Positive Blue Cross results trigger rebates to consumers

After three years of losses in the state's market where individuals buy health insurance, Blue Cross and Blue Shield of Minnesota made so much money last year that it has to give some back.

The Eagan-based carrier, which is the state's largest nonprofit health plan, disclosed last week that it expects to provide $30 million in consumer rebates as required by rules in the federal Affordable Care Act (ACA).

Analysts said that Blue Cross likely isn't alone in having overshot with rates last year, since insurers across the country have been struggling to figure out how much premium revenue they need to cover the cost of medical bills in the individual market.

In Minnesota, rebates driven by big margins are a surprising cap to a year that started with fears that mounting losses would cause a market collapse.

"Remember in 2016, they approved premium rate increases between 50 percent and 67 percent for 2017," said Roger Feldman, an emeritus professor of health economics at the University of Minnesota, noting the range of increases for Blue Cross and its competitors. "That just knocks your socks off."

The rebates apply only to people in the individual market, a small slice of the health insurance world primarily for people under age 65 who are self-employed or don't get coverage from their employer. Refunds are not coming for people with Medicare, Medicaid or employer coverage.

Joel Stich, the senior director of individual markets at Blue Cross, resisted the idea that the insurer was wrong in setting premium prices for 2017 or overshot the market, saying instead: "We missed in what our assumptions were."

Blue Cross lost more individual-market enrollees last year than the carrier anticipated, Stich said, noting the number plunged from about 100,000 to roughly 37,000. Use of medical services among enrollees was lower than expected, Stich said.

On a per-person basis, in fact, medical spending in the individual market declined significantly during 2017, according to a report last week from the Minnesota Council of Health Plans, a trade group for insurers. The group's executive director called the decline surprising and unexpected.

Blue Cross was cautious in setting rates for 2017 because of its position in the market relative to other carriers, Stich said. Heading into the year, Blue Cross announced that it would stop selling individual coverage through its primary health insurance division, and would instead only offer plans with tighter networks of doctors and hospitals through its HMO called Blue Plus.

Blue Cross made the move after growing financial losses, and the change forced most of its individual market enrollees to shop for a new health plan.

Other insurers threatened to leave the market as a result, regulators said, prompting the state to let competing carriers cap their enrollment for 2017.

"We were the only carrier in the market without a cap," Stich said. "And so, for us, that would have left us with some exposure being the carrier of last choice. There's some uncertainty there — if no other carrier is able to take an individual, we also have to be able to account for that."

The individual market has been shrinking in Minnesota following ACA reforms that kicked in for 2014. Enrollment in the market was 151,364 at the end of last year, down from nearly 300,000 a few years ago, according to the Minnesota Council of Health Plans.

The trade group's report last week showed that carriers in the state were profitable once again in 2017, a reversal from two consecutive years of operating losses. Overall, seven nonprofit health insurers posted combined net income of $307.9 million on $27.6 billion in revenue last year, for a margin of about 1.1 percent.

Part of the improvement came from the individual market, where carriers saw $157 million in profit — a sum the trade group described as a "gain" that represented a 16 percent margin on $976 million in revenue. That's an unusually high profit figure, and shows how insurers were still having trouble in 2017 figuring out where to set premium prices, said Deep Banerjee, an analyst with S&P Global Ratings.

"The goal is never to get a 16 percent profit in this marketplace," Banerjee said.

A Star Tribune analysis of regulatory filings shows that the Blue Cross HMO had the single largest chunk of operating income in the market at $52 million. The analysis shows that other leading carriers in the market also made money on the business, although not so much that they are planning to pay rebates.

Refunds are mandated by the Affordable Care Act, which regulates the share of premium revenue that health insurers must spend on clinical services and quality improvement. The rule, which is similar to an older Minnesota statute, requires insurers to issue rebates to individual market enrollees if the share of premiums spent on health care falls below 80 percent.

"It caps how much they can either keep for profits or for administrative purposes," said Cynthia Cox, a researcher with the California-based Kaiser Family Foundation.

The ACA rule has been prompting rebates since 2011, but there have been relatively few in Minnesota. Over a six-year period, the federal government tabulated $1.1 billion in rebates from insurers in the individual market across the country, but only about $1.5 million in payments to Minnesota consumers.

Cox said she would not be surprised if other insurers wind up paying rebates for 2017, since the market through the third quarter of last year was showing signs of becoming more profitable for carriers.

"But because losses were so significant in the past couple of years, and because the rebates are based on three-year averages, it's also likely that some insurers that were profitable last year won't owe rebates," Cox said.

Blue Cross, in fact, said that it wouldn't be paying rebates if the bulk of its prior-year losses were included in the rebate calculation for the Blue Plus HMO. Most of that red ink came in the Blue Cross health insurance division, rather than Blue Plus, so it's not factored, said Jim McManus, a spokesman for the health insurer.

Rebates won't be finalized until the summer, and won't be paid to consumers until the fall. It's unclear exactly how much consumers might expect per person.

More than 37,000 people were buying its individual market plans last year, which might imply a payout of roughly $800 each considering the estimated $30 million total. But McManus said actual rebates will depend upon a number of factors including how long a person was enrolled during 2017 and the amount of premium paid.

Christopher Snowbeck • 612-673-4744 Twitter: @chrissnowbeck