The CEO at one of Minnesota's biggest health insurers says big questions remain for the state's troubled market where individuals buy coverage, but he says he's "cautiously optimistic."
Michael Guyette, the chief executive at Eagan-based Blue Cross and Blue Shield of Minnesota, said in an interview last week that health care in the state is at a crossroads where insurers must partner with doctors and hospitals in new ways to control costs.
For 2016, Blue Cross posted a pretax net loss of $194.4 million as investment income compensated only to a degree for operating losses in the individual market and state public health insurance programs. It was the second consecutive annual loss at Blue Cross, which is the state's largest health plan in terms of in-state enrollment.
"We are worried about the sustainability and the instability in the marketplace," Guyette said. "We've got to do something different."
Blue Cross is one of seven nonprofit health plans that provide most of the coverage in Minnesota. The trade group for those insurers reported earlier this month that health plans posted a collective operating loss of $687 million in 2016, their worst year in a decade that primarily featured annual profits.
Insurers were helped by $148.9 million in investment income, according to the Minnesota Council of Health Plans, but still reported an overall loss of more than $500 million. Troubles in the individual market were one of the primary sources of red ink.
Fewer than 5 percent of Minnesotans buy health insurance in the individual market, which is the source of coverage for people who are self-employed or don't get health insurance from an employer or the government.
The market continues to attract a disproportionate share of attention due to changes in the market starting in 2014 under the federal Affordable Care Act (ACA). The health law prevents insurers from denying coverage to people with preexisting conditions, which is previously how carriers controlled costs in the individual market.
Many insurers have struggled to make the business profitable since that change, although a report this month from S&P Global Ratings found that insurer losses in the market narrowed last year.
"There are clouds on the horizon, in terms of uncertainty in 2018 and beyond," said Deep Banerjee, an analyst with S&P. "But at least what we know so far of 2017, and what we have seen in 2016, the market is not in a death spiral."
Many people don't have much sympathy for health insurer losses, but they're important due to the structure of the ACA, said Gary Claxton, a vice president with the California-based Kaiser Family Foundation.
The health law makes sizable tax credits available to shoppers in the individual market when they buy coverage from private insurers through new health insurance exchanges. If private insurers stop selling coverage due to financial losses, the law doesn't spell out an alternate mechanism for delivering subsidy money, Claxton said.
Insurers shouldn't make excessive profits, Claxton said, but "you certainly want them to be making money and interested in serving the market and seeing it as a good place to do business. The law is set up that way. They talked about a public option, and they did not create one."
Traditionally, Blue Cross plans in many states have been the largest providers of individual market coverage, and sometimes were alone in selling across all counties in a state. The health law sought to boost competition in state individual markets, Claxton said, but there's now attention to whether Blue Cross plans will stick with the business, or follow non-Blue carriers as they drop out.
Minnetonka-based UnitedHealthcare is a case in point. The nation's largest insurer hasn't been a major player in the individual market over the years and sought to expand its presence by competing on more than 30 state health insurance exchanges in 2016. But faced with mounting financial losses, UnitedHealthcare has dropped out of exchanges in almost all states.
Earlier this month, the Blue Cross insurer in Iowa and another major carrier announced that they would not compete in that state's individual market for 2018. That means Minnetonka-based Medica could be the only individual market option next year in most Iowa counties. People across the country are closely watching, Claxton said, to see whether Medica will decide to stick with the market.
A Medica spokesman said via e-mail: "We continue to evaluate the situation in Iowa and our options."
"You need participants," Claxton said of insurers. "If no insurers are participating in the exchanges, there's no financial support for low-income people."
Guyette said his company wants to sell individual market coverage in 2018, but can't yet provide a guarantee that it will do so. Among the uncertainties is whether the federal government will continue providing a form of subsidies known as "cost sharing reductions," or CSRs.
Last week, the Wall Street Journal reported that President Donald Trump said the question of continued funding of the CSR subsidies could be used to lure Democrats into negotiating health law changes.
"The problem with saying a 'yes' right now is, there's nothing firm. … I watch my tweets every day to see if we're going to be in business," Guyette said. "Our intention is to make sure that we are in the individual marketplace. But there are still so many unknowns out there."
Blue Cross of Minnesota has seen its individual enrollment and profit decline under the ACA. Blue Cross shook up the market for 2017 by shutting down a popular plan that provided wide access to almost all doctors and hospitals in the state. Blue Cross also joined other carriers by boosting premiums in the individual market by at least 50 percent.
Regulators said the state's individual market nearly collapsed with all insurers threatening to pull out.
Despite its long experience with the individual market, Blue Cross has struggled to sell coverage at a profit under the ACA. In 2014, individual market premiums in the Twin Cities were the lowest in the country — and proved to be far short of the sum needed to pay enrollee claims.
Golden Valley-based PreferredOne was a big player in the market during 2014, but had to pull back dramatically for 2015 due to financial losses. Many of those enrollees jumped to Blue Cross, Guyette said, and the health plan saw more red ink.
Blue Cross hiked premiums by 55 percent for 2016, but still didn't charge enough to cover claims. The S&P Global Ratings report issued this month said that while Blue Cross of Minnesota saw an improvement with individual market performance during 2016, the carrier still had an above-average mismatch between claims and premiums.
"Clearly, they're trending in the right direction," Banerjee said, "but the numbers are showing they'll have a pretty high loss for the year."
It's still not exactly clear how premiums and claims are lining up for 2017, Guyette said, although he expressed guarded optimism.
Looking back over the past three years of losses, Guyette said surprises in the market haven't helped. Under the health law, Minnesota closed its high-risk pool that previously provided coverage for people who couldn't buy individual policies due to preexisting condition exclusions. Projections were off for exactly when those enrollees would move into the private market, Guyette said.
Carriers expected the federal government would provide more financial help in the event of losses by way of a program known as "risk corridors." The funds haven't arrived as expected, so Blue Cross is among the insurers that have filed lawsuits.
There's also been anecdotal evidence, Blue Cross says, of individual market enrollees dropping into coverage via special enrollment periods to cover bills for particular procedures, only to stop paying premiums once they receive care.
While troubles in the individual market command the headlines, Blue Cross says it wants to initiate a broader conversation about the continued rise in health care costs across all market segments. The insurer's initiative focuses on clinical innovations, better care management and changes to how the health plan pays for care and assembles networks of doctors and hospitals.
"Payments to hospitals, physicians and drug companies are rising too quickly, " Guyette said in a statement. "We need new ideas and new approaches that can help members, employers and providers move forward."
Christopher Snowbeck • 612-673-4744