Health plans in Minnesota saw their worst year in a decade

Minnesota health plans reported their worst financial results in a decade for 2016, with red ink flowing from both state public health insurance programs and the struggling market where individuals buy coverage for themselves.

Overall, nonprofit insurers last year posted an operating loss of $687 million on nearly $25.9 billion in revenue, the Minnesota Council of Health Plans, a trade group for insurers, disclosed Monday.

The results fit with a national pattern in which many insurers showed a small degree of improvement in the individual market, analysts said, even as they continued to lose big money. On public programs, there are signs of downward pressure on health plan profits in other states, too, said Allan Baumgarten, an independent health care analyst in St. Louis Park.

"The question is: Is this a one year blip in what has been a 10-year pattern of strong profitability," Baumgarten asked, "or does this suggest the next few years might be equally depressing?"

The bulk of the financial losses reported Monday don't stem from the employer group and Medicare markets where most Minnesotans get health insurance.

A large chunk comes from the individual market, where the self-employed and those who don't get coverage from an employer or government program buy health insurance. The market is undergoing sweeping change with the federal Affordable Care Act (ACA), and 2016 marks the third consecutive year of losses for Minnesota health plans.

As the losses piled up last year, carriers hiked premiums and tightened networks to control costs, angering consumers in the process. Gov. Mark Dayton on Monday allowed to become law without his signature legislation intended to help insurers cover the cost of particularly expensive claims.

The so-called reinsurance plan will set aside as much as $542 million over the next two years as a safety net for state insurers.

The other primary source of losses was state public health insurance programs that primarily serve poorer residents.

Minnetonka-based Medica said in November that it would drop its contract as a managed care organization for most in the programs. The state Department of Human Services (DHS) administers the Medicaid and MinnesotaCare programs, which generally cover lower-income residents.

DHS has been working on a multiyear shift to competitive bidding of the contracts after years of questions about health plan profits.

"What you're looking at is context for all of the discussions and changes that have been happening," said Jim Schowalter, chief executive of the Minnesota Council of Health Plans.

As a percentage of revenue, the loss for health plans in 2016 was 2.7 percent, which the council said is the lowest operating margin in the past 10 years. In 2015, health plans posted a margin of -0.6 percent.

In seven of the last 10 years, however, health insurers made a profit. The numbers reported Monday by the trade group focus only on revenue and income from the health insurance business, without factoring investment returns.

Baumgarten, the independent analyst, said health plan profits typically are stronger after including investments.

The trade group represents seven health plans: Blue Cross and Blue Shield of Minnesota, HealthPartners, Medica, Hennepin Health, PreferredOne, Sanford Health Plan of Minnesota, and UCare.

Monday was the deadline for the last in a series of annual filings by insurers with state regulators. Those filings show an operating loss of nearly $322 million at Eagan-based Blue Cross, which is the largest of the eight health plans.

In the individual market, Blue Cross said it lost $142 million for 2016, compared to a $265 million deficit the previous year. The decline mirrored the drop in enrollment, Blue Cross said, rather than an improvement in the business.

Overall, health plans in 2016 lost $275.3 million in the individual market before adjusting for federal health law programs that cover a portion of losses. That was better than $487 million in losses during 2015, but still suggests significant instability in the market, said Schowalter, the trade group's chief executive.

The number of people buying individual plans declined by 18 percent, Schowalter said, so the per-enrollee losses were particularly steep.

"The problem was the loss in enrollment," said Roger Feldman, a professor of health policy and management at the University of Minnesota. "It's very disappointing."

Two of the health law programs that cover a portion of health insurer losses go away starting this year. The state's reinsurance program that became law at midnight Monday is to play a similar role by covering a portion of costs for carriers that happen to attract patients with very expensive health conditions.

The numbers released Monday suggest the market could still use the help, said Cynthia Cox, a researcher with the Kaiser Family Foundation.

"The fact that they're still experiencing losses and they've increased premiums suggests that the market is fragile," Cox said.

Across the country, financial losses for insurers have raised questions about the sustainability of the individual market under the ACA. But Deep Banerjee of S&P Global Ratings said the market is not in a "death spiral" — as some health law critics have claimed — because many insurers in 2016 saw slight improvements from the previous year.

Minnesota's results roughly fit with that trend, Banerjee said, although insurers in the state are somewhat unusual in reporting losses in multiple segments.

The state public program business went from delivering record profits for carriers overall in 2015, to sizable losses last year for Blue Cross and Minnetonka-based Medica. The two health plans picked up a large chunk of the state business through a competitive bid process that downsized the role of Minneapolis-based UCare.

"Our HMO expanded its Medicaid presence across the state in 2016, and in turn, saw our enrollment triple," Michael Guyette, president and chief executive at Blue Cross, said in a statement. "With unprecedented growth in Medicaid utilization levels, current reimbursement rates are not sustainable for the marketplace."

The Minnesota Council of Health Plans said insurers lost $356.7 million on the state public program business. In the wake of Medica's decision to drop the public program contract, DHS hired other health plans to manage care for enrollees.

Medica subsequently sued DHS, saying the state didn't follow procurement laws and gave competing HMOs better contract terms.

"The insurers' losses are the result of the bids they submitted to cover public health care program enrollees," DHS deputy Commissioner Chuck Johnson said in a statement. "Their contracts with the state are risk-based, meaning that in some years they will realize profits and in some years they will see losses."

Christopher Snowbeck • 612-673-4744

Twitter: @chrissnowbeck