The losses health insurers in Michigan incurred last year on individual policies led to the large rate increases proposed for 2018 and moved the market to a “very delicate point,” according to one industry analyst.
Despite the nearly 8-percent growth in the market in 2016 with more than 425,000 people covered, health insurers in the state collectively lost $111 million on individual policies, although some did generate small profits, according to an annual analysis by Minneapolis, Minn.-based health care consultant Allan Baumgarten.
By comparison, health plans that sell individual policies in Michigan lost just $4 million in 2015.
Grand Rapids-based Priority Health lost $39.6 million in the individual market in 2016 on premium revenue of $267.8 million, and Blue Cross Blue Shield of Michigan lost $50.1 million on $681.2 million in premium revenue, according to Baumgarten’s annual market review. Blue Cross Blue Shield’s HMO subsidiary, Blue Care Network, lost $7.4 million on revenue of $473.7 million.
The losses for 2016 can be attributed to higher utilization rates and medical claims — particularly for prescription drug costs, Baumgarten said. Those losses exceeded the revenue growth for the insurers resulting from increased premiums.
The 2016 results led nine health insurers this summer to file what Baumgarten called “pretty significant” rate requests with state regulators for 2018 that in most cases exceed 10 percent, even if federal cost-sharing subsidies for people who qualify for assistance to buy individual coverage are still available. Health plans filed dual requests with the state for 2018 rates, both with and without subsidies available under the Affordable Care Act.
Blue Cross Blue Shield of Michigan proposed a rate increase of 26.9 percent for individual policies in 2018 with subsidies and 31.7 percent without. Blue Care Network proposes a rate increase of 13.8 percent with subsidies and 27.6 percent without.
Priority Health filed proposals for average increases of 17.7 percent.
While the Affordable Care Act created a business opportunity for health plans by enabling coverage expansion, the individual market’s future is now “in doubt,” Baumgarten said. That’s because of the large premium increases proposed for 2018 that could cause people to drop their coverage and uncertainty about where the federal government will continue funding for subsidies in 2018, Baumgarten said.
Prior to 2016, “Michigan had been exemplary for having a strong individual market under the ACA” compared to other states where insurers sustained heavy losses and left the market, he said. The 2016 results could indicate a turning point.
“It’s at a very delicate place right now,” Baumgarten said.
Some of the potential threats for the individual market could fade after the U.S. Senate this week failed to repeal and/or replace the ACA, for now leaving in place the mandate for people to have health insurance coverage. Lacking that mandate and tax penalties for not having coverage, enrollees could drop out of the market, leaving behind those who need health insurance because of a medical condition and creating further declines and losses.
If the individual insurance market declines in Michigan, then that could potentially affect group coverage, Baumgarten said. If insurers losing money on individual policies are unable to get state approval for the proposed large rate increases to cover 2018 claims, they could seek to support the market with money from their employer-sponsored group coverage, he said.
“It’s just another thing that contributes to them wanting to raise prices on their group business,” Baumgarten said. “I’m suspecting that some insurance companies might look at the health or the threat to their individual business and say, ‘(We) have to do some more cost-shifting to make enough premium to cover all that.’”