From every corner of the Republican Party of Minnesota, rebuke came quickly on Tuesday after Preferred One announced it was leaving the MNsure health care exchange.
“Six out of 10 people who’ve purchased insurance through MNsure will now have to go through the nightmare process of purchasing another plan all over again,” said Republican candidate for governor Jeff Johnson, whose comments were echoed by GOP officials and politicians throughout the state.
But three Republican lawmakers who took part in the legislative process to create MNsure offered more nuanced criticisms, explanations that went beyond the obvious political rhetoric.
State representative Jim Abeler, the Republican House lead on health care policy and finance, said that PreferredOne, chosen by six out of 10 MNsure applicants, took a gamble that didn’t pan out. “PreferredOne was the most engaged and risk-taking with their products,” he said. “They decided to take a chance with the lowest premiums, but judging from the reports, the enrollment projections weren’t there, and they may be taking a bath.”
State senator Michelle Benson, a member of the legislative oversight committee for MnSure, agrees that Preferred One didn’t get enough customers, but says that the insurer also incurred extra expenses from the inefficiency of the MNsure website. In its statement on withdrawal, Preferred One said MNsure was “taking a significant amount of our resources to support administratively.”
“This fall, they are still planning to use paper forms,” Benson said. “A year and half ago … the insurance companies were pointing out the problems and no one listened.”
Echoed Abeler about MNsure: “They cut themselves out of meaningful feedback. They’re still in workaround mode.”
David Hann, Senate minority leader who has worked in the insurance industry, went back to his initial objection to the creation of MNSure. “There was a structure in Minnesota – that we had for years — MCHA [Minnesota Comprehensive Health Association] under which nobody was denied insurance for pre-existing conditions,” he said. “That’s not to say there wasn’t an opportunity to make it better and we tried to do so.”
Blue Cross, Health Partners, Medica, and U Care are the remaining insurers on MNsure. Benson said as larger insurers, they might be able to absorb the administrative costs of participating.
“The remaining plans want the business and if there’s business to be had, someone will go for it,” Abeler said. “But the rates may go up.”
Enough customers
At this point, it’s hard to know what really happened. What we do seem to know is that PreferredOne was able to use the taxpayer financed marketplace to acquire the largest market share of Obamacare insurance customers. Maybe their market share wasn’t large enough, but it was larger than that of their competitors who are still in the business. That being the case, it’s hard to single out the market place as the source of PreferredOne’s problems. What this looks like to me, is a business making a business decision, something that happened a lot before Obamacare was enacted, and will continue to happen as long as businesses continue to operate in free markets.
Why pull out completely?
They had the lowest rates, and lots of people went for it. Apparently the rates they offered were too low to make money. Why not just raise their rates, and get a smaller but more profitable piece of the pie? Now they get no pie at all. It seems like there must be more to the story.
I’m sure what happened was PreferredOne filed for a big increase for 2015. The state did not want to approve such a big increase and the two were not able to find common ground for a sufficient increase.
Simpler
Not much to it. Jump in to get a bunch of customers, jump out to dump the expensive ones and hope the less sick just stick with you because it’s easier.
The whole thing’s a market share strategy.
Hann comment on MCHA
Clearly Senator Hann never tried to purchase insurance through MCHA. It’s hugely expensive! Yes, an “uninsurable” person could get covered, but it would cost a bundle.
Short-Sighted, Bone-Headed
Since (if I understand this correctly) PreferredOne was free to raise their rates as needed, I smell a dead rat in the walls.
I suspect this decision is based on the ideological concerns of key board members or executives and has precious little to do with sound business concerns.
If I had money invested in PreferredOne, I would be very concerned about maintaining investment in a firm being managed in this way,…
as many people were concerned with Target Corporation when Greg Steinhafel was CEO and Target made ideologically-based decision that offended its primary customer base,…
concerns which turned out to be VERY well founded.
Preferred One
I am not surprised Preferred One is withdrawing. It was a bad business decision on their part. Individual health plans are not their niche market, group health is. If anything MNSURE’s people should have questioned Preferred’s ability to move to a different market on a large scale. I liken this to Target suddenly expanding there pet food section to sell horses and cows.
Rates
Why not just raise their rates, and get a smaller but more profitable piece of the pie?
That’s kind of an inside baseball question which depends a lot on PreferredOne’s business strategy. I don’t know the answer, but I can speculate. Preferred’s plan might very well have been to grab as much market share as they can, betting on their ability to attract a pool of insured which would yield a certain level of profitability. Insurance companies often start with low ball offers which they intend to raise later banking on their customers unwillingness or inability to switch insurers. What Preferred might very well have found out is that the pool of insured didn’t fit their model, and they were looking at losses. They could of course, raise rates, but that would have just brought them even with their competitors, and they might still have been stuck with the unprofitable pool of insured. The rate increase also would have been bad because it would have been higher than their competitors without making them more competitive. So, since this wasn’t a very big part of their business anyway, they just decided to eliminate the headache and get out of it altogether.
It’s not that PreferredOne did anything inherently wrong here. They just took a risk which didn’t happen to pan out. More generally, this is something that happens in markets. Companies get in and out of businesses all the time. While I am sure it’s a pain for all concerned, it’s something that will inevitably going to happen when you create a system that invites participation of multiple insurers in a competitive market.
As far as the market itself is concerned, I don’t see that PreferredOne has much to complain about. The taxpayers, at rather enormous expense, created a marketplace which gave PreferredOne a business opportunity they might not otherwise have had. They used that market to acquire a large market share. It’s not the market’s fault that the internal assumptions Preferred made in establishing that market share turned out to be unsustainable. When you go to the grocery store, it’s not the job of the checkout clerk to tell you whether or not you are paying the right price for a dozen eggs.
Rotten Eggs
Personally I believe they trusted the bureaucrats too much. They assumed that the government would create an effective efficient market system with those multiple hundreds of millions of dollars we tax payers paid out for it.
Unfortunately it appears the tools / system created with those multiple hundreds of millions of public dollars do not work very effectively or efficiently. Bummer… Why again did MN spend all those tax payer dollars instead of using the Federal system?
Of course you do, John.
Preferred couldn’t possibly be held responsible for underbidding and finding out that they couldn’t profit enough. That never happens in business. Once again, you never disappoint.
What does it matter? After a year’s results they’ve concluded Dayton’s version of Obamacare isn’t financially sustainable.
What is important is that tens of thousands of people who lost coverage because of Obamacare are *again* uninsured because of Obamacare.
Entirely untrue
A. You don’t know what percentage of PreferredOne policyholders were previously insured or uninsured, prior to the individual mandate of the ACA (aka Obamacare)
B. They remain insured through the end of their policy term.
C. There is no “Dayton’s version of Obamacare.” There is MNSure, which was set up in accordance with federal law and to suit specifically the citizens of MN, It’s not like Dayton built the site, or was even in office when the ACA was passed.
D. PreferredOne’s own initial offering of plans is what ended up being unsustainable, according to their own business model. This is “the free market” at work. PreferredOne took a gamble, and lost.
Whew, that spin is dizzying. Since 144,000 policy holders lost coverage in MN due to Obamacare, and there are now 59,000 paying customers and 132,000 getting it paid by others, it’s no stretch to conclude 90% of Preferred paying customers are two time victims.
All of the insurance companies that decided to swim in this pool relied on enrollment estimates from the government. You can say they were fools to do so, and I wouldn’t disagree, but the fact is that there are very few paying customers available to cover the massive subsidized membership. Don’t take.my word for it, let the upcoming rate hikes convince you.
Finally, if you feel you’re up to helping him dodge responsibility for the MNSure mess, I bet Gov Dayton would welcome the help.
Don’t worry,
I won’t take your word for it! And, I notice that you didn’t (or couldn’t?) actually refute any of the points I made… so I think there is no spin present. I’m still not sure where you are getting this 144,000 number, so I offer this comment exchange in which you offer the exact same number, from April of this year, as reference:
http://www.minnpost.com/dc-dispatches/2014/04/leitz-congress-mnsure-stable-secure-and-successful
No-one is denying that the roll-out of both healthcare.gov was poorly managed, and so was MNSure. That being said, in both circumstances, they have gotten better over time, though work remains to be done.
Dayton remains responsible (partly or mostly) for a lot of things… including one or two things I find tremendously distasteful, such as the whole stadium debacle. That aside, I find Dayton to be a very effective, earnest, and honest governor, who works hard for the people of MN, and who bases his policies on facts first. He has earned my vote.
MPR says it was 146,000 that lost coverage. Close enough for me. http://www.mprnews.org/story/2013/10/31/health/law-minnesotans-more-expensive-plans
It says those 146,000 people’s “plan[s] will no longer be available,” not that they lost coverage. Their plans weren’t instantly gone, they would have had proper notice and would have had to transition to another plan, while still covered under their existing insurance.
Loss of coverage
The possibility that coverage will be lost is inherent when insurance is secured in a market place of private insurers. That was true before Obamacare was enacted, and it’s true now. For whatever reason, your health insurer can terminate your coverage, and market advocates see that as part, at least, of a good thing. Bad insurers lose market share to good insurers, in Darwinian struggle where only the fittest survive. Don’t like that system? Well the alternative is single payer where there is only one insurer who can’t terminate your coverage because that’s the deal it made to secure it’s monopoly. Single payer has a whole different set of problems, to be sure, but it certainly does address the faults manyseemingly former admirers of market based health care coverage now find with Obamacare.
That simple
If it was that simple… Wouldn’t they just raise their premiums and stay in the pool…
There is something more going on here. Maybe on both sides.
Sources For Costs
In case think I was exagerating the costs…
http://fas.org/sgp/crs/misc/R43066.pdf
http://www.forbes.com/sites/brucejapsen/2013/05/11/ad-spending-on-obamacare-may-make-don-draper-blush/
PreferredOne is system-light
PreferredOne has specialized as a 3rd Party Administrator (TPA) for self-insured groups, most of whom went from insured carriers with structured benefit programs. As a covered party with previous experience in managed care, I saw their expertise isn’t in designing/managing benefits — they rely upon the employer groups to do that. Surprisingly, their “back-room” structures were pretty weak as well. My sense was they were always playing catch-up and never got ahead of the curve.
It’s a great recipe for disaster: high volume of members, a relatively new role, weakly developed infrastructure. When they decided to bail, they realized what many thought: the odds were against them from the get-go.
Next Year
I think the other shoe has yet to drop. The current four other MnSure providers filed their 2015 rates thinking they were still competing against their low-ball competitor, Preferred One. I am guessing those companies would have chosen to file higher rates if they knew Preferred One was no longer in the picture. Next year, there will be no such illusion and the remaining MnSure providers will not hold back in filing higher rates. The executives of those four providers must be currently unhappy with MnSure, as well.
It strikes to me that what might be really driving up insurance administrative costs is the process of verifying policy subsidies to individuals (tax credits). The inability to get straight, unambiguous subsidy information from the government must be driving the insurance companies crazy.
Markets are places, real and virtual, where things are bought and sold. They work well when buyers and sellers find each other easily and transparently at minimal cost. Once in a marketplace, whether the participants make good or bad deals for themselves isn’t a measure of how effectively the market works, assuming the rules of the markets themselves are observed.
By all accounts, the marketplace, created at taxpayer expense as a place for profit making businesses to sell their product, worked just fine in PreferredOne’s case. They did, after all, sell more of their product than any of their competitors. It turns out, they just couldn’t sell their product on terms that made their business viable. That’s the kind of thing that happens to businesses under a capitalist system, and was certainly one of the risks assumed when we turned over health insurance asset to a competitive market place of private insurers.
It is surprising… but that’s kind of sad isn’t it?
A few republicans make reasonable observations about something and it even surprises Ms. Brucato. Let’s hope this is a new trend.
Sad, indeed.
Rep. Abeler’s remarks are reasonable but nuanced only relative to the sound bites of Republicans in rutting season.