3 Reasons Why Minnesota’s Individual Health Market Is A Mess

Nov. 15--The roughly 100,000 Minnesotans buying unsubsidized health insurance from MNsure don't need any stats or charts to tell them Minnesota's individual market is in a crisis.

Their premiums are going up by an average of 59 percent, their plan options have narrowed and many of them have been kicked off their old plan when Blue Cross Blue Shield left the market.

But the stats tell a stark tale nonetheless -- and Minnesota policymakers are paying very close attention as they try to find a way to end the crisis and help Minnesotans get good, affordable health insurance.

Here are three statistical reasons presented at a task force meeting Monday that highlight exactly why Minnesota's individual market is such a mess:

1. TOO MANY SICK PEOPLE IN A SMALL POOL

It's perfectly normal in health care to have a small number of people account for a large majority of the cost. Just one person with cancer can cost far more in a year than hundreds of healthy people who just get routine checkups.

In Minnesota, for example, the most expensive 20 percent of the population accounted for about 83 percent of total costs, a 2014 study by the Minnesota Department of Health found -- a typical figure for the U.S. The most expensive 2 percent alone accounted for 24 percent of spending.

But Minnesota's individual market takes this into overdrive. Just 2.2 percent of the roughly 267,000 Minnesotans on the individual market in 2015 caused almost 50 percent of health costs, a Department of Commerce study found. That's twice as expensive as the overall population.

This 2.2 percent, about 6,000 people, averaged about $100,000 per person per year -- a total of $600 million.

That number, 6,000 people, is about the same as the number of people who moved into Minnesota's individual market in 2014 from the state's former "high-risk pool" set up for people with expensive pre-existing conditions, according to an analysis by Stefan Gildemeister of the state's Health Economics program. The 25,000-person high risk pool required $170 million in subsidies spread over the state's entire commercial insurance market to stay solvent in 2013, its final year before the Affordable Care Act closed it down.

Another factor besides the high costs? Minnesota's individual market is disproportionately old -- and thus more expensive to insure. More than 25 percent of individual market customers are between 55 and 65. Only about 10.4 percent of Minnesota's population is in that age bracket. And the problem is getting worse: from 2014 to 2016, the average age of an individual market customer rose from around 37.5 to around 40.5, Department of Commerce data found.

In an insurance market, cost of care is spread out over the entire market. So more sick people means higher premiums for everyone -- and the Minnesota individual market's extremely sick people mean extremely high premiums.

2. COSTS VARY WIDELY

While everyone's costs are going up, some Minnesotans are paying a lot more money than others.

Under the Affordable Care Act, insurers aren't allowed to charge people more based on how sick they are. But they can charge older customers up to three times as much as younger customers, and can also vary their premiums based on geographic area.

So for a resident of the Twin Cities metro, where there are lots of competing hospitals, average premiums are about 7 percent below the state average. That's good news for the roughly 60 percent of individual market customers living in the greater Twin Cities area.

But five other more rural regions of the state, encompassing 60,000 people in 45 counties, pay average premiums more than 7 percent above the state average. In the southeastern part of the state around Rochester, the average premium is a whopping 36.6 percent above the state average.

This means many rural Minnesotans are hit twice: They have fewer provider choices to begin with and then have to pay more to boot. On top of that, they may not have as many options to find a nearby job with employer-sponsored insurance as a resident of the metro.

3. THE 'PREMIUM CLIFF'

The Affordable Care Act provided income subsidies to help many Americans afford private insurance on the individual market, based on income.

People earning up to $47,520 as an individual or $97,200 for a family of four get subsidies that cap a benchmark premium at 9.5 percent of their annual income.

But these subsidies disappear at that threshold, which is 400 percent of the federal poverty line. So while a 60-year-old St. Paul resident earning $45,000 a year might pay 9.5 percent of his or her income in premiums, that person could pay almost 20 percent of their income in premiums if they earned $50,000 per year, according to data from the Department of Commerce.

It's even starker for a Rochester resident, subject to that region's higher premiums. The Department of Commerce data shows a 60-year-old on the individual market could face premiums nearing 30 percent of their income if they're just over the poverty line.

People much richer than this level often have the money to pay even their higher premiums. But it's the people just over what Department of Commerce analysts call the "premium cliff" who are caught in the middle: too rich for subsidies but not rich enough to afford their health care.

SOLUTIONS?

Gov. Mark Dayton has called a task force of political and health policy leaders to explore long-term solutions to some of these problems. At its first meeting Monday, they heard experts from the Health and Commerce departments present this data, and began brainstorming solutions. Two meetings in December will narrow options down to produce a report for the governor and lawmakers.

Among the ideas on the table: create a program to cover some of the costs of Minnesota's sickest residents so they don't drive up costs for everyone on the individual market.

Lawmakers are also debating using state money to provide relief to Minnesotans just over the premium cliff. If Republicans and Democrats are able to strike a deal, a special legislative session could approve those subsidies in the coming weeks.

This story has been updated with additional information about the state's high risk pool and demographics. It has also been updated to correct the amount of state subsidies the high risk pool received.

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