May 07--A recent uptick in health care costs could start ballooning some insurance premiums for Minnesota workers this summer.
Medica, one of the state's three largest health insurers, is seeking an average rate increase of 13 percent for about 5,000 people covered through their small-business employers when they renew policies in July.
If approved by state regulators, the proposed increase could affect future premiums for an additional 65,000 people in small-business accounts with the Minnetonka-based health insurer.
Medica covers about one-fourth of the state's "small group" market -- meaning small businesses with 50 or fewer employees -- and the actual premium increase for different customers would vary.
It's unclear whether other health insurers will follow Medica's lead. To some extent, the proposed increase compensates for Medica's losses last year on its business selling health insurance to small employers.
The small-group market hasn't seen a major premium increase from a major insurer in the nearly two years a government website has been tracking big premium jumps. Medica's proposed increase earns it a mention on that website, companyprofiles.healthcare.gov.
"The biggest reason for the increase in the rate that's needed is medical trends, and growing medical expense," said Geoff Bartsh, vice president of public policy and government relations with Medica. "It's the first time we've been listed."
taxes from the federal health care overhaul legislation also are a factor in the proposed premium increase, Bartsh said. But the impact is muted because several of the taxes won't kick in until January.
"The key drivers of the increase include general medical cost increases," Medica officials wrote in materials posted to a website maintained by the U.S. Department of Health and Human Services. "The vast majority of our premium goes to pay for medical services."
There has been considerable interest in the outlook for premiums as the most sweeping provisions of the federal health law take effect next year. The law includes new health insurance market rules that are expected to create distinct groups of financial winners and losers.
In the small-employer market, for example, health insurers in Minnesota no longer will be allowed to provide premium discounts to healthier groups. The law also sets minimum standards for the comprehensiveness of health insurance benefits, meaning some groups will have to switch to plans with lower deductibles and higher premiums.
Costs from the new rules are expected to be a significant factor in rate requests that insurance companies are filing this month for policies that begin Jan. 1, 2014.
"There will be sticker shock between now and Oct. 1 when the premiums are finalized and made public," said Marcus Merz, chief executive officer of PreferredOne, a health insurer based in Golden Valley.
But those costs aren't listed as a factor in the premium increase being sought by Medica. That's because health insurance policies that renew July 1 won't be subject to the new rules for another year.
The Medica increase is primarily due to more people using medical services, plus an increase in the cost of those services, the insurance company said. Medica expects significant increases in the sums paid to doctors and hospitals, in particular.
That outlook fits with an April report from the trade group for local health insurers that tracked a jump during 2012 in per-person spending by health plans for medical care. Blue Cross and Blue Shield of Minnesota, the state's largest health insurer, also has noted the trend.
"The volume of covered care was at a historically low level during the economic downturn," said Jim McManus, a spokesman for Eagan-based Blue Cross in a statement Monday, May 6. "We have seen that trend starting to turn in the other direction."
Medica's recent decisions in setting rates for small-group customers also played a role.
In 2010 and 2012, Medica's small-group customers saw average premium increases of less than 2 percent. In 2011, the average Medica premium for small businesses declined by more than 1 percent.
"In 2012, we lost money on this business," Bartsh said. "So, we have to re-adjust our trend assumptions."
To some extent, the entire small-group health insurance market in Minnesota likely will go through a similar adjustment, said Christopher Schneeman of Seven Hills Benefit Partners, an insurance agency in St. Paul.
"If we've been walking along at close to zero percent for the last couple years, that's just unrealistic," Schneeman said. "As a population, we're getting older and we're getting access to more and more expensive treatment options."
Federal officials contend that increased transparency about proposed rate increases could help moderate growth in premiums.
From 1999 to 2010, the cost of coverage for a family of four in the United States grew by 131 percent.
"Many times, insurance companies have been able to raise rates without explaining their actions," the federal government wrote in a background document about the website. "In most cases, consumers receive little or no information about proposed premium increases, and aren't told why health insurance companies want to raise rates."
In Minnesota, the state Commerce Department reviews requested rate increases and ultimately approves health insurance premiums. Materials are not made public by the state until a final rate has been established.
Medica is one of four companies with more than 20,000 people covered through small-group health plans in Minnesota. The others are Blue Cross, HealthPartners and PreferredOne.
None of those insurers in the small-group market had an average rate increase of more than 10 percent from 2009 to the present, according to the Commerce Department.
Christopher Snowbeck can be reached at 651-228-5479. Follow him at www.twitter.com/chrissnowbeck.
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