rittenmeyer, chairman and CEO for the hospital company Tenet Healthcare Corp., said during a May 5 earnings call.

The number of patients covered by Medicare, Medicaid or commercial insurance will also fluctuate as states re-open and companies restart operations, according to Rittenmeyer.

HCA and Universal Health's CEOs both believe that marketplace subsidies and Medicaid expansion could help insulate them should the number of uninsured patients rise. These policies were not in place during the 2008 recession.

Medicaid expansion allows states to increase the program's eligibility to 138% of the federal poverty level. Thirty-six states and the District of Columbia have expanded Medicaid, according to the Kaiser Family Foundation.

"I think we're in a better position to withstand some of these recessionary pressures today than we were even a decade ago when we went through it with the Great Recession," Universal Health's Filton said during a presentation at the May 12 Bank of America conference.

As many executives in the healthcare industry have said while reporting earnings, the unprecedented nature of the pandemic and the world's response make the future hard to predict.

"There are lots of complexities here and I think lots of things still to be learned about the economy and what 2021 will look like," Lilly's Smiley said.