A severe influenza pandemic could cost U.S. traditional health insurers about $68 billion.

Jim Toole has given that estimate in an analysis of the potential impact of pandemic influenza on the U.S. health insurance industry. Toole prepared the analysis for the Society of Actuaries, Schaumburg, Ill.

Toole considered a moderate pandemic that would cause 209,000 U.S. deaths and a severe pandemic — comparable to the 1918 pandemic — that would cause 1.9 million U.S. deaths.

Typical seasonal flu costs traditional health insurers an average of about $4.5 billion per year, and a moderate pandemic might cost insurers about $13 billion, Toole estimates. In a severe pandemic, about half of the $68 billion in total costs would be due to hospital bills for patients who recovered and about half due to bills for patients who died, Toole says. He believes net claims for a severe pandemic could amount to $38 billion.

Major medical insurers have about $80 billion in capital and surplus, and net claims from a severe pandemic would reduce their capital about 50%, Toole says.

Because medical insurers are well-capitalized, nonprofits could emerge from that scenario with 375% of minimum required risk-based capital level, and for-profit insurers could emerge with 250% of the required RBC, Toole says.

Self-insured employer health plans typically spend about $2.1 billion on flu during a normal year. Toole believes they would spend about $7.9 billion on flu during a moderate pandemic and $45 billion during a severe pandemic.

Toole says troubling shortages of hospital capacity could emerge during a pandemic.

“The 1999/2000 influenza season was normal except for the fact that it presented several weeks earlier than usual, during the winter holiday periods of peak vacation,” Toole says. “This resulted in crowded emergency rooms and ambulance diversions around the country, including 10 days in Los Angeles where three-fourths of the emergency departments in the city were so full that ambulances had to be rerouted…. The fact that an annually occurring outbreak of infectious disease with comparatively low mortality rates created such hardships for the U.S. health care system is troublesome from a preparedness perspective.”