Big premium increases that Minnesota insurers proposed last week reflect losses they’ve been taking in a part of the market targeted by the federal health law.
Insurers say they collectively lost more than $300 million on policies for individuals who buy coverage on their own last year because subscribers had more costly health problems than expected.
Higher rates on that coverage would help close the gap, though the size of the increases will attract attention amid scrutiny of the effects of the Affordable Care Act. If regulators were to approve the full amounts, average premiums would increase by more than 50 percent for about 179,000 people, and by more than 10 percent for another 60,000.
Insurers say they are making adjustments now that they have more experience under the health care law, which will cover a chunk of first-year losses.
“This just shows the volatility that we’re experiencing in the first few years of the Affordable Care Act,” said Lynn Blewett, a health policy expert at the University of Minnesota. “Eventually, it will work itself out into a more stable market.”
Observers say the proposed increases are driven largely by factors that are unique to the individual market, and don’t point to similar jumps for employer groups and government programs that cover roughly 90 percent of Minnesotans.
But the individual market, which includes the state’s MNsure exchange, grew by about 53 percent last year to about 292,138 people, according to the Minnesota Council of Health Plans. Low rates that some people initially found on MNsure have already started to go away.
Golden Valley-based PreferredOne made a big splash in 2014 during the first year of the exchange, but had to pull out of MNsure for 2015 after low rates proved unsustainable. The company increased premiums by an average of 63 percent for 2015, prompting thousands of subscribers to take their business elsewhere.
With the federal information released last week, other Minnesota insurers signaled they need to boost premiums, too.
“They didn’t do a good job of estimating health care costs for that population in the individual market,” said Roger Feldman, a health insurance expert at the University of Minnesota. The hope, Feldman said, is that the increases for 2016 reflect a one-time correction.
Blue Cross and Blue Shield of Minnesota, which is the largest insurer in the individual market, announced proposed average increases of 54 percent and 55 percent for policies that collectively cover about 179,000 people.
Blue Cross says it lost $135 million in the individual market during 2014 — a figure that would be significantly higher without financial safety nets for insurers that are built into the health law.
Between 2013 and 2014, people buying into individual market policies at Blue Cross went from having health costs significantly below average, the company said, to above-average expenses.
Some increase was expected with the phaseout of a high-risk pool for Minnesotans with health problems who previously couldn’t buy individual market policies, said Scott Keefer, vice president for public affairs and communications with Blue Cross.
But the company also saw a greater-than-expected influx of subscribers with health problems from employer groups.
“So, in some respects, we can look at this and we can say that there’s almost the equivalent of a second high-risk pool effectively coming into our membership from the group market,” he said.
Increased pharmacy costs with the launch of more expensive specialty medications are having a particularly sharp impact in the individual market, Keefer said. On a per-member, per-month basis, prescription drug costs jumped by 47 percent, Keefer said, between the first quarters of 2014 and 2015.
Proposed increases might look big on a percentage basis, he said, but are based on premiums that in the Twin Cities were significantly lower than in other cities in the Midwest.
“Given the volatility and the turmoil that we saw in  and what we’re seeing right now suggests to me that the market was significantly underpriced from the get-go,” Keefer said.
HealthPartners, UCare, PreferredOne and two divisions at a Milwaukee-based company called Assurant Health also filed proposed rates with increases of more than 10 percent. Assurant Health didn’t say how many people are covered by its filings, but proposed rates from the other three companies would impact more than 60,000 people combined.
In the wake of last week’s filings, insurers noted that financial safety nets built into the health law will offer less help to health plans in 2016, before going away completely the following year. The programs for reinsurance, risk-adjustment and what’s called “risk-corridors” could let Minnesota insurers recover more than $150 million in losses from 2014, but there’s uncertainty about how much money actually will be delivered.
Without factoring those programs, the Minnesota Council of Health Plans estimated in April that health insurers collectively lost about $316 million last year in the individual market.
“When there are losses that are in excess of 30 percent of total revenues, we have a problem,” said Jim Schowalter, the group’s executive director.
The proposed premium jumps announced last week sound big, Schowalter said, but many Minnesota consumers could find the increase offset by larger tax credits available through the MNsure exchange.
Over the next several months, state regulators will review the rate proposals to see if they are justified. The rate review process goes on behind closed doors, and can result in final premium prices that are substantially lower.
This year, the process is somewhat more public since preliminary rates weren’t available before final approvals in previous years. So, the state Commerce Department will be doing its job on a bigger stage, with Gov. Mark Dayton calling last week for a “rigorous review.”
Health law supporters say they’re disappointed by the rate requests, but argue insurers remain profitable overall and have large financial reserves.
“It is important that we have public scrutiny — and expert scrutiny — over those claims about losses, and those proposed increases, because they will weigh very heavily on enrollees,” said Sarah Greenfield of TakeAction Minnesota, a St. Paul-based consumer group that backs changes under the Affordable Care Act.
But Peter Nelson with the Center of the American Experiment said he believes state regulators pushed too hard to keep rates low in 2014, setting the stage for “rate shock” in the new filings.
“Insurers clearly need to raise rates,” said Nelson, whose group supports free-market changes in health care. “It’s clear that they are losing substantial amounts of money, and that is not sustainable.”