Don’t take risks with Minnesota’s health insurance cost cliff

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Seven years ago, Minnesotans who buy their health insurance on the individual market were shocked by back-to-back annual premium increases of more than 30%.

According to data from the Minnesota Department of Health, these Minnesotans experienced a cumulative 90% increase in their health insurance premiums from 2014 to 2017. Unsurprisingly, enrollment in the market that provides insurance to people who don’t get it through work or from the government plummeted during that stretch.

Then, the individual market stabilized. Premiums actually declined, on average, in 2018 and 2019. Since then, they’ve stayed relatively steady, and individual market enrollment has grown modestly.

What happened? In 2017, the Minnesota Legislature created a program called reinsurance that stopped the cycle of premium hikes and canceled coverage. Reinsurance is a straightforward program where public dollars pay for a portion of high-cost medical claims for very sick Minnesotans struggling with serious conditions like diabetes and cancer.

Reinsurance costs have ranged from $150 million to $250 million per year. Generally, more than half the cost is paid with existing federal funds called “pass through” dollars, which is money the state reinsurance program saves the federal government.

Under a bipartisan agreement in 2022, reinsurance received approval to continue through 2027. As the sponsor in the Minnesota House, Rep. Zack Stephenson noted at the time reinsurance saves people between $500 and $4,600 per year on health insurance premiums. Extending it was a smart move.

Despite the bipartisan success of the program, last year DFL lawmakers effectively defunded the program and it will end after 2025. Expanded federal subsidies for health coverage also expire at the same time.

As a result, Minnesotans in the individual market face a steep cliff come 2026. An independent report shows health insurance premiums could spike by 50% or more.

The only plan being discussed this year to address this cost cliff is a “public option.” This type of program involves state government offering its own health insurance product — imagine combining the friendly customer service of a large insurance company with the efficiency of a government agency — or creating a standard policy that’s offered through a private company.

Lawmakers are contemplating a hybrid version that would open an existing state program for low-income folks, MinnesotaCare, to all income levels.

Proponents tout richer benefits under a public option, which could pay around 95% of covered medical costs compared with 70-80% for the typical individual market plan.

However, to offer richer benefits at a cost that is remotely attractive to potential customers, the public option requires two things. First, a heavy taxpayer subsidy as noted above. Second, the public option relies on much lower payments to hospitals and clinics.

These cut-rate payments threaten the financial stability of health care providers, particularly in greater Minnesota where access to care is already limited. Providers will try to make up the difference by shifting costs onto people who get their coverage through work.

This is a big reason why the few states that have tried a public option so far have struggled with participation from hospitals and clinics and attracted little enrollment.

Moreover, assuming it receives federal approval and the necessary state IT upgrades happen on time, the public option won’t go into effect until 2027 and will be limited until 2029. This leaves those in the individual market facing a potentially catastrophic situation in 2026 and beyond, where premium spikes could exceed the ugly days of 2016 and 2017.

Let’s focus on proven solutions and find bipartisan reforms that expand health care access without making health coverage unaffordable.