The individual market for health insurance has never worked particularly well but is currently set to collapse unless the Minnesota Legislature acts. There is no crystal ball as to what the Republican Congress or the president will do to replace the Affordable Care Act (ACA) and how quickly. Given the precarious situation for Minnesota, I am recommending a two-year bridge strategy to tide the state over. This will allow the time needed to develop a more comprehensive reform strategy with the needed information.
The individual market is a relatively small but critical market providing coverage to about 5 percent of Minnesotans. Before the ACA, insurers were able to charge individuals based on age, gender and health condition, causing many to be denied health coverage. Minnesota’s high risk pool — the Minnesota Comprehensive Health Association (MCHA) — provided coverage to these individuals with preexisting conditions, and premiums were limited to 125 percent of the average premium offered. The costs of this program were spread across the fully insured market and insurers were willing to pay as the market became more stable and predictable. The high-risk pool was one of Minnesota’s targeted policy solutions to meet an important demand for health insurance for those most in need.
The ACA, fully implemented in 2014, provided new pathways for health insurance coverage through an expanded Medicaid program, premium subsidies for coverage purchased on MNsure and through the extension of MinnesotaCare, Minnesota’s health insurance program for the working poor. But while many Minnesotans have gained health insurance coverage, those in the individual market with incomes too high to qualify for MNsure subsidies experienced rate increases of more than 50 percent. The increases were due in part to the transition of MCHA into the individual market, an increase of older enrollees as large Minnesota employers directed their early retirees to MNsure or coverage, and a lack of young enrollees due in part to the provision that people up to age 26 were eligible to stay on their parent’s plan.
In the last few months, Minnesota policymakers have adopted several quick fixes. First, enrollment caps were established to protect any one health plan from getting too many high-risk enrollees. Second, a state-funded rebate was passed by the Legislature and signed by the governor last week to help an estimated 123,000 individuals who purchase coverage on MNsure but are not eligible for federal subsidies. Yet fundamental reform of the individual market is still needed.
As we wait for Congress to act, I recommend that Minnesota adopt a two-year bridge strategy to stabilize the individual market in the short term and provide the additional time needed to develop a Minnesota-specific reform strategy. Key components of this strategy could include the following:
1) Extend the recently negotiated rebates: While implementation of a reinsurance program or a “virtual high-risk pool” might be an option for premium stabilization down the road, a Minnesota-financed reinsurance would simply supplant federal dollars with state dollars, putting a significant financial burden on the state budget. We should leverage the existing federal funding and not jump the gun to develop a solution that may prevent us from negotiating a better deal under a 1332 waiver. While the rebates are not a long-term solution, they do target those currently experiencing the impact of high premium increases while leveraging federal support for MNsure and MinnesotaCare subsidies.
2) Open up MinnesotaCare to be an option statewide: The Legislature could authorize MinnesotaCare as either a statewide option or triggered to be offered in geographic areas where only one or no health plans are offered. Individuals not eligible for subsidies would pay the full premium. MinnesotaCare would provide a needed low-cost option in areas with limited coverage by private health plans and build on the success of a long-standing Minnesota public coverage program. To appease local providers, the state could develop a value-based insurance design to better target services and cost-sharing building on the successful Integrated Health Partnerships with local providers. The state could also consider benchmarking payment rates to the Medicare fee schedule, higher than the existing Medicaid rates.
3) Extend the 2 percent provider tax: Minnesota has funded its successful MinnesotaCare program with a 2 percent assessment on nonpublic revenue earned by Minnesota-based providers. The current assessment is set to expire at the end of 2018, creating a potential gap in funding for key coverage programs. Extending the assessment for two years would generate the revenue needed to fund the rebate program and the state portion of the funding for MinnesotaCare. The tax rate could be indexed to program costs and the assessment could be suspended or reduced if revenue exceeded the costs of these programs.
4) Increase the age bands for premium rating: The federal ACA has set the rating parameters in the individual market so that it is difficult to set premiums to adequately reflect the risk of the pool. Currently, the law limits age rating at a 3:1 ratio. That is, an older person can only be charged three times as much as a younger person for the same product. Increasing this ratio to 4:1 would need approval by CMS but could be part of a short-term strategy.
Minnesota needs its own strategy to deal with the crisis in the individual market and we need it now. This is not about a government or private-sector solution. It’s about a public-private partnership and a bipartisan solution that puts Minnesota first and provides a needed bridge to what lies ahead for health reform at the national level.
Lynn A. Blewett is a professor in the Division of Health Policy and Management at the University of Minnesota’s School of Public Health.