PreferredOne says it lost $139 million in individual market last year

Big growth through the MNsure ex­change in 2014 con­tri­buted to big fi­nan­cial loss­es last year for Preferred­One, ac­cord­ing to financial results filed by the Golden Valley-based health in­sur­er on Mon­day.

PreferredOne's in­sur­ance di­vi­sion post­ed an over­all loss of about $20.9 mil­lion last year, ac­cord­ing to a reg­u­la­to­ry fil­ing, and com­pany of­fi­cials said the re­sults were driv­en by about $139 mil­lion in loss­es in the in­di­vid­u­al mar­ket.

The in­sur­er of­fered some of the low­est pre­miums in the na­tion dur­ing 2014, but ul­ti­mate­ly left the MNsure ex­change af­ter con­clud­ing the in­di­vid­u­al mar­ket busi­ness wasn't sus­tain­a­ble.

After the wild ride, com­pany of­fi­cials be­lieve the health in­sur­er is on a path to re­cov­er­y due to a huge re­duc­tion in in­di­vid­u­al mar­ket mem­ber­ship.

"We made some hard de­ci­sions in 2014, and we feel that those have put us on a track for a sta­ble and fa­vor­a­ble fi­nan­cial out­look for 2015," said Paul Geiwitz, who was named in­ter­im chief ex­ec­u­tive at Preferred­One with the retirement of longtime CEO Marcus Merz.

PreferredOne made a big splash in 2014 through MNsure, one of the new mar­ket­places cre­at­ed by the fed­er­al Af­ford­a­ble Care Act for peo­ple who buy health in­sur­ance for them­selves out­side of em­ploy­er groups.

With the low pre­miums, Preferred­One garn­ered more than half the busi­ness on MNsure, even though the com­pany pre­vi­ous­ly had been a small play­er in the in­di­vid­u­al mar­ket.

In­di­vid­u­al mar­ket loss­es mount­ed through­out 2014. PreferredOne be­lieves it at­tract­ed a large num­ber of peo­ple pre­vi­ous­ly in­sured through the state's high-risk pool for peo­ple with med­i­cal prob­lems that pre­vi­ous­ly pre­vent­ed them from get­ting in­sur­ance.

"The as­so­ci­ated claims and risk with that was just too great," said Mike Umland, the com­pany's chief fi­nan­cial of­fi­cer.

So, PreferredOne adopted a strategy to reduce membership. In Sep­tem­ber, Preferred­One said it would not re­turn to MNsure for 2015. In Oc­to­ber, the com­pany an­nounced that in­di­vid­u­al mar­ket pre­miums would in­crease by an av­er­age of 63 percent.

Fi­nal­ly, PreferredOne tight­ened its net­work of hos­pi­tals and doc­tors for sub­scrib­ers in the Twin Cities met­ro. The end re­sult: In­di­vid­u­al mar­ket en­roll­ment plum­met­ed to about 8,000 peo­ple this year — a de­cline of about 75,000, Umland said.

"The 75,000 mem­bers are out into the rest of the mar­ket," he said. "Now, it's else­where — it's not with PreferredOne Insurance Company."

The $20.9 million net loss for all products in the insurance division came on revenue of about $430.2 million.

The par­ent com­pany is owned by Fairview Health Services, North Memorial Health Care and a doc­tors group called PreferredOne Phy­si­cian Associates.

With the surge in mem­ber­ship last year as well as fi­nan­cial loss­es, the in­sur­er turned to its own­ers for ad­di­tion­al cap­i­tal, in­clud­ing a loan of $18.75 mil­lion from Fairview and a loan of $6.25 mil­lion from North Memorial.

The in­sur­ance com­pany di­vi­sion also drew down $14 mil­lion in cap­i­tal from the par­ent com­pany. Steve Peterson, a com­pany spokes­man, said the funds came from ac­cu­mu­lat­ed earn­ings over a pe­riod of time.

PreferredOne ex­pects to re­ceive $112.4 mil­lion from risk-shar­ing programs that are part of the federal health law, Umland said, with pay­ments ex­pected in Sep­tem­ber and Oc­to­ber. To fi­nance the cost of health in­sur­ance claims in the mean­time, PreferredOne took out a $40 mil­lion bank line of cred­it late last year, Umland said, with re­pay­ment planned for this year's fourth quar­ter.

"There was no down­side of under­pric­ing as long as the gov­ern­ment was going to come and bail you out," Feld­man said. "It cer­tain­ly trans­ferred mon­ey from the gov­ern­ment to a few policyholders in Minnesota. But the gov­ern­ment had to raise that mon­ey."

The risk-shar­ing programs are fund­ed through a com­bi­na­tion of pre­mium tax­es and fi­nan­cial trans­fers a­mong health in­sur­ers. With all the un­knowns sur­round­ing how to set pre­miums dur­ing the first year of ma­jor health law re­forms, the programs were need­ed for in­sur­ers, ar­gued Clare Krusing, a spokes­wom­an for America's Health Insurance Plans, a trade group.

In De­cem­ber, cred­it rat­ing a­gen­cy A.M. Best low­ered its out­look for PreferredOne due in part to the health in­sur­er's trou­bled busi­ness in the in­di­vid­u­al mar­ket. But Umland, the chief fi­nan­cial of­fi­cer, ar­gued against a neg­a­tive im­pres­sion for the in­sur­er's over­all fi­nan­ces.

"We're in sol­id fi­nan­cial po­si­tion," Umland said. "We're going to be fine."

Chris­to­pher Snowbeck • 612-673-4744