http://www.startribune.com/business/275827561.html?page=all&prepage=1&c=y#continue
Lee Schafer of the Minneapolis Star Tribune puts some context around a big payer’s decision to leave the state’s health insurance exchange, MNSure. Schafer said the decision was the result of the free market and strategic decisions PreferredOne made. PreferredOne is a small health plan that’s insuring employer groups.
Schafer said that PreferredOne decided to grab a big market share of exchange customers. The risk was that
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Like all health insurers, PreferredOne has to operate in a market where no one really knows the cost of a new customer for awhile. A snowmobile maker pretty much knows what the machine costs the day the sale is booked, but not so in insurance.
Sure, the insurer gets to collect the premiums, but what it also gets is an unknown liability it tries to estimate.
Health insurance is also about as regulated as a market can get and still be a market, but in Minnesota the players did get to decide how aggressive to be on MNsure. The problem was that MNsure was an exchange no one had used before. Insurers faced a lot of unknowns in how to price the plans …
In a news release a year ago, PreferredOne was pleased to announce that it offered “the lowest-cost individual and family health care insurance plans available at all metal levels in eight of the nine MNsure pricing regions.”
As of the latest data, PreferredOne has more than 24,000 people, or more than 50 percent of the MNsure folks in a private plan.
So how did taking the low-price position in an unproven market work out? About as you’d expect.
Based on a filing of PreferredOne Insurance Co. as of the end of the second quarter, the company saw its individual memberships shoot up to 80,000, including both the MNsure customers and others. That compared with fewer than 15,000 at the end of 2013.
If you’re the sales manager, maybe that’s news to celebrate. But PreferredOne also got 65,000 more little liability tails.
The individual health premiums written through the end of June were $87.6 million, but the expense incurred for healthcare services booked in its financial statements was just under $115 million.
For those keeping score, that’s $1.31 paid out for every dollar coming in, a medical loss ratio of 131 percent. Mention a loss ratio like that to anybody who works for a health insurer, and the color will drain from their face, their shoulders will slump and they will start mumbling incoherently.
It’s important to note it won’t be nearly that bad for PreferredOne in the end, because PreferredOne’s filing also shows a total premiums earned line that includes, as best as can be determined, the expected value of some risk sharing that was also written into the federal Affordable Care Act.
But as recorded on June 30 the total is not nearly enough to cover the provision for health care services already on the books, even if all that risk-sharing money is actually collected.
