Fixing health insurance

There is a straightforward and fair solution to the problem currently ailing the individual health insurance market in Minnesota. Reinstate the funding mechanism that used to help subsidize the state’s former high-risk insurance pool, known as the Minnesota Comprehensive Health Association.

For years, in the days when insurers could simply deny coverage to those with high health care needs, MCHA was the insurer of last resort for about 30,000 Minnesotans who could not otherwise purchase health insurance. As a small and costly pool, the premiums for folks on MCHA were high, but the state assessed a small fee on everyone else’s health plan to help subsidize a portion of the MCHA premiums. By having everyone pay a little bit, the impact of the fee was minimal and non-controversial.

With the full implementation of the Affordable Care Act beginning in 2014, the state of Minnesota disbanded MCHA. With insurers no longer able to deny coverage based on medical need, the reasoning went, the MCHA population could now buy coverage in the private individual market— which they have done.

Yet, because Minnesota’s individual health insurance market is relatively small, the 30,000 former MCHA customers have significantly pushed up premiums within that pool. Remember, with insurance, your pool is everything. If you have lots of young and healthy people, you can anticipate low premiums. Fill your pool with older residents and the sick, and premiums will spike. That’s what has happened with Minnesota’s individual insurance market. In the past five years, individual market insurers have seen their payouts for medical services more than double. Huge rate increases are inevitable as a result.

Other segments of Minnesota’s insurance market have not seen increases of this magnitude. In fact, the vast majority of Minnesotans— those who have insurance through work— are probably wondering what all the fuss is about. Average insurance rates for employer-based plans in Minnesota are rising at about 4-8 percent for next year, well within the typical rate of health care inflation we’ve experienced in the U.S. for decades.

It’s the individual market that’s getting killed, because it has become, in effect, Minnesota’s new high-risk pool. And it’s time we start treating it that way.

For most Minnesotans in the individual insurance market, the federal subsidies already limit the pain. Indeed, for those who meet the income threshold to qualify for subsidies, the massive premium increases we are seeing this year are of only theoretical concern. What they actually pay in premiums will, in most cases, change very little next year.

But for that small subgroup, of about 125,000 Minnesotans in the individual insurance market who earn more than 400 percent of the federal poverty level, which is the cutoff for ACA subsidies, the effect is jaw-dropping. They are now looking at the prospect of truly punishing health insurance premiums (imagine paying $2,000 a month out-of-pocket for you and your spouse) for some of the worst insurance coverage offered in Minnesota.

These aren’t like the plans many Minnesotans are offered at work. In most cases, they have very high deductibles (often over $10,000), stiff co-pays, limited provider networks, and don’t cover things like mental health or dental care.

It’s garbage insurance at Cadillac prices, and it’s all because this small group of Minnesotans is being forced to subsidize what is, in effect, the state’s new high-risk pool. In the past, all privately insured Minnesotans shared that burden through the MCHA fee. Reinstating that fee would provide the state of Minnesota with a viable funding source to institute its own premium assistance program for those who don’t qualify for federal premium support. The federal government could write down some of the cost as well, by adjusting the threshold for federal subsidies to 500 or 600 percent of the poverty level.

The state can’t ignore the problem. Without significant relief, those who don’t qualify for subsidies will, in many cases, be forced to go without insurance. And it will be the healthy who drop out first, further worsening the experience rating of the remaining pool. That’s how you begin a health insurance death spiral that will eventually destroy Minnesota’s individual market entirely.

Ultimately, the best solution is extending Medicare to everyone. But until that can happen, we need to make the system that’s in place work better. Having a stable funding source to help those in the individual market is a good way to start.