Summary
Actuarial rate projections for health plans generally do not consider the risk of an epidemic or pandemic. A pandemic could easily increase health insurer MLR's or loss ratios by 10%. The impact on health reinsurance loss ratios would generally be leveraged, i.e. significantly greater.
Analysis
The flu threat is a reminder of an "open secret" in the health insurance business: that actuarial rate projections for health plans generally do not consider the risk of an epidemic or pandemic. The associated financial risk is significant. For example, a pandemic resulting in a 3% to 5% hospitalization rate for the commercial population could easily increase MLR's or loss ratios by 10%. The financial impact might be mitigated somewhat by increased rates.
The impact on reinsurance loss ratios would generally be leveraged.
Perversely, and sadly, a pandemic resulting in significant mortality in the aged population would reduce long term liabilities in benefit programs which have been adversely affected by increasing longevity. Examples include social security, medicare, and the nursing home component of state medicaid costs.
