It was a quiet announcement that landed with a big boom: Blue Cross Blue Shield would be pulling out of Minnesota’s individual insurance market.
The news last week sent insurance companies and customers alike scrambling, trying to figure out what the fallout will be from 100,000 Blue Cross customers seeking new coverage.
The best-case scenario still involves massive upheaval for tens of thousands of Minnesotans, but possibly a stable or even strengthened insurance market in the long run.
In the worst case? Blue Cross’s exit causes a domino effect that brings down the entire individual insurance marketplace in Minnesota.
With so much at stake, here’s what you need to know about Blue Cross’s exit from the insurance market.
WHAT DID BLUE CROSS DO?
Blue Cross, the largest single company selling individual health insurance in Minnesota, announced last month that they would not be renewing most of their insurance plans at the end of this year.
Blue Cross’s HMO subsidiary Blue Plus will continue to sell its plans.
The decision does not affect people with Blue Cross plans through an employer, or anyone with a Blue Cross-run government health care plan such as Medicare or MinnesotaCare. Altogether Blue Cross says it covers about one-third of Minnesota’s 5.4 million people.
Around 103,000 Minnesotans have Blue Cross plans on the individual market. About 20,000 of those customers bought their plans through the state-run MNsure exchange, while the remainder bought directly from Blue Cross.
WHY DID BLUE CROSS WITHDRAW?
The simple answer: Blue Cross was losing a lot of money.
“Costs and prices have been escalating at unprecedented levels,” Blue Cross said in a statement. “Based on current medical claim trends, Blue Cross is projecting a total loss of more than $500 million in the individual segment over three years.”
The company declined a request for an interview with an executive or spokesperson.
Those losses are a function of two things: high costs and too-low premiums.
“We’re starting to learn now that Minnesota is actually a pretty expensive place for private insurance to be purchasing health care services,” said Ezra Golberstein, a health policy professor at the University of Minnesota. “Private insurers just pay more for health care than they do in other places in the country.”
Several experts also suspected that Blue Cross might have had a less healthy — and thus more expensive — customer base than other plans.
Health industry analyst Alan Baumgarten said Blue Cross compounded this problem by setting its premiums too low to cover these costs. He called it a fallout from 2014, when low-cost insurer Preferred One dropped out of the market after suffering big losses itself.
“Blue Cross … was trying to price themselves above where they thought Preferred One was going to come in with its premium rates,” Baumgarten said. “Because Preferred One pulled out late in the year, that left Blue Cross as the lowest cost plan in most of the state. A lot of people who were buying on price went largely to them. So Blue Cross got all the expensive consumers who had been forced to leave Preferred One. It was their turn, in a sense, to lose a lot of money.”
Last year, Blue Cross responded to these losses by raising its premiums by as much as 50 percent. These higher rates caused Blue Cross’s market share to fall but apparently wasn’t enough to stem its losses.
In addition to local factors in Minnesota’s market, national trends could also be a factor.
“They’re not leaving the market — they’re keeping their narrow-network insurance products, both in MNsure and off of MNsure,” said Golberstein. “That reflects a broader national trend toward insurers relying more on these narrow-network plans where you have a more limited choice.”
Cynthia Cox, associate director of health reform and private insurance at the Kaiser Family Foundation, said the Minnesota decision is “somewhat similar to what we’ve seen Blue Cross Blue Shield plans do in Texas and Illinois, where they’ve limited plans to just their HMO.”
Another national factor is the end of several federal programs designed to reimburse health insurers who lost money in the first few years of the Affordable Care Act.
WHAT DOES THIS MEAN FOR ME?
People who currently have Blue Cross individual market insurance will need to find other health coverage.
All these customers will receive an official letter from Blue Cross notifying them of the change. The Minnesota Council of Health Plans, an industry group, warned the public to beware of notifications from other companies, which might be scams targeting worried Blue Cross customers.
If Blue Cross customers aren’t eligible for insurance through an employer or a government program, they can buy a new plan on the individual market, either through MNsure or through a broker.
Some customers, depending on income and family size, may be eligible for government tax credits to offset the cost of health care. These tax credits are only available for plans purchased through MNsure.
Experts said people shopping for new health insurance should pay attention to more than just the premium.
With more insurers relying on plans with narrow networks, people should make sure their current doctor is covered on their new plan, or be prepared to change doctors.
Prescription drugs are another factor.
“If you have to switch plans, you need to make sure whatever drug you’re taking, you understand what the cost-sharing is for that drug,” Cox said.
WHAT DOES IT MEAN FOR THE INSURANCE MARKET?
Blue Cross’s decision could have implications even for people with insurance from other providers.
At its most basic level, it means one fewer competitor in Minnesota’s individual insurance market — which didn’t have a lot of competitors to begin with. More competition generally drives prices down, which is good for consumers.
Other experts said the competitive effects could be minimal, especially since Blue Plus is remaining in the marketplace.
“There may be some counties that have less competition, but I don’t know if this is going to have a real material effect on competition in the market,” Cox said.
A more serious factor could be a rollover effect as Blue Cross customers go to competing plans. While more customers are usually a good thing, that could backfire if these Blue Cross customers are sicker — and thus more expensive to insure — than usual.
“None of the other (insurers) are making money and most of them are losing money,” Baumgarten said. “I think they’re going to be especially cautious because they’re going to be concerned the expensive consumers who had been enrolled in Blue Cross Blue Shield for the last few years are going to go shopping.”
The rate-setting process for 2017 is still underway. Insurers’ submitted proposals will be released on Aug. 1, and the Department of Commerce will release final, approved rates on Sept. 30.
That means remaining insurers could react to Blue Cross’s withdrawal by raising their premiums even higher — or, in the worst-case scenario, withdrawing from the market altogether.
Minnesota’s Commerce Commissioner Mike Rothman declined an interview, citing the ongoing rate review process.
Most health plans said it’s too early to say how they’ll respond to Blue Cross’s exit.
“We don’t know what the path forward looks like yet,” said Larry Bussey, director of communications for Medica. “We all make our assumptions based on the membership we expect to have … All of a sudden there’s a whole new pool of potential members out there. How well do those prior assumptions hold up?”
Even if Blue Cross’s withdrawal hurts the insurance market in Minnesota, it could have the unusual effect of strengthening MNsure. Minnesota’s state-run exchange has just one-third of the total individual market — much lower than most other states. In 2014 the average state exchange had a market share of 41 percent.
Because 80 percent of Blue Cross’s customers had bought their insurance outside of MNsure, many of those customers could now turn to MNsure for their replacement plan. MNsure’s CEO Allison O’Toole said the exchange is working to reach out to those customers.
“I would much rather see Blue Cross staying … but it could bring a lot of people onto MNsure,” said Golberstein. “This could be very good for the long-term health of MNsure.”