Sticker shock awaits thousands of people with health coverage through PreferredOne, the top seller on the MNsure exchange during its first year.

The Golden Valley-based insurer said Wednesday that its individual market subscribers will see an average premium increase next year of 63 percent due to high claims costs.

“Given the volatility of the individual marketplace due to the first year of the [federal health law], this increase is a significant step at stabilizing our rates and plans for the years to come,” the company said in a statement.

The announcement represents a startling turnaround for an insurer that offered some of the lowest premiums anywhere in the country in 2014.

It also promises to rekindle debate about whether the state Commerce Department misled consumers earlier this month by broadcasting that rates on MNsure would increase an average of 4.5 percent. PreferredOne wasn’t part of the calculation, Commerce officials said at the time, because it won’t be selling policies next year on MNsure.

Historically, PreferredOne has been a small player in the state’s market for individuals who purchase health insurance for themselves, rather than getting coverage from an employer or the government.

In 2013, the company had a 2.8 percent share of the state’s individual market, placing it behind Blue Cross and Blue Shield of Minnesota, Medica, HealthPartners and Assurant. But the launch of the state’s MNsure health exchange in 2013 gave PreferredOne a chance to stand out, with low rates that consumers could see more easily with changes under the federal Affordable Care Act.

On MNsure, the company leapfrogged its rivals.

As of Oct. 8, nearly 60 percent of the more than 55,000 people who have purchased commercial coverage through MNsure had selected PreferredOne.

Exiting MNSure

In September, however, PreferredOne said it would not sell policies on MNsure for 2015 because the exchange business was not sustainable. Through the first half of this year, PreferredOne Insurance Co. paid out $1.31 in claims for every dollar coming in for its individual market business, which includes both MNsure as well as the traditional market off the exchange.

While PreferredOne made a name for itself on MNsure, it actually sold more policies to individuals in the off-exchange market.

At the end of October, PreferredOne plans to send letters telling individuals exactly what to expect, since the 63 percent average represents a blend of higher and lower rates for individuals that vary by age, geography and smoking status. Customers who want to stay with the company next year will need to buy coverage outside the exchange, where federal tax credits aren’t available to discount premium costs.

The insurer started informing brokers Tuesday about rates for individuals if they renew coverage with the company for next year, said Heidi Michaels, an agent with the Dyste Williams agency in Minneapolis. In the half-dozen consumer scenarios she’s looked at, Michaels said, she’s consistently seeing premium jumps in the neighborhood of 40 to 60 percent.

“They’re going to get substantial rate increases,” she said.”

In one case she studied, Michaels described a husband and wife in northwest Minnesota who currently pay $612 per month for a PreferredOne policy, and would see their premium increase by about 58 percent, to $966 per month.

In another example, a 39-year-old single mother in the Twin Cities with a teenage son who currently pays a monthly premium of $312 would see the PreferredOne rate increase by about 65 percent, to $516 per month, Michaels said.

Critics said the Commerce Department’s 4.5 percent figure wasn’t useful to most consumers, since the lack of PreferredOne in the calculation meant it didn’t apply to more than half of those in the MNsure market.

Credits could ease some pain

Critics also contend the 4.5 percent figure was misleading because the average was not weighted to reflect membership differences. So UCare’s average 9.1 percent decrease in premiums for fewer than 600 enrollees got equal weight in the Commerce calculation as the 17.2 percent average increase for 9,900 MNsure enrollees covered by Blue Cross.

A weighted average would have shown an 11.8 percent premium increase, insurance agents said.

But Anne O’Connor, a Commerce Department spokeswoman, defended the figure.

“Calculating a weighted average is not an accurate depiction for consumers in this situation due to the absence of PreferredOne,” O’Connor said Wednesday in a prepared response to questions. She added: “MNsure is a functioning marketplace where consumers will continue to shop to get the best deal for their health insurance.”

Premiums on the state’s health exchange remain among the lowest in the country, O’Connor pointed out. Consumers worried about premium spikes should check if they qualify for tax credits through MNsure that can discount premium costs, she said.

During a board meeting Wednesday in St. Paul, MNsure chief executive Scott Leitz offered similar advice for the exchange’s upcoming open enrollment period, which starts Nov. 15.

“Spend 20 minutes to make sure you’re getting the best deal,” Leitz said, noting that more consumers this year likely will qualify for tax credits because benchmark premiums are more expensive. “MNsure is the only place you can get the financial help for purchasing coverage.”


Twitter: @chrissnowbeck