Minnesota health insurers expect to receive about $194.2 million to help cover financial losses last year in the individual health insurance market, according to preliminary figures released last month by the federal government.
The money comes from financial safety net programs in the federal Affordable Care Act that will substantially reduce — but won't eliminate — losses in the individual market that nonprofit insurers in April estimated at $316 million.
In June, insurers cited the past losses as evidence that premiums in the individual market have been too low. For 2016, most insurers are seeking double-digit rate increases in Minnesota's individual market, including hikes of more than 50 percent proposed by Eagan-based Blue Cross and Blue Shield of Minnesota.
Even with the extra cash, insurers said they will need the premium increases for next year.
"The premiums that they're requesting for 2016 are based on the expected medical care costs in 2016 — not recovering 2014 losses," said Eileen Smith, spokeswoman for the Minnesota Council of Health Plans, a trade group for the state's nonprofit insurers.
The federal Centers for Medicare and Medicaid Services issued a June 30 report with preliminary estimates for payments to insurers through the federal government's "reinsurance" program, as well as its program for "risk adjustment" under the federal health law.
Before 2014, insurers in the individual market guarded against losses by denying coverage to people with pre-existing health conditions. Starting last year, such exclusions were eliminated by the federal health law. The financial safety nets were meant to help insurers manage risks with the transition, rather than simply drop out of the marketplace.
"These all make the market more attractive to insurers by addressing unknown risks that would potentially cause insurers to either avoid the market or price in a very conservative way," said Gary Claxton of the Kaiser Family Foundation.
While the programs have the effect of helping insurers cover losses in the market, that's not how payments to insurers are calculated in the reinsurance and risk adjustment programs.
Insurers can collect reinsurance money to cover some costs when an enrollee's 2014 health care claims exceed $45,000. All health plans, including self-insured employers, kicked in money for the program.
"For the 2014 benefit year, over $7.9 billion in reinsurance payments will be made," the government said in its report. Five health insurers in Minnesota will split $194.2 million in reinsurance money, with most funds going to Blue Cross and Golden Valley-based PreferredOne.
The risk adjustment program considers the health status of all individual market consumers insured within a state, and transfers money from insurers with healthier subscribers to those health plans that happened to attract less healthy enrollees. A third financial safety net called the "risk corridors" program factors a health plan's losses, but the government hasn't yet calculated those payments.
According to the preliminary figures released last month, Blue Cross would receive about $117.2 million from reinsurance and $7.6 million from risk adjustment in the individual market. Laura Kaslow, a company spokeswoman, said in a statement: "As final projections for 2014 are forecast, we expect to receive a slightly lower reinsurance payment than is recorded in this filing."
Factoring the current payment figures plus expected funds from the risk corridors program, Blue Cross is projecting a 2014 loss in the individual market of about $111.5 million. Scott Keefer, vice president for public affairs and communications with Blue Cross, said the amount of money available through the reinsurance program is cut significantly in 2015 and then again in 2016. It goes away in 2017, Keefer added.
PreferredOne expects to receive about $51.3 million in reinsurance and $5.4 million in risk adjustment payments.
The company made a big splash in the individual market during 2014, including those who bought policies through the state's MNsure health insurance exchange.
Minneapolis-based UCare would receive about $1.2 million in reinsurance and risk adjustment payments. Its net loss for 2014 in the individual market is still about $5.3 million, the company said.
Bloomington-based HealthPartners and Minnetonka-based Medica would collect money in the reinsurance program, according to the government report, while paying out for risk adjustment.