The marketplace for those who purchase health coverage as individuals is showing signs of stabilizing. Preliminary 2018 premiums for individuals buying through MNsure, the state’s insurance exchange, show modest increases and even some reductions if the federal government approves a new reinsurance program the state legislature passed earlier this year.
Even with the good news, though, the health insurance marketplace for individuals in Minnesota and other states faces significant challenges. A major challenge is determining how best to pay the very high health costs of those who are sickest. A 2016 Minnesota Department of Health (MDH) study found that each insured state resident with one or more chronic diseases (for example, diabetes, asthma or congestive heart failure) costs an average of $12,800 annually or nearly eight times the $1,600 average spending for those without a chronic condition. Read the full report here.
Before Obamacare, many of these people with pre-existing, chronic conditions purchased health insurance through the Minnesota Comprehensive Health Association (MCHA), one of the nation’s oldest high-risk pools. At its peak, about 35,000 Minnesotans were enrolled in MCHA.
The program, which started in 1976, was recognized widely as one of the best of its kind in the country, but it wasn’t perfect. Claims losses – the amount medical costs covered by insurers exceeded premiums – were substantial, hitting $175 million in 2013, the year MNsure was created. These losses were covered by assessments on insurers and, in some cases, through state taxes.
Now, those costs are covered by the premiums of the relatively small pool of Minnesotans (130,000 in MNsure) who buy individual insurance and by medical claims losses suffered by the insurers. The situation is unsustainable, which is why Minnesota created its reinsurance program to help underwrite the insurance losses and reduce premiums for individuals.
Some people are looking at longer-term solutions, including a return to a high-risk pool. A July policy brief from the Health Economics Program of MDH throws some cold water on the viability of a return to an MCHA-type program. (Read the report here). Even if a high-risk pool charged premiums at four times the average amount paid by employees in an employer-sponsored plan, the “premium by itself would likely cover only 38 percent of the average claims costs, requiring an average subsidy of $9,458 per enrollee.” That subsidy would have to come from taxpayers, insurers or businesses.
It’s clear that high-risk pools have challenges. When MCHA was in full swing, premiums could be as high as 125 percent of comparable marketplace policies, making the program unaffordable for many in spite of the high subsidies paid by insurers, taxpayers and others.
Still, longer-term solutions are needed. According to the Kaiser Family Foundation, “the healthiest 50 percent of the population accounts for less than 3 percent of total health care expenditures, while the sickest 10 percent account for nearly two-thirds of population health spending.” The premiums paid by healthy buyers of individual health policies aren’t enough to cover the cost of the very sick.
A Minnesota high-risk pool may be part of the solution, but the cautions raised in the MDH policy brief can’t be ignored. A new high-risk pool should be built on the same principles that are vital to every public health program, including transparency and an investment in prevention. On the former, public programs should make it clear what is being subsidized and who is paying. Today’s government-run public health insurance programs too often hide subsidies, often by limiting reimbursement rates to hospitals and other health providers. They, in turn, make up the shortfall by shifting costs to the privately-insured.
It’s also important to make investments in prevention and health wellness. Chronic illnesses often have their roots in poor nutrition, lack of physical exercise and tobacco use. Tackling these challenges at the community level can make everyone healthier and help slow health spending.
Meeting the needs of the most vulnerable people while managing costs for others is a challenge. Ignoring the challenge won’t make it disappear. Health care reform needs smart, innovative solutions.