Smaller claims raise profits for health plans

Minnesotans continued to cut back on medical care last year and helped deliver the best bottom line for the state's health insurance companies since at least 2005.

With enrollment growing slightly and lower-than-expected costs paid out on medical claims, the seven plans reported operating margins of 1.8 percent, or $355 million, on their commercial insurance business and public programs, according to the Minnesota Council of Health Plans. The companies collected premiums of $19.8 billion.

"It seems like we're seeing not just some stability, but a little bit of a bounce back," said Roger Feldman, a health care economist at the University of Minnesota's School of Public Health, noting an uptick in the private insurance market.

The insurers' strong financial results hint at an improving economy and job market, with many of the health plans reporting growth in sales in their commercial markets. It also could indicate a payoff for years of efforts by plans and providers to keep patients out of the hospital.

Patients, shouldering ever more of their health care costs, are choosing generic prescription drugs and physical therapy over surgery. Hospitals and providers in some cases are being rewarded for avoiding unnecessary diagnostic tests or treatments that haven't been proved effective.

The commercial market, which includes insurance and services sold to businesses, may be showing the strongest signs of life after years of declines as a result of the financial crisis. Enrollment in private health insurance increased almost 2.5 percent in 2011, for a gain of about 53,000 people.

The bulk of the growth came from self-funded plans. These are plans in which employers take on the risk of providing insurance for their workers and families, rather than contracting with an insurance company.

Medica reported that gains in its commercial market drove most of its growth. It heralded the success of its My Plan by Medica, a product it launched last year that allows people to comparison shop among Medica options. It has already added 10,000 members and 30 employer groups.

Blue Cross and Blue Shield has a similar option. That insurer posted its third consecutive year of operating profit, led by "strong performance" in its commercial and individual businesses.

Yet Minnesota's small businesses continue to be cautious, shedding insurance coverage even as the labor market begins to stabilize. Fully insured small group insurance in the state dropped 4 percent, affecting about 14,000 workers.

"It's a sign that the small business sector still hasn't fully recovered from the recession," Feldman said. "They're still not thinking about adding coverage. They're probably very concerned about meeting the bottom line."

The strong financial results come as the operating margins of the insurers come under increasing scrutiny in contracts with the state, which pay the plans to insure about 580,000 low-income and disabled Minnesotans.

The plans received premium revenue of about $3.8 billion from the state to administer health benefits for five public programs last year. Operating margins on those programs were about 1.5 percent, after accounting for the giveback, which covered profits on the largest two public programs.

Gov. Mark Dayton and legislators are making a bipartisan effort to push for more accountability and transparency in the way the state contracts with the health plans.

"Frankly, any time an insurer has margins, people are going to ask, 'Why?,'" said Julie Brunner, executive director of the Council of Health Plans. "There are legitimate explanations why that happens and it goes to how cyclical insurance is."

Brunner said the plans set their rates based on expected increases in enrollment for seniors through Medicare and an expansion in Medicaid that Gov. Mark Dayton approved when he first took office. But those new enrollees didn't spend as much on health care as expected.

In fact, that trend was evident across the health care spectrum -- in government subsidized plans as well as the commercial side. Even seniors on Medicare didn't seek out medical care as often, with retirement accounts still smarting from the early days of the recession.

HealthPartners attributed the lower spending increases to lower demand for services, fewer elective surgeries, lower prescription drug costs and better support programs to keep people healthy. The Bloomington insurer posted the strongest overall margins of all plans, at 4.7 percent.

According to the Council of Health Plans, spending on hospitalized care, often the most costly, decreased 4 percent last year. Meanwhile, costs are shifting to less expensive outpatient settings, where spending increased 13.4 percent.

"It was a huge slowdown in the spending per person on health care services," Brunner said. "That's part of the reason margins were larger than what people would have expected."