An Insurance Market in Crisis

While the 2016 health care panel concentrated on the long-term issues and their state budget implications, our annual meeting luncheon examined a more immediate concern: a Minnesota individual health insurance market in crisis.  Michael Guyette, President and CEO of Blue Cross Blue Shield of Minnesota, offered a blunt assessment of the extraordinary challenges facing the individual insurance market and offered a health insurance policy prescription for the future.

Guyette began by noting the current problems of the individual insurance market are everyone’s problem, not just those customers in this segment exposed to the rapidly rising premiums.  While the individual market is the smallest insurance segment, currently serving only about 250,000 Minnesotans, everyone – including group insured, self funded plans, and those on public health coverage – are ultimately connected to it, affected by it, and need to have it fixed quickly.  He noted pressure in one segment of the health care system inevitably moves to other segments of the marketplace.  No one should feel immune from this issue.  “This is a big deal for the state,” he said, and it’s not a matter of “if” the challenges facing the individual market affect other segments, but “when.”

With respect to the BCBS’ recent withdrawal from the individual market, Guyette offered a frank analysis on how that decision was reached.  He began by acknowledging the hugely painful, disruptive nature of the decision, its direct effect on over 100,000 people’s lives, and noted that every possible avenue to avoid this decision was pursued.  However, the decision was deemed necessary because continued participation in this segment under the current policy framework, “put 2.8 million other Minnesotans covered under Blue Cross plans at risk.”

The numbers and economics are stark.  The individual market today, he continued, is underfunded by about $300 million, and has shrunk in recent years from 290,000 to 250,000 people.  Every 10,000 people leaving the market represents $50 million in lost premiums.  Moreover, based on the three years of data now available, it’s become clear that those who have left the market are the healthiest individuals.  High claim rates in the individual segment are now higher than what is was three years ago.  “The claims are there; the premiums are not there to support it; the basics of insurance are broken.”

He noted BCBS is on track to lose $500 million in three years on the individual market due to this significant payment gap.  As a non-profit health care insurer, such economics pose a direct threat to BCBS’ public mission of supporting the health care of all Minnesotans -- “no margin, no mission.”  Guyette stated his concern that if changes aren’t made and soon, there won’t be an individual market in 2018 for sole proprietors, early retirees, and many others.

“If we can’t solve this, we’re all going to have to pay for it,” he continued.  Echoing a point made in the earlier panel, Guyette noted the state’s historical health care cost advantage has eroded – Minnesota’s cost of care is now 5^th highest in the nation by one report he has seen.  He expressed dismay that all the parties have not been able to come together to address the problem and emphasized that action is needed in the timeframe of months, not years.

What can be done?  With respect to the big picture he agreed with earlier panelists that payment reform is ultimately the biggest issue that needs to be fixed, but added that it will also take the longest time to fix.  With respect to the immediate challenges in the individual insurance market, he remarked that there is no silver bullet.  However, he offered four key ideas that need to be part of a policy agenda to stabilize the individual market:

• Revoke Minnesota’s “guaranteed renewability” law.  Current law provides that when an insurance carrier puts out a plan it stays there forever, and carriers cannot withdraw the plan and replace it with something similar or different.   The only way to withdraw a plan is to leave the market entirely.  Guyette noted this made sense in the 90s when people had to go through underwriting to get covered and the provision kept people from falling through the cracks but “those days are over.”  People have guaranteed coverage and the market has changed.  Carriers like Blue Cross have plans out there that cause them to be adversely selected against without the ability to adjust product portfolios accordingly.  
• Need to verify special election enrollments.  The combination of no upfront eligibility requirements combined with a grace period for premium payments leads to extraordinary opportunities to game the system.  Guyette cited examples of out of state citizens claiming local hotels as a Minnesota residence for coverage purposes and then leaving the state after treatment – costing Blue Cross “tens of millions” of dollars and more for the state.
• Prevent financially conflicted third party payments.  The health care system is also being gamed by foundations that provide premium assistance to individuals for care but are incentivized by private company donors to move people from less expensive government care to private care because the reimbursement rates are greater.  Arguing that we should “go after” such clear conflicts of interest, Guyette said Blue Cross has identified $25 million in extra costs that these practices generate.
• Need to create a new high risk pool in Minnesota.  Guyette argued Minnesota needs to get a waiver from the federal government to reestablish something like the old MCHA program to avoid the death spiral resulting from increasingly higher concentrations of individuals who would historically have been turned down for private coverage being the primary customers in the individual market.

He concluded by emphasizing again these issues connect everyone in all health insurance segments.  Costs are rising and competitiveness issues are at stake.  It is everyone’s interest to address these issues promptly.