In Minnesota’s individual market, health insurers can lose big money if they wind up with a disproportionate share of sick patients who rack up massive bills.
Of the roughly 336,000 Minnesotans who were covered by individual plans at some point during 2015, slightly less than 2 percent — or 5,300 people — generated roughly 40 percent of all medical bills, according to the state’s trade group for insurers.
Each of those 5,300 people generated an average of about $121,000 in claims that year, the trade group says, and collectively their medical costs came in around $640 million.
The numbers show why health plans are asking state lawmakers for a “reinsurance” program that would provide financial protection should they happen to sign up some of those with big health care needs.
Health insurers always have a legislative wish list, but there’s added urgency this year since the state’s individual market nearly collapsed for 2017. Last week, the outlook grew even more gloomy when insurers reported the individual market is now about 30 percent smaller than it was last year.
“It is a way to stabilize what products and what choices are out there, because it helps us to share high medical bills,” Jim Schowalter, chief executive of the Minnesota Council of Health Plans, said of the reinsurance idea. “We’re going to need something to make sure that those expenses aren’t focused on just 5 percent or fewer of Minnesotans buying insurance on their own.”
The worries come in the state’s individual market for health insurance, which is a small source of coverage considering how most Minnesotans pay for health care. The state typically has seen about 5 percent of its residents purchase individual policies; most residents are covered through employer groups and government programs like Medicare.
The individual health plans cover people who are self-employed and those who otherwise lack access to benefits. It’s the market undergoing a transformation with the federal Affordable Care Act, which sought to lower the nation’s uninsured rate in part by directing people to the individual market.
A growing number of Minnesotans are tapping tax credits through the health law that discount premium costs on the policies. But eligibility for subsidies depends on income, and there’s growing evidence that those who don’t qualify for tax credits or have other affordability problems are fleeing the market.
On Thursday, the Minnesota Council of Health Plans released numbers that show 80,000 fewer residents covered in the individual market now than a year ago, a decline of 30 percent. The current tally of 190,000 will likely drop further, insurers say.
A shrinking market is a bigger problem for insurers than a drop in revenue. People with costly health problems tend to maintain even expensive coverage, knowing it’s a better deal than paying the full cost of health care. So, a shrinking market at a time of skyrocketing premiums leads insurers to conclude that healthy people are leaving the mix.
“We need legislative changes in this current session that address affordability and long-term stability and find a better way to pay for high-risk individuals than spreading the cost across a shrinking individual market,” Craig Ashby, senior director for the individual market business with Minnetonka-based Medica, said in a statement.
Medica sells individual market policies in other states including Iowa, Kansas, Nebraska and Wisconsin, where Ashby said enrollment is either flat or growing.
In other states, insurers like Minnetonka-based UnitedHealthcare have withdrawn from markets. Donna Zimmerman, a senior vice president with Bloomington-based HealthPartners, says that’s not a step the insurer wants to take.
“We want to be in the market in 2018,” Zimmerman said. “We believe the individual market can be improved.”
Republicans and DFLers agree changes are needed during the current legislative session to make sure Minnesotans who rely on the individual market have coverage options next year.
While DFL Gov. Mark Dayton’s commerce commissioner has talked about the need for a reinsurance program to stabilize the individual market, Dayton and some in his party also have talked about creating a “public option” health plan for the market. One plan pitched this month would let Minnesotans buy into MinnesotaCare, a government program that currently provides coverage to a group sometimes described as the “working poor.”
Republicans who control the state House and Senate, meanwhile, have introduced reinsurance legislation, and state officials estimate that one such plan to spend about $150 million would “buy down” premiums by 10 to 12 percent. Republicans say they are still hashing out the size and structure of their proposal, which could be introduced as legislation in the coming weeks.
“We’re using $150 million as a test because we have to choose a number,” said Sen. Michelle Benson, R-Ham Lake. “It isn’t because it’s the right number.”
If lawmakers create a reinsurance program, they must figure out how to pay for it. The state’s old high-risk pool program for people with costly health problems was funded by an assessment on health insurers, but critics said it effectively was paid by just a subset of employers who found the financial burden unfair.
Another wrinkle is that state-level reinsurance could lower premiums that, in many cases, are subsidized by the federal government through those buying on the state’s MNsure exchange. The state would need a federal waiver, Benson said, to make sure premium discounts bought by reinsurance dollars would be directed to Minnesota consumers, rather than passed to the federal government.
Sen. Tony Lourey, DFL-Kerrick, thinks reinsurance could be helpful, but doubts it would guarantee access to insurance in rural parts of the state where health plans have most dramatically scaled back options. That’s why he thinks reinsurance and a public option should not be seen as mutually exclusive.
More broadly, Lourey wonders how state lawmakers will prioritize dollars for stabilizing the individual market vs. shoring up Medicaid and MinnesotaCare programs that could face big funding cuts if the federal health law is repealed.
Insurers want action soon. Typically, health plans want to know the rules of the road by spring in order to make regulatory filings for products sold the following year.
“We’re committed to being in the market, but we can’t … if the market doesn’t have a foundation for us to operate in,” said Ghita Worcester, senior vice president of Minneapolis-based UCare. “There’s some end point where this has to have a large enough pool of individuals purchasing … to have a reasonable price for the program.”
At the same time, insurers recognize that even if state lawmakers act to stabilize the market, it all could come crashing down if the Republicans’ drive to repeal the federal Affordable Care Act doesn’t go right. In particular, insurers worry that lawmakers might repeal the “individual mandate” that drives healthy people to buy coverage without creating a set of replacement incentives.
“We need some signal from the Congress what the alternative is to ensure that people don’t just come in and out of the market whenever they have a medical need,” said Scott Keefer, vice president for public affairs at Blue Cross and Blue Shield of Minnesota. “Because if that happens, it’s really going to be too volatile for us to set prices.”