Last week, I posted that PreferredOne, the largest insurer by membership on the Minnesota Exchange, was leaving the individual market. They were losing money on the policy and I looked at some basic information and came to the following conclusions:
It is not shocking though.
I think a few things are happening.
PreferredOne either was… over optimistic on their acturial modeling or had…engage in an extremely aggressive loss leader pricing strategy to build membership. If this was a loss leader strategy, than it may have been too effective…. People with high utilization and high complexity of cases are expensive on the medical side as they go to doctors/hospitals a lot AND they are administratively costly as they are calling in for help and care coordination on a frequent basis.
Secondly, the back-end infrastructure to support Exchange is extensive, especially as the risk spreading mechanisms such as risk adjustment require significant technical support. Building that type of infrastructure from scratch is painful and expensive. PreferredOne seems to have been only a commercial group insurer with a small staff before it decided to dip its toes into the water for individual Exchange. It had no pre-exisiting model it could rip off to modify for Exchange.
It had aggressive pricing, a population that is higher need than normal, and not a lot of administrative/technical depth.
And now a local reporter up in the Twin Cities looks into the details of the decision (h/t Charles Gaba):
PreferredOne is not providing any explanation beyond a letter to MNsure from its CEO that said continuing to offer coverage through the exchange “is not sustainable.”
After looking into the company’s filings and talking to others in the market, that seems to be a fair assessment….
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.”
PreferredOne had made its decision. It was going to grab some market share.
It worked splendidly, too….
For those keeping score, that’s $1.31 paid out for every dollar coming in, a medical loss ratio of 131 percent….
So once someone actually looked at the facts, PreferredOne engaged in optimistic acturial assumptions, aggressive loss leader pricing and later on, it was shown that they don’t have a deep technical back-end. Not too surprising.
I was laid off from my job this summer which qualified as a life event for MNsure enrollment. After sifting through all the plans I chose one offered by PreferredOne.
I started the whole process mid-June, I was finally approved yesterday. Over three months! Between MNsure’s glitchy website and PreferredOne, it’s been a headache.
Thanks to your posts and the commenters here I was aware early on that PreferredOne is going to leave the market, so their foot-dragging became clear to me – they were just hoping I’d give up and go away.
I finally have health insurance that I can afford, COBRA was an unobtainable luxury considering my income and savings.
I’ll have to go through all this again for next year when open enrollment starts. I like having some basic knowledge before I dive into something, and your posts have been invaluable in this regard, Mr. Mayhew! Thank you! And I thank the juicers too, comments are always worth reading.
GHayduke (formerly lojasmo)
Well, that sucks. Happily, most of my uninsured family members were young and poor, and are on medicaid. I have a few who might be affected, but this is bad news for, likely, thousands of Minnesotans.
Minnesota Public Radio had a show about PreferredOne on September 23rd. Audio is 39 minutes.
John M. Burt
Isn’t this the free market working to ensure efficiency as capitalist models claim it always does?
The GOPer running for governor said what you’d expect: that PreferredOne’s failure was Democratic governor Mark Dayton’s fault. But apparently several GOP legislators who know something about insurance were more fair/realistic.
We have our share of nutballs (and Michelle Bachmann, who tilts the scales dramatically), but we still manage to have some state-level Repubs who are not mouthbreathers. For now.