More insurers pressured to lower MNsure rates: Time to remove politics from rate-setting process

The Star Tribune reported yesterday that the Minnesota Department of Commerce “asked” PreferredOne to lower insurance rates in the MNsure exchange last year.  The July 2013 letter referenced in the story reveals the company lowered rates twice in response to Commerce “objections.”

PreferredOne ultimately agreed to lower rates by 37 percent from its initial proposal, which resulted in the company offering the lowest rates in the nation.  Governor Dayton’s administration celebrated these low rates throughout the year, all of which helped dial down the political heat from MNsure’s botched rollout.

“Now,” according to the Star Tribune, “those subscribers face an average premium increase of 63 percent if they stay with PreferredOne.”

This revelation comes after Governor Dayton insisted in a debate that PreferredOne “misjudged the market” and refused to take any responsibility for the yo-yoing rates now harming tens of thousands of Minnesotans.

Governor Dayton is responsible for knowing about Commerce’s involvement and, if he knew, he intentionally misled the debate audience.

UCare also lowered rates in response to objections from Commerce

This may be just the beginning of the story.  PreferredOne was not the only company pressured to lower rates.

Rate filing documents show Commerce “objections” successfully pressured UCare to lower their rates too.  An August 2013 letter from UCare’s chief financial officer explains the company lowered rates at least twice “in response to the Commerce Department’s commentary.”  Analysis of UCare spreadsheets filed with Commerce, suggest average premium rates were reduced by 26.6 percent from initial proposals.

This reduction did not result in a similarly dire financial outcome for UCare because the company’s rates started out much higher.  Even after the reduction they were still priced higher than much of the market and, as a result, UCare has only enrolled 549 people.

However, UCare is the only company lowering their average rates for 2015.  Their narrow network silver plan is now among the lowest priced plans in the market.  Regulatory filings for these changes are not yet available and so it’s not clear whether this is a market response or a response to more Commerce objections.

HealthPartners mysteriously lowers 2015 rates

The regulatory dockets for 2014 rates show Medica and HealthPartners both lowered rates after they changed some assumptions on the projected health level of their members.  And, based on a July 2013 letter, HealthPartners appears to have rejected Commerce pressure to further lower their 2014 rates, but that is just what is shown in the record.

HealthPartners new 2015 rate filings show the company lowered rates at some point between the end of July and early September, but it’s not clear why.  Two July 2014 letters from the company—one for plans inside the exchange and one for plans outside—reference a Commerce request for a private meeting and also include a table of proposed rate increase ranges for people who were enrolled in plans prior to January 1, 2014.  Somewhere between those letters and the final actuarial memos released in September rates dropped for people previously enrolled.  Presumably, rates for everyone dropped.

HealthPartners now appears to offer the lowest rates in the nation for 2015.

Facts suggest politics behind pressure for lower rates

Of course, there’s nothing wrong with Commerce pressuring insurers to lower rates in the name of consumer protection.  However, the above facts create a reasonable and unsettling perception that politics drove much of the push to lower rates.

Even after agreeing to lower rates, insurers were asked to lower them yet again.  In PreferredOne’s case, the final rates were substantially lower than the nearest competitor, something the company would not have known during the rate review process.  That should have been a red flag to regulators to hold back pressure, but they pushed anyway.   Now we have HealthPartners pulling back on their proposed 2015 rate increase without any explanation.  Is it merely coincidence that this positions them with the lowest rates in the nation?

Transparency lacking in regulatory filings

All of this reveals a troubling lack of transparency and consistency in insurance regulatory filings with the Minnesota Department of Commerce.  Each insurance company must file various documents with Commerce in a rate review docket.  Among other things, these documents include an actuarial memorandum in which insurers justify their rates and spreadsheets showing their work.  UCare provided every revision of these memos and spreadsheets, providing the clearest picture of how things changed through the rate review process.  Other insurers only offered their final memos and spreadsheets, as well as some public replies to Commerce objections.

PreferredOne did not have the capital reserves to cover a big loss

Getting back to PreferredOne, the company paid out $1.31 in claims for every dollar it took in through the first half of the year.   As of May, the company had 81,437 members in their individual market health plans.  Assuming an average monthly premium of $166—what they report in their regulatory filings—the company is losing $4.2 million a month in the individual market.

To cover those losses, the company had only about $30 million in capital and surplus reserves at the end of 2013, according to the National Association of Insurance Commissioners.  2014 profits in other lines of business could also help stem losses.

Clearly, PreferredOne is in a very tight financial spot.  As the company explains in their rate filings, “leaving MNSure is expected to reduce plan membership, which reduces the capital required to maintain financial stability.”  Dropping MNsure members must have been an easy financial call for PreferredOne.

Reserves put other insurers in a much stronger financial position

Unlike PreferredOne, every other insurer participating in MNsure appears to hold substantial capital and surplus to cover any initial and even ongoing losses through MNsure and the individual market.

Back in July of 2013, the Star Tribune reported “Minnesota’s health plans have stockpiled a substantial surplus of cash reserves,” enough to cover 3.2 months in medical claims with no additional revenue.  A recent update shows health plan reserves have grown to cover 3.5 months of claims.   Combined, health plan reserves total more than $2 billion.

Public health care programs contribute substantial sums to the health plan’s stockpile of reserves.  Medicaid, Medicare and the federal employees health plan are large books of business for every major Minnesota health plan with the exception of PreferredOne.  And, prior to this year, public programs were the only book of business for UCare and Group Health—the HealthPartners company servicing MNsure.  Thus, the entire reserves for these two entities were built with public dollars.

Reserves demand tighter scrutiny after recent controversies

Aside from PreferredOne, no other insurer has reported whether or not they are taking losses on the individual market under current rates.  But, in light of recent controversies over insurance reserves, it’s certainly worth asking whether reserves contributed to making riskier bets on rates and whether they’re already covering losses at other insurers.

UCare sparked a huge controversy back in 2011 when it gave $30 million to the state from their reserves to help balance the state budget.  This added fuel to an already burning controversy over whether Minnesota health plans were overcharging the state for administering public health plans.  The most controversial charges—detailed in a memo signed by Sen. Chuck Grassley, Rep. Darrell Issa and Rep., Trey Gowdy—stemmed from allegations Minnesota defrauded the federal government by covering losses in a state-funded health plan with profits from federally funded Medicaid health plans.

This history demands a tighter level of scrutiny over how health plan reserves are accumulated and used, especially now that federally subsidized MNsure exchange health plans are added to the mix of products that can benefit from these reserves.

Reserves can help explain low rates

Even if insurers aren’t taking losses, the stockpile of reserves can still help explain Minnesota’s relatively low rates.

Nearly every insurer across the country was entering unknown rate-setting territory when Obamacare’s new insurance regulations took effect on January 1, 2014.  Prior to this year, all but six states allowed insurers in the individual market to reject people based on their health status.  Now every insurer must guarantee insurance coverage to all comers and no one knows exactly who will come knocking.

Insurers without large reserves will need to approach this unknown more conservatively, which requires higher rates at least until they have a couple years of experience behind them.

With larger reserves, Minnesota insurers don’t need to set rates as conservatively.  That doesn’t mean they should be sloppy, but they can make their best educated guess and not worry about going bankrupt.

It also means they can bend to a certain degree of pressure from the Dayton administration.  Doing so, however, would pose a scandalous risk to reserves that have been built, in part, with public dollars.

These facts add to the Dayton administration’s growing history of credibility issues on MNsure and rate setting.  Recall MNsure representatives were not forthright about MNsure problems during the rollout, leading WCCO reporter Pat Kessler to conclude they lied to him.  Most recently, and reported in the Star Tribune today, Commerce continues to use a misleading number to portray the average insurance rate increase for 2015.

Clearly, the Dayton administration places a high political value on portraying low rates through MNsure, which provides good reason to question how rates were set.  In the end, all of this shows it’s time to start thinking about what policies need to change to remove even the perception of politics from the rate setting process.