Minnesotans wince as individual health plan costs jump under Obamacare

Steve Woodley figured he'd probably be paying a little more for his health plan this year, but then he opened his bill. He found the premium for his family's coverage had leaped 41 percent over 2015.

"It's just like a punch in the gut," he recalled. "You go, 'Oh my gosh!'"

Woodley is among the less than 6 percent of Minnesotans who buy health insurance for themselves or their families on the open market, rather than through employers or state-sponsored programs. Their costs have skyrocketed in recent years under the federal Affordable Care Act, also known as Obamacare.

Why? The federal law says people with pre-existing conditions cannot be charged more for health insurance than healthy people.

When Affordable Care Act architects wrote the legislation they envisioned bringing together people who don't qualify for Medicare, employer health coverage or public assistance into big individual market markets. They hoped insuring those new markets filled with young and middle-aged adults, healthy and sick, would be similar to underwriting employer group coverage.

Everyone's finding out individuals are costing a lot more.

"The individual market, it's completely different than what it used to be," said Jim Schowalter, the former state budget commissioner who now leads the Minnesota Council of Health Plans, the organization that represents the big health insurance companies that sell plans in Minnesota.

But the higher rates may be helping to settle the Minnesota's volatile individual market, he said.

"It's starting to look more normal in terms of the mix of sick people, healthy people, the expected needs in the future so it's starting to look more like the costs of other groups whether you're a small employer or a large employer."

But beginning to settle down and stabilizing are two different things.

Blue Cross and Blue Shield of Minnesota had the highest average individual market rate increase this year: 49 percent. The company's average small group rates went down almost 5 percent from 2015-2016.

Individual plan purchasers use more health care than those who end up in employer group coverage, said Blue Cross Vice President for Public Affairs Scott Keefer.

Those people include high-risk, high-cost Minnesotans who couldn't get private health insurance before the Affordable Care Act because of a pre-existing condition. They had been able to secure coverage through a state sponsored program called the Minnesota Comprehensive Health Association or MCHA. Now all of them are in the individual market driving up costs for everyone else.

Ironically, Minnesota's low uninsured rate has contributed to the price hikes, Keefer said.

"Because our uninsured rate was already below 10 percent," he said, "we didn't have a readily available population to come into the market and provide an offset, if you will, to some of the higher risk that came in from the MCHA program."

That's been an expensive lesson for insurance companies. They paid in excess of $350 million more in claims than they collected in premiums and other payments in 2014. They are still doing the math on 2015.

"That's a very different environment when we talk about the risk pooling issue and the claims picture and the health of that pool," he said.

For the first three years of the Affordable Care Act's health insurance mandate $20 billion was set aside to offset insurer losses as the individual market established itself. That backstop goes away this year and not having it will hurt individual market balance sheets starting next year.

And the individual market keeps changing.

For example older people who are too young for Medicare are increasingly buying individual coverage, many with help from the company they retired early from. They tend to have more claims than their younger counter parts.

Before Obamacare, when Minnesota had a high-risk pool for people who couldn't get health insurance individual rates for healthy people such as Woodley were a lot less than group rates.

Now, all of those high-cost people are in the individual pool, and rates for healthy people are much higher.

That includes Thomas Lowe of Long Lake, who discovered his family's monthly 2016 premium was going up some 46 percent, from $1,100 a month to almost $1,600.

Lowe is self-employed, and makes enough that he doesn't qualify for federal premium subsidies. He thinks health insurance ought to work more like car insurance. And he's chafes at one of the central tenets of the Affordable Care Act, that healthy people should subsidize health care costs of sick people.

"It's not fair and it doesn't seem to be working," he said of the current system. "The problem is they need a market-based system so if you have someone who has horrible health and it's their own fault they should pay a higher rate."

When Minnesota insurance companies sought 2016 rate increases, they talked about 2014 losses and the likelihood 2015 would be even worse. Those 2015 year-end numbers should be available as soon as next month. Insurers can't raise rates to cover loses, but the red ink can inform future rate setting.

There are indications that the volatile individual market may be headed toward fewer shocking price hikes. But stability may still be a couple of years away and the individual market may never be as settled employer group markets.

Minnesota's individual market will remain unpredictable for at least five years, not the three Congress assumed, Keefer said. "It's many factors that relate to the stability of the market which is again why it's taking so much more time."

Correction (Feb. 9, 2016): The original version of this story misidentified the government health care program Medicare. The story has been updated.