Health insurers return to profitability in Minnesota

April 04--Minnesota's nonprofit health plans saw their financial performance rebound in 2017, driven in part by a surprisingly large profit margin in the market where individuals buy coverage.

Margins in the individual market were so high that one health insurer could be providing $30 million in consumer rebates, while an official with another health plan hinted that flat or discounted premiums could be on the horizon.

For the past several years, the individual market has been a source of red ink for insurers across the country under the federal Affordable Care Act (ACA). The financial losses in Minnesota have been so large that lawmakers this year are spending $271 million to shore up the market.

"Medical costs for people who buy insurance on their own went down per-person," said Jim Schowalter, the chief executive of the Minnesota Council of Health Plans, the trade group that issued the report. "That is unexpected and obviously contributed significantly to the improvement from last year."

Overall, seven nonprofit health insurers posted combined net income of $307.9 million on $27.6 billion in revenue last year, according to the trade group's report released Tuesday.

Overall results include revenue and income from selling coverage for employer groups, Medicare beneficiaries, people in state public programs and those with individual coverage. The numbers were a turnaround from a collective loss of nearly $600 million in 2016, driven in part by individual market losses.

The individual market is an option for people primarily under age 65 who are self-employed or don't get coverage from their employer. The market has undergone sweeping change since 2014 with the ACA, which stopped health insurers from denying coverage to individuals based on pre-existing conditions.

For 2017, insurers in Minnesota's individual market saw income of $157 million on $976 million in revenue, for a 16 percent profit margin. That's a turnaround from 2016, when the carriers lost $222.7 million on $1.1 billion in revenue on policies purchased by individuals.

Since ACA changes kicked in, many insurers have struggled to charge enough in premiums to cover the cost of medical bills for individuals. As health plans have tried to catch up with premium hikes, many have speculated about a "death spiral" scenario, in which healthy individuals leave the market due to high premiums leaving only people with costly health problems.

Part of that scenario seemed to happen in Minnesota during 2017, when premiums jumped dramatically and individual market enrollment shrank by about 80,000 people, or 35 percent, to about 151,000 people in December, according to the report Tuesday. But the trade group said medical bills dropped by an average of 15 percent per person.

"I think what these numbers suggest is: The market shrank, but it's overall healthier than anyone expected," said Geoff Bartsh, a vice president with Minnetonka-based Medica. "Now that we know that, that obviously has to be a factor as we set premiums for 2019."

The individual market featured significant turmoil in 2017 after Eagan-based Blue Cross and Blue Shield of Minnesota pulled its most popular plans, forcing about 100,000 people to shop for new coverage. Blue Cross continued to sell individual coverage via its HMO called Blue Plus.

On Tuesday, Blue Cross reported financial results showing the individual market business at Blue Plus posted a profit of $52 million on $298 million in individual market revenue. The ratio of profit to medical expenses is high enough that Blue Cross in a regulatory filing said it expected to pay an estimated $30 million in rebates to consumers.

Rebate reporting is not due to the federal government until July 31, Blue Cross said, so specifics about rebate amounts will not be available until that time.

"We do expect Blue Plus to issue a partial premium rebate," the company said in a statement to the Star Tribune. "Rebates will be mailed to eligible members in the fall."

Allan Baumgarten, an independent health care analyst in St. Louis Park, said the improved financial performance overall for health plans makes sense since Blue Cross shed its individual market losses in 2017, while Medica dropped its money-losing contract to manage care for Medicaid beneficiaries.

In terms of profits from operations -- a measure that doesn't include investment income -- 2016 was the worst year in a decade for the health plans, with insurers collectively posting an operating loss of $687 million for a -2.7 percent margin. Last year was much better for carriers, with the trade group reporting a collective gain on operations of $210 million.

The 0.8 percent operating margin exceeded the 10-year average of 0.43 percent, according to the Minnesota Council of Health Plans. Nonprofit insurers don't have shareholders, the trade group said, so rather than use the term "profit" they describe their income as excess revenue or financial gains that stay in the community.

The new report covers the Minnesota results for seven health plans: Blue Cross; Bloomington-based HealthPartners; Minneapolis-based Hennepin Health; Medica; Golden Valley-based PreferredOne; the Minnesota insurance business for South Dakota-based Sanford Health Plan; and Minneapolis-based UCare.

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