MNsure isn't the cause of rising insurance rates

We can't make a good decision in the state about what to do about exploding insurance premium rates for individuals if it's MNsure that gets the blame.

That's because MNsure is nothing more than a government-run electronic marketplace and administrator that doesn't insure anybody. Blaming it for escalating rates is a little like blaming your toaster for being overweight.

The real explanation for rate increases, of course, is that insurers have been hit with so many claims that they have been losing money. To understand why, you have to understand what's happened since passage of the sweeping Affordable Care Act (ACA) reform law in 2010.

Minnesota health care executives are typically evenhanded when discussing the ACA, and Medica's Dannette Coleman was no exception. She runs the individual and family business for Minnetonka-based Medica, and the first thing she pointed out after sitting down last week to discuss this market was that "a lot of the things the ACA was intended to fix were working pretty well here in Minnesota."

A good example, and one very big reason for why health insurance rates for individuals are skyrocketing, is how the ACA blew up a Minnesota program for people with no hope of private insurance called the Minnesota Comprehensive Health Association, or MCHA. This so-called high-risk pool was designed to help people locked out of the conventional insurance market, usually because they had the kind health problem no regular insurer would touch.

An insurance pool made up of people who are uninsurable and who incur many claims would be a sure money loser, and so states found the money to subsidize them. In Minnesota, part of the solution was collecting a fee on other fully insured policies, both group insurance plans as well as individual policies.

Many states had no similar program, and few had one as big and stable as Minnesota's. So the ACA sought to move these people into the regular market. Another factor was the ACA wouldn't let conventional insurers lock them out anymore or charge a lot more for a preexisting medical problem. If people couldn't afford the premium they would be eligible for subsidies.

Insurance is all about spreading the risk, and it's generally the case that the more policyholders in a risk pool, the better. By eliminating this high-risk pool, including the funding that came from charging a fee to all the fully insured plans in the state, this change in the law effectively shrunk the number of people to share the cost of insuring this group of people. What once was spread over more than a million Minnesotans, Coleman said, was now borne by the fewer than 300,000 who buy individual private insurance.

This was well-known to insurers as insurance rates were published for 2014, as the ACA kicked in, but as Coleman described it, "the industry as a whole just got the rates wrong in 2014," leading to price increases for the following year.

Claims paid in the individual market jumped a lot again in 2015, and one big reason is that the remaining people in the MCHA pool moved into the market. These were the people, Coleman said, that Medica suspects were older and unhealthier, with good reason to be worried about the stability of their health care. It made sense that they hesitated to leave the MCHA the first year they could.

Absorbing the MCHA population wasn't the only thing pushing up rates. Another was that the kind of lower-cost and high-deductible plans that people used to buy, maybe a policy with a $20,000 yearly deductible just to protect against some sort of catastrophic problem, were now out of bounds.

The total effect on costs for the individual market is simply stunning. In 2010, insurance claims on individual private market policies in Minnesota came to nearly $590 million. Five years later the total claims had surged to more than $1.2 billion, and the insurance carriers were losing money.

The ACA drafters knew problems would crop up as carriers served a market segment they had little history insuring. But one of the principal mechanisms to provide stability, called the risk corridor, has so far provided just a small fraction of the financial support insurers expected.

The changes in how people bought insurance also affected the willingness to keep paying for insurance, too, said Chris Schneeman, president of St. Paul-based SevenHills Benefit Partners.

Individual health insurance policies used to be cheaper than a lot of group coverage, he said, largely because people who bought them basically had to prove they were healthy. Once insured you sure didn't let them lapse, either.

Now there's no chance of being locked out of the market if you are diagnosed with a costly-to-treat disease. So, Schneeman said, what's the incentive to pay December's insurance bill? A new policy can always be bought for January.

"They can still use the system," he said. "They get their claims paid. But they [may not] pay a whole year's worth of premium."

So these are some of the reasons Minnesota's four primary carriers published preliminary 2017 rates with increases ranging from 36 percent to 67 percent, which will come on top of big increases in 2016. Sure it's a small part of the overall population relying on individual policies, and the employer segment is very stable, but it's devastating if you are one of the people buying coverage as an individual.

When these policyholders get their renewal notices this fall, many may decide that health insurance is simply no longer affordable, electing to incur the federal penalty by skipping it.

"The problem is that people who will make that decision are not people who need health care," Coleman said. "If you're in a course of treatment or have health care needs, you are going to find a way to pay that premium. The healthy people, the low utilizers, will exit the pool. That exacerbates and accelerates the problem."

So enough already about the failings of MNsure. The thing to worry about is what Coleman seems worried about, having younger and healthier people quit the individual health insurance market and leave behind only the sicker and far more costly, leading to its collapse.

This phenomenon in insurance has a name just as memorable as MNsure, too. It's called the death spiral.

lee.schafer@startribune.com 612-673-4302