Action to stabilize MNsure must happen soon: Lawmakers have options, but measure must be passed by April 1
ST. PAUL — Minnesota lawmakers are facing a fast-approaching deadline to try to stabilize the state's 2018 individual health insurance market.
Any such package, which will likely cost hundreds of millions of dollars but could lower premiums by more than 20 percent, has to be passed by April 1 — and lawmakers are still trying to figure out the best approach.
"I'm carrying a bill (that) I want to be very clear on, there's a lot of things we have no idea what we're doing," said Rep. Greg Davids, R-Preston.
Goals: Stabilize market, lower premiums
Less than 5 percent of Minnesotans get their health insurance through the state's individual insurance market, but those roughly 190,000 people have been through a lot in recent years. Premiums have skyrocketed even as options have narrowed, and there's a very real chance that the market could go away altogether.
Preventing that collapse is one of three major goals Minnesota policymakers have as they contemplate a potentially huge investment into Minnesota health care:
• Stabilize the state's health insurance market.
• Keep premiums as low as possible.
• Get as much impact as possible for any taxpayer dollars invested.
To accomplish that, lawmakers have to make big choices in two areas: how to structure their plan, and how to pay for it.
Three major proposals
The fundamental problem is that Minnesota's individual market has too many sick people and not enough healthy people. Because costs are distributed among the whole market, that means the sick people drive up costs for everyone.
In 2015, the 2 percent of the market with claims above $50,000 accounted for 40 percent of all medical costs. So shifting these away from insurance companies could let them charge significantly lower premiums.
"We have an individual member whose drug spend alone is worth $5 additional premium cost to every one of our additional members," said Jim Eppel, president and CEO of the insurer UCare.
Lawmakers are considering three major approaches to address this.
Option 1: Reinsurance
One solution is to create a program called "reinsurance" that subsidizes high-cost claims borne by insurers.
Under this type of program, insurance companies pay costs up to a certain dollar amount per year — for example, $50,000. The taxpayer-covered reinsurance program then pays a portion of medical costs above that point, perhaps 50 percent. That continues up until a cap — such as $250,000 — above which the insurer takes over payments.
Such a program can be made more or less generous by shifting the dollar thresholds and the share paid for by the state. A more expansive program lowers premiums more but costs more money.
This system is relatively easy to administer, since it's based on a pretty simple math formula. It's also proven: the federal government operated a nationwide reinsurance program along these lines for several years that kept premiums down. (That program's expiration is one reason why premiums went up so much this year.)
Most Republican lawmakers are backing this approach, as are the state's insurance plans.
Option 2: Virtual high-risk pool
Another approach would try to be more targeted: paying not for all high-cost claims, but rather for certain expensive medical conditions.
Under this model, people with serious conditions such as cancer would buy health insurance normally. But behind the scenes, the state would pick up the cost of people with one of a list of expensive conditions, while leaving more normal medical bills to the insurance companies to support.
State Commerce Commissioner Mike Rothman is among the people urging a closer look at this model, which he argued would be more efficient than traditional reinsurance, leading to bigger premium drops per taxpayer dollar spent.
Such a model has also already been approved by the federal government for a state when Alaska implemented it this year, which could make it easier for Minnesota to enact.
A downside that has insurers and some lawmakers skeptical is that such a program is more administratively complex than a reinsurance system based on dollars, and could be harder to implement in time for 2018.
Option 3: MinnesotaCare buy-in
A third proposal is different because its primary goal isn't to stabilize insurance companies, but rather to offer a competing product.
Gov. Mark Dayton wants to let Minnesotans buy into MinnesotaCare, the state-run health program for the working poor. Low-income Minnesotans get subsidized care through MinnesotaCare, and Dayton wants to let wealthier Minnesotans pay full freight.
His staff says the product would be cheaper than many private insurance plans with much better benefits.
Supporters say it could also help the insurance companies, since it'd be a better deal for sicker (and thus more expensive) Minnesotans trying to avoid the high deductibles and narrow networks offered by private plans.
"If we drive down costs in that individual market by getting sicker people out of it or sicker people better insured, we have more room in the marketplace for those costs to get driven down," said Rep. Laurie Halverson, R-Eagan.
Republicans are skeptical of the plan, opposing an expansion of government into the private market and worrying about the impact of MinnesotaCare's lower reimbursement rates on rural hospitals.
This system could be combined with either of the two reinsurance models, or could stand alone.
Whatever tool lawmakers choose to try to fix Minnesota's insurance market, it will cost money — in some cases, a lot of money. Depending on how a reinsurance program is structured, it could cost as much as $300 million per year.
This money could come from a few different sources.
The simplest is to just take it from the state's reserves. Minnesota has $1.9 billion in the bank, more than enough to pay for several years of this program. But these reserves are set aside to cover economic downturns, and Dayton among others thinks it's "prohibitively expensive" to draw them down too much.
Another potential source is the state's Health Care Access Fund, which is funded by a tax on medical providers and is projected to have $1 billion at the end of the next fiscal year. Like the budget reserve, the Health Care Access Fund has other competing uses — and the tax that funds it is scheduled to expire in 2020.
Lawmakers could also just spend part of the state's $1.65 billion projected budget surplus on the health insurance market, but any money spent there would come from other priorities such as school funding or tax cuts.
If lawmakers don't want to draw down the state's reserves, they could also fund reinsurance with a new tax. One proposal would put a tax of up to 1 percent on all health insurance premiums in the state — including plans through employers as well as the individual market.
The logic here is to spread the cost of stabilizing the individual market around the much larger commercial insurance market: Everyone pays a little bit more to bring bigger discounts to the least stable part of the market.
But the state's business community, among others, is opposed to seeing employer-provided plans taxed to benefit the individual market.
A 'catch-22' complication
Lowering premiums could have a double cost if the federal government doesn't play along.
That's because under the Affordable Care Act, states get bigger federal subsidies if their premiums are higher. Lowering premiums means the state could get hundreds of millions of dollars less.
This could be avoided if the federal Department of Health and Human Services agrees to not penalize Minnesota for driving down its rates. But such a waiver isn't guaranteed.
State Sen. Tony Lourey, DFL-Kerrick, wants any reinsurance bill to include a trigger mechanism cancelling the expensive measure if the feds don't grant such a waiver. But Sen. Michelle Benson, R-Ham Lake, said such a trigger would defeat the purpose of letting insurance companies know this spring that they'll be protected from spiraling costs.
"It is an awkward Catch-22," Benson said. "If we put something in here that makes the whole thing contingent on a federal waiver ... nobody will be able to plan for anything. It is an awful situation."
Answers coming quickly
Lawmakers don't have a lot of time to resolve these questions. With their April 1 deadline fast approaching, the House and Senate are likely to pass different versions this week — the House as soon as Monday.
Currently, both chambers are considering measures with traditional reinsurance bills based on medical costs, though they differ in what portion of medical bills they cover. But final decisions are likely to be made in a conference committee of both chambers, when differences between the House and Senate and Dayton are hashed out.
Dayton has promised he'll sign a reinsurance bill, but he's expressed serious concerns about the funding structure of the bills moving through the Republican-controlled Legislature. The governor also hopes to get Republicans to agree to his MinnesotaCare buy-in plan as part of the negotiations.
Any such measure has to be passed by April 1, because the state's insurance plans have to propose 2018 premium rates this spring based on their predictions about what kind of costs they'll face. April 1 is the latest the insurers say they can adjust their premium proposals based on laws that could lower insurer costs.