Health plans post operating losses

Minnesota health plans spent more on medical and administrative costs than they received in premiums in 2007, meaning premiums may rise faster in the future.

Last year, the industry received $15.7 billion in premiums and spent $14.3 billion in medical costs on behalf of members, according to the Minnesota Council of Health Plans.

However, once administrative costs -- which included unusually high taxes as well as the cost of disease management programs -- were added, Minnesota's eight nonprofit health plan companies posted losses of $71 million, the third straight year of operating losses.

A spate of hospital construction, higher labor costs for hospitals and higher prices for new and existing medical technologies were among factors pushing up prices for medical services, said Michael Morrow, chief financial officer for Blue Cross and Blue Shield of Minnesota, the state's biggest health insurer.

The health plans offset operating losses with investment income.

But that is unsustainable, said Julie Brunner, the council's executive director.

Average premium increases in 2007 were between 7 and 9 percent. Already, Morrow said, premium increases in 2008 are higher than that.

Taxes were unusually high. The industry paid more than $218.8 million in taxes and assessments, a 26 percent increase from four years ago. "Taxes take a bigger bite out of the premium dollar than claims processing and customer service," Brunner said.

A portion of the taxes goes to the Minnesota Comprehensive Healthcare Association, a safety net for about 30,000 people who have been turned down by insurers because of pre-existing conditions.

Other administrative expenses included $72 million in investments for Minnesota Community Measurement, a statewide care-quality measurement program as well as health and wellness programs.

One piece of good news was that prescription drug costs were flat. At HealthPartners, for example, a switch to generics led to lower drug costs for the health plan despite increased use of antidepressant and cholesterol drugs.

Overall enrollment in Minnesota health plans grew less than 1 percent, to 4.16 million. Of those, the number of people in small group plans -- two to 50 employees -- continued to fall, by nearly 10,000.

Morrow of Blue Cross said he thought growth in premiums might be tempered by more people choosing such plans, which trade lower premiums for higher deductibles. Blue Cross also is working on new initiatives to help members with chronic diseases stay healthier, he said.

"I believe the plans will be very diligent in trying to keep [premium] increases below double-digit," said Brunner. "There is, however, only so much they can do as the population ages and as people use more services and more expensive services."