The reason Preferred One – provider with all of the least-expensive plans in the MNSure exchange – left the exchange last month, giving most of its subscribers a 60+% increase in rates to keep a MNSure plan, was that they were basically strong-armed into providing the unsustainable low rates to begin with:
Sometime after the insurer PreferredOne submitted its proposed rates for the first year of the MNsure exchange, state regulators asked the company to consider lowering the numbers.
Ultimately, the insurer responded with “a total rate decrease of 37 percent”, according to a July 2013 letter from an outside actuary to the company. Those final rates were the lowest in the Twin Cities – and across the country, in many cases – and helped PreferredOne to grab nearly 60 percent of the MNsure business.
Now, those subscribers face an average premium increase of 63 percent if they stay with PreferredOne — a yo-yo scenario that health policy experts say points to the challenge in setting prices under the federal health law. The big swing also suggests that the low prices were out of step with the reality of the business.
“This was the first year of a new market, so no one knew what they were bidding on,” , said Gary Claxton, a vice president with the California-based Kaiser Family Foundation. “That means it was hard to create the rates, and it was hard to review them.”
Here’s the deal: as Representative Zerwas pointed out on a morning radio show today, Preferred One is keenly aware that the MNSure board – a political board, composed (per statute) of absolutely no people from the healthcare or health insurance industries – can decide who does and doesn’t get to participate in the exchange.
Which gives them a lot of power when, for example, they tell a company like Preferred One to kick the tires on an unsustainable rate structure.
OK, so the people approving rates were totally unfamiliar with the industry and the actuarial basis for doing this…..well, knowing this, count me completely unsurprised that the results are a complete “rectal data extraction”.
What a cool idea. Set your rates artificially low to grab all the business and run your competitors out of business, then jack the rates and make a killing. And it’s all legal, because it’s all blessed by the Board.
It’s a wonder nobody ever thought of that before.
Except in this case, Joe, it appears that Preferred One was unable to drive any competitors our of business. In fact, given the rates and P1’s declining to participate next year, it may have been closer to driving P1 out of business.
All of this stuff is insanity.
All they had to do was subsidize a few right out of the U.S. Treasury. Everyone would be covered no matter what.
Government insurance and pensions are disasters every single time it’s tried. Every time.
Here are some facts. Insurers knew that first year claims were going to be high, regardless, because of the new people previously excluded for pre-existing conditions entering. In addition, the ACA mandates no more lifetime caps on insurance payouts. Actuarially you have to price for this and – believe it or not – actuaries are very good at projecting risk and the amount of money needed to pay future claims. Already – without ACA – health insurers were regularly seeing individual claims of $1 million and even $2 million dollars and underwriting trend shows that $5 million claims are out there in the not-so-distant future (you should see the bills for a complicated premature birth, or the cost of surgery for a hemophiliac).
Preferred One no doubt had a very good idea of what they could expect and that figured into their original bid. To reduce this as significantly as they did suggests some very heavy-handed pressure from somewhere, and perhaps even a promise or two with a wink and a nudge, and something that made the carrier think it was an acceptable risk to stay in the pool. I’d guess the actual claims blew through whatever worst-case ceiling they had set and cooler heads stepped in. It’s possible, even, that certain heads were rolled out the door if the experience was bad enough. I can’t imagine many health insurers are that anxious now to sit at the table when Blackjack Dayton is dealing and the rules require you to “hit” on 20.
P1 had 59% of the individual MNsure market. Perhaps their market share wasn’t large enough, although it was larger than that of BCBS or HealthPartners, Medica and UCare who are still in the business. That being the case, it’s hard to single out the market place as the source of P1’s problems.
P1 took a position which didn’t happen to work out for them. This is something that happens in markets. Companies get in and out of businesses all the time. It’s awfully difficult to insist it’s the market’s fault when the internal assumptions P1 made in establishing that market share turned out to be unsustainable.
Hey, we’re losing 30 cents on every dollar we take in, but we’ll make it up in volume!
Well played sir.
“This is something that happens in markets.”
This isn’t a “market.” This is a carnival fun house of warped government force.
All they had to do is subsidize the preexisting and the non-medicaid working poor straight out of the U.S. Treasury. Totally free up the market for the rest of us.
Government insurance and pensions is a aggregate disaster that is killing this country.