Competition heats up as nonprofit health insurers take on for-profit giants in Minnesota

Nonprofit health plans that control a large chunk of Minnesota's insurance market are ready to offer better deals to hang onto their customers, consultants say, now that they have new competition from for-profit carriers.

Minnetonka-based UnitedHealthcare and Connecticut-based Aetna are making a push for more health insurance business in the state following a 2017 law that opened the market to more competition from investor-owned insurance companies.

However, while employers say they are happy for more options, the changes are not swift and they remain frustrated by the broader trend of escalating health care costs without obvious signs that waste is being wrung out of the system.

"We still have this huge affordability issue," said Deb Krause of the Minnesota Health Action Group, a Bloomington-based coalition of large employers that offer health plans. "We need the new competitive landscape to focus on health care innovation in terms of more efficient resource use and getting the best health outcomes for the limited dollars that we spend."

The health of these large organizations is important because they make up a large chunk of Minnesota's nonprofit business community. On the Star Tribune's annual Nonprofit 100, health care organizations took 14 of the top 15 spots and nearly one-quarter overall.

Six of the 10 largest nonprofit groups in the state primarily run hospitals and clinics, with collective revenue of about $26 billion, based on 2017 numbers, the most recent available. Three of the 10 largest nonprofits primarily sell health insurance, with collective revenue of about $13.2 billion.

Rounding out the top 10 is a nonprofit with revenue of about $6.6 billion that's roughly split between health insurance and health care providers.

The expansion of insurance competition in the Twin Cities has been obvious to consumers this fall due to a flurry of print, broadcast and online advertising from insurers, plus marketing messages that have been splattered across billboards, buses and light-rail trains.

Many of the pitches have been directed at Medicare beneficiaries, where Aetna, in conjunction with Minneapolis-based Allina Health System, and UnitedHealthcare are making new plays for business selling Medicare Advantage health plans for 2019. The Medicare market is in flux due to a federal law that's prompting more than 300,000 state residents to switch health plans.

Less visible have been the pitches by both companies to employers that sponsor health plans for their workers. UnitedHealthcare and Allina-Aetna are actively bidding on employer accounts, consultants say, and winning some in the process.

"I think we've found a lot of competitive response from the local carriers sharpening their pencils, not wanting to lose market share to the new whippersnapper upstarts," said David Martin, an executive vice president with Associated Benefits and Risk Consulting.

When UnitedHealthcare announced in late 2017 plans to sell more employer coverage in Minnesota for 2019, one consultant likened the news to the arrival of a new airline. The analogy makes sense insofar as health insurers, like commercial airlines, face significant regulatory burdens and capital requirements that serve as barriers to entry for newcomers.

At the same time, the arrival of UnitedHealthcare and Aetna hasn't generated the same consumer enthusiasm as, say, the landing of Southwest Airlines in a regional aviation market. That's because there's not nearly as much transparency with price and service quality in health care, said Krause of the Minnesota Health Action Group.

The arrival of new health insurers doesn't change the underlying health of a region's population, or the doctors and hospitals that provide care to those patients, said Joshua Haberman, the owner of the Alexander & Haberman insurance agency in Bloomington. If the number of health plans in a market increases without a corresponding increase among distinct health care providers, each insurer might have less leverage when negotiating prices with doctors and hospitals.

"Something to watch for is whether providers are, in this market, able to sort of block off cost-containment activities, because insurance carriers are competing against each other," said Stefan Gildemeister, health economist with the Minnesota Department of Health.

For decades, Minnesota was known for its largely nonprofit health insurance market due to a statute passed in the early 1970s that banned for-profit HMOs. The statute didn't block all for-profit carriers from Minnesota, since companies were free to obtain licenses as insurance companies and large employers could hire for-profits to administer their self-insured health plans.

But the ban limited the ways that for-profit companies could compete in Minnesota. The state, for example, reserves managed care contracts in the Medicaid and MinnesotaCare programs for HMOs, so the for-profit ban kept those companies out of public program contracts that often were lucrative.

In early 2017, Republicans in the Legislature passed a bill allowing for-profit HMOs, saying they wanted to promote competition in the market where individuals buy coverage. New insurers haven't entered that particular insurance market as a result, nor have any for-profits received an HMO license that would let them bid on the state public program business.

Allina says the law change didn't drive its decision, since the health system announced its joint venture with Aetna before the state eliminated the for-profit HMO ban. UnitedHealthcare announced its expansion several months after the new law took effect, but said the statutory change was just one of many factors.

Whatever the cause, the arrival of more for-profit competition renews old questions about whether the distinction between for-profit and nonprofit insurers matters for the quality or character of coverage. For-profits operate with the intent of making a profit for shareholders, said Brooks Deibele, the senior vice president for commercial markets at Eagan-based Blue Cross and Blue Shield of Minnesota.

Blue Cross ranked No. 2 among nonprofits on the Star Tribune list.

"The nonprofits primarily operate to provide services to their members and to deliver on a mission," Deibele said. "At nonprofits, more dollars are going to medical costs."

Dr. Robert Wieland, chief medical officer at Allina Health and Aetna Insurance Co., countered that there aren't differences in the character or quality of coverage between different insurers that can be attributed to for-profit or nonprofit status. Whatever their tax status, carriers will succeed only if customers like their products, Wieland said.

"It's more about increased competition than it is about your corporate status or designation," Wieland said. "There haven't been new entrants into the market for a long period of time."

Allina ranked No. 5 among the state's largest nonprofits. Its joint venture with Aetna is a for-profit insurance company.

The federal Affordable Care Act included $6 billion in funding for new nonprofit cooperative health plans due in part to concern that for-profit insurers had focused on maximizing revenue and profit rather than generating value for consumers. Yet there was almost no evidence to show that nonprofit insurers would do a better job, said Leemore Dafny, a health economist at Harvard University.

To study the issue, Dafny analyzed nonprofit Blue Cross insurance companies that converted to for-profit status, and analyzed whether the change made a difference in the premiums charged to consumers or the share of premium revenue spent on medical care. The change made no difference on average, she said, but there was a significant premium increase in markets where the converting Blue plan controlled a large share of the market. There was no overall change in the ratio of medical spending per premium dollar.

Overall, the results don't suggest that the arrival of more for-profits in Minnesota's insurance market will make a big change in how health plans compete any time soon, Dafny said in an interview, unless they suddenly win a huge share of the market. What's more, there still aren't a lot of studies that rigorously show whether for-profit or nonprofit health insurers are superior in terms of quality and enrollee satisfaction, although some reports have given the edge to nonprofits.

"Policymakers have little evidence on which to decide whether [and how] to favor or subsidize particular ownership forms in the insurance sector," Dafny wrote in a forthcoming research paper.

To varying degrees, the new insurers will be able to draw on their own workers to help build critical mass in their Minnesota health plans. The new Allina-Aetna product is one of three options for Allina employees in 2019. UnitedHealthcare is moving all 18,000 local employees into its new health plan network next year.

UnitedHealthcare also has had a presence administering self-insured employer health plans in Minnesota through a partnership with Minnetonka-based Medica.

Even so, the for-profits don't come into Minnesota with such a large share of local subscribers that they can easily negotiate contracts with doctors and hospitals on favorable financial terms, said Joe White, an accounting professor at the University of St. Thomas who studies health care finance.

"I think United's going to have to be paying pretty well to get providers to accept their insurance product, which means [health system] financial results might be better," White said. "The insurance companies' might be worse."