The top-selling insurer on the state's MNsure exchange has pulled out of the online marketplace just two months before this year's open enrollment period begins.
Golden Valley-based PreferredOne had set the lowest premium prices in the nation last year and signed up nearly 6 in 10 consumers who shopped on the MNsure exchange.
But the insurer's CEO, Marcus Merz, said this week in a letter to the exchange's leaders that "continuing to provide this coverage through MNsure is not sustainable."
The move could portend higher health care premiums in the year ahead and is the latest setback for an exchange that suffered persistent technical problems in its debut year.
"That's a huge blow to MNsure," said Allan Baumgarten, an independent Twin Cities health care analyst.
Baumgarten said PreferredOne appeared to make a calculated gamble that its low premium prices would bring in enough business to enable it to cover an influx of new enrollees, even if they turned out to be sicker.
That strategy helped PreferredOne, the smallest of the five major carriers in the Twin Cities, to grab significant market share from its bigger competitors. But Baumgarten said PreferredOne has also been picking up a lot of business outside the exchange.
"That suggests that between their in-house sales force and relationship with agents and brokers, they think they have a pretty effective selling machine there," Baumgarten said. "Maybe something more effective than MNsure, which by all accounts is not operationally where it needs to be."
MNsure leaders sought to mitigate blowback, as MNsure's technical problems continue to be a political lightening rod for opponents of Gov. Mark Dayton and the federal health care law.
"We anticipated some bumps along the way, and we're still seeing some of those bumps," MNsure CEO Scott Leitz said in an early afternoon news conference.
Current PreferredOne customers still have coverage through the end of this year. They can choose to stay with PreferredOne next year, under state law, though premiums could be higher.
Consumers who qualify for tax credits that reduce the cost of insurance can only receive help if they purchase a health plan through MNsure, however.
Officials with the Golden Valley insurer declined to further explain why selling through the MNsure marketplace starting Nov. 15 no longer makes business sense to them.
Several analysts suggested that the company may not have had the manpower to handle the influx of new customers that came its way while at the same time trying to cope with time-consuming problems stemming from MNsure's continued reliance on manual workarounds.
But Caroline Pearson of health consulting firm Avalere Health, who has followed exchanges and the health reform rollout, said it was surprising to see an insurer drop out.
"Everyone was heading into 2014 with limited data about the true health demands," she said. "My guess is they may be seeing premium prices that can't sustain the medical costs they experienced with their enrollees."
University of Minnesota health economist Roger Feldman said consumers could feel the brunt of higher prices with a competitor leaving the MNsure market. He suspects PreferredOne's lowball bid backfired.
"These are always based on a wing and a prayer," Feldman said. "You hope that you grab substantial increases in enrollment and that will exponentially decrease cost because of economies of scale … and then you hope it plays out right and you attract low-risk enrollees. To my knowledge, this has never worked."
Republicans used PreferredOne's decision to launch a renewed attack on MNsure and Dayton.
"This is yet another example of everyday, middle-class Minnesotans paying the price for Mark Dayton's incompetence," said Hennepin County Commissioner Jeff Johnson, who is challenging Dayton for the governor's seat. "Six out of 10 people who've purchased insurance through MNsure will now have to go through the nightmare process of purchasing another plan all over again — thanks to Mark Dayton."
Dayton emphasized in a statement that MNsure is a marketplace, where insurers compete for business.
"A year ago, PreferredOne chose to offer its coverage at rates well below other plans on MNsure, and gained significant market share from doing so," Dayton said. "The question now is whether PreferredOne can afford to continue to offer such low rates. If not, its continued participation in MNsure would distort the exchange's average rates, which last year were the lowest in the nation."
PreferredOne, founded in 1984, has only recently moved into the individual market, with its bread and butter traditionally coming from large and small businesses.
The insurer is unique in that it is a partnership of three groups of Twin Cities medical providers. Fairview Health Services has a 50 percent stake. North Memorial Health Care and a physicians' association of more than 4,000 clinicians each have a 25 percent share.
PreferredOne's second quarter financial filings show that its liabilities had gotten larger but that it had substantially more capital in reserves, mostly from Fairview and North Memorial, which stand to gain patients through networks created by Preferred One.
A spokeswoman with Fairview said PreferredOne's decision was made independently of the hospital, despite their financial ties.
Baumgarten said Preferred One may not take a huge hit by opting out of MNsure.
"They got more than half of new membership outside of MNsure this past open enrollment," he said.
"They can still be an important player in the individual market."