Sometime after the insurer PreferredOne submitted its proposed rates for the first year of the MNsure exchange, state regulators asked the company to consider lowering the numbers.
Ultimately, the insurer responded with “a total rate decrease of 37 percent,” according to a July 2013 letter from an outside actuary to the company. Those final rates were the lowest in the Twin Cities — and across the country, in many cases — and helped PreferredOne to grab nearly 60 percent of the MNsure business.
Now, those subscribers face an average premium increase of 63 percent if they stay with PreferredOne — a yo-yo scenario that health policy experts say points to the challenge in setting prices under the federal health law. The big swing also suggests that the low prices were out of step with the reality of the business.
“This was the first year of a new market, so no one knew what they were bidding on,” said Gary Claxton, a vice president with the California-based Kaiser Family Foundation. “That means it was hard to create the rates, and it was hard to review them.”
Officials with Golden Valley-based PreferredOne, which isn’t selling on MNsure for 2015, did not make anyone available for an interview for this story. The state Commerce Department did not provide an interview with actuaries who review health insurance rate filings.
In a prepared response to questions, Commerce said insurers file rates with the department, which checks for statutory rate and form requirements, including whether the amounts proposed are justified.
“Commerce asked all companies if they are offering the best rates they can to consumers,” the department said in a statement. “PreferredOne made a business decision to offer a low-price strategy.
“Those rates were vetted by actuarial experts and were within reason,” the department said. “Their growth exceeded their expectations. Another key issue turns out to be the lag in reimbursement in the federal government’s program to pay for any high costs.”
The premium increase for 2015 at PreferredOne only will apply to people who bought policies as individuals, and opt to renew their policies with the company. Only about 6 percent of Minnesotans buy individual insurance policies, with the vast majority of state residents covered by employer group policies or government programs like Medicare.
High-risk pool a factor
After PreferredOne initially filed rates for 2014, the Commerce Department issued an objection letter that referenced the company’s assumption for the number of people in the state’s high-risk pool that would move to the commercial market.
The movement of people out of the high-risk pool was important for setting rates, because many people covered through the program have high health care costs.
“Due to the many unknown factors affecting the likely claim experience in 2014, along with the fact that Minnesota’s high-risk pool … is continuing to operate in 2014, please consider reducing the general rate level of your filing,” the department wrote in documents available through the Commerce website.
On July 8, an outside actuary for PreferredOne wrote in response: “After conversations with (PreferredOne’s) senior management, it was decided to lower rates 26 percent from the initial 2014 rate filing.”
About two weeks later, the actuary wrote that “rates were lowered an additional 14.7 percent from the 26 percent decrease after the first round of objections for a total rate decrease of 37 percent.”
Claxton of the Kaiser Family Foundation reviewed the letters for the Star Tribune, and said the documents leave a lot of questions unanswered.
“We don’t know how much the department insisted on that, or not,” Claxton said of the comment about lowering rates.
Starting premiums low
The premium spike for 2015 is bigger at PreferredOne than elsewhere, he said, although some other low-cost carriers have boosted rates across the country. Politicians who support the federal health law might have wanted 2014 rates as low as possible, but regulators typically have different motivations including a long-term outlook, Claxton said.
“They know there’s a next year,” he said. “They believed that the initial filing was too high. I don’t think there’s anything more to that.”
Dena Mendelsohn, a health policy analyst with Consumers Union in California, said she could not comment on the particulars of the PreferredOne rate review. But in general, she said, the outcome is exactly the sort of scenario that health insurance regulators try to avoid.
“Sixty-three percent is obviously very high, and does raise concerns about the pricing in 2014 — which goes to how rate review was done last year,” Mendelsohn said.
‘What are the assumptions?’
Roger Feldman, a professor of health insurance and economics at the University of Minnesota, said he could not comment on the particulars of the PreferredOne rate review, either. But speaking to the outcomes of the rate review process, he said: “I think this is a failure.”
“The question it raises would be about the assumptions — what are the assumptions that they used to predict utilization and prices, and how those could differ so much from the actual experience that they had?” Feldman said.
Over the past year, low premiums on the state’s new health insurance exchange have provided one of the best story lines for defenders of the troubled MNsure marketplace.
The story got picked up nationally in February when Kaiser Health News reported that PreferredOne’s $154 premium in the Twin Cities was lowest in the nation for 40-year-olds buying a mid-grade silver policy.
In its statement, Commerce said: “Even without PreferredOne last year, the other (insurers’) rates were lowest in the nation.”