Hopeful signs for Minnesota health insurers

Jan. 13--The long-suffering market where individuals buy health insurance continues to show signs of improvement.

A series of national reports this month show that individual market insurers through the first three quarters of 2017 were doing a much better job covering claims with premium revenue than in previous years.

The improvement suggests that after years of red ink, carriers could soon see financial results on the horizon ranging from break-even to small profits.

Apparently, the trend is holding true in Minnesota, as well. A state Health Department report released Friday and a Star Tribune analysis of more recent data both suggest premiums last year were covering claims, although insurers say the market still isn't out of the woods.

What's good for health plans doesn't necessarily feel great for consumers, however, since the business has improved with premium hikes and limits on doctor and hospital choices that have outraged some shoppers.

"Every year, it's taking a step in the right direction," said Deep Banerjee, an analyst with S&P Global Ratings. "At the same time, there remains some lingering policy uncertainty that could play itself out in a negative fashion over the next couple of years."

The improvement comes in the individual market, a small slice of the health insurance world that has undergone sweeping change with the federal Affordable Care Act (ACA).

In Minnesota, less than 5 percent of state residents last year, or about 166,000 people, were buying individual policies, which are primarily sold to people under age 65 who are self-employed or don't get coverage from an employer.

Among other things, the ACA in 2014 started blocking insurers from denying coverage to individuals based on pre-existing health conditions. The health law also launched new insurance exchanges where individuals can buy coverage, and tap federal subsidies.

Since the changes began, many insurers have posted large financial losses in the individual market and, in some cases, have shut down options, as a result. Even with these problems, "health plans have been profitable overall," noted a report this month from rating agency A.M. Best.

If insurers don't make money in the individual market, they might elect to stop competing for the business and focus instead on profitable segments, said Cynthia Cox, a researcher with the Kaiser Family Foundation.

"Insurers don't have to participate in the individual market," Cox said.

This month, the California-based group issued a report that argued claims and hospitalization data through the first three quarters of 2017 suggest individual market enrollees were not noticeably sicker than the previous year. That's important, Cox said, because it suggests premium jumps aren't forcing significant numbers of healthy enrollees to flee the market as some had feared.

Similarly, the A.M. Best report concluded: "Results of the ACA exchange business improved in 2016 and 2017, driven [partly] by consecutive years of high rate increases and a narrowing of provider networks."

At S&P Global Ratings, analysts in a report this month tracked what they called gradual improvement in the individual market in terms of medical loss ratios (MLRs), which is the ratio of medical claims incurred by insurers divided by premiums.

During the first three quarters of 2014, 2015 and 2016, insurers across the country reported MLRs in the aggregate that exceeded 90 percent, according to S&P. At that rate, analysts say, carriers were likely losing money on the business, since the calculation doesn't factor overhead costs.

But through the first three quarters of 2017, the MLR was 79 percent, according to S&P, which means more insurers likely will break even for the year or post small profits after factoring overhead and the typical surge in medical claims for carriers during the fourth quarter.

"After the likely improvement in 2017, we expect more insurers to see positive margins in 2018 and the industry, in aggregate, to report low-single-digit margins," analysts wrote.

In Minnesota, the Health Department on Friday released a report showing an improvement in MLR scores through the second quarter of 2017, which researchers said suggested that insurers were poised for small profits after three years of losses. A Star Tribune analysis of regulatory filings shows the MLR improvement continued through the third quarter.

During an interview with the Star Tribune, Banerjee of S&P looked at the results for the four largest insurers in Minnesota's individual market and said: "It seems that all four of them are showing year-over-year improvement in their medical loss ratio. So, a similar trend is visible in Minnesota."

Insurers, however, say there's still plenty of reason to be cautious about the outlook.

MLRs through the third quarter don't tell the whole story, since insurers tend to incur more medical claims during the second half of the calendar year, insurers say. That's because people with high-deductible health plans pay a lot of medical bills out-of-pocket during the first half of the year until they hit the maximum out-of-pocket limit. At that point, the bills shift to insurers.

"What you're looking at here is the third quarter, so that's still very preliminary information," said Jim Schowalter, chief executive of the Minnesota Council of Health Plans, a trade group for insurers

Minnesota's individual market has been shrinking, Schowalter said, and the dynamic makes it tough for insurers to predict how many medical claims could be coming in the future.

Individual carriers offered varying degrees of pessimism.

In a prepared statement, Eagan-based Blue Cross and Blue Shield of Minnesota stressed the preliminary nature of the third-quarter numbers, while also noting "this segment is now trending toward stabilization." Blue Cross said it lost more than $500 million in the individual market over a three-year period.

Ghita Worcester, a senior vice president with Minneapolis-based UCare, also noted uncertainties, but offered a degree of optimism, too. The insurer is gaining enough paying customers in 2018, she said, that UCare's risk pool is better able financially to handle surprise cases where individuals incur unusually large medical bills.

"We're feeling much more confident," Worcester said.

Bloomington-based HealthPartners issued a statement that stressed the partial nature of third-quarter data. Without citing specifics, the insurer also pointed out that changes at the federal level complicate the outlook.

In December, the tax bill passed by Congress eliminates in 2019 the ACA's penalty for people who lack health insurance -- a mandate for coverage that carriers say is critical for making insurance markets work. The Trump administration also has been promoting new rules for association health plans and short-term benefits that some fear could pull healthy consumers from the individual market.

Schowalter said he wasn't sure what impact the lack of a mandate would have on the number of people buying coverage in Minnesota. Some analysts have called the current mandate penalties "weak," and therefore downplayed the impact.

But Schowalter said he worried about what could be coming with the rules on association health plans and short-term coverage.

"Those kinds of plans could very easily attract more people away from buying insurance on their own," he said, adding that they "could leave fewer people to pay for really expensive medical bills and almost certainly will add another piece of uncertainty in an already unpredictable environment."

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