Why does health insurance cost so much in southeast Minnesota?

Minnesota is divided into nine rating areas to set individual health insurance premiums. It's one factor that has driven up costs in southeast Minnesota in recent years. (Minnesota.gov)

By: William Morris
January 13, 2017

OWATONNA — It really is more expensive to buy health insurance in southeast Minnesota than in other parts of the state.

In the individual market, serving customers who are purchasing insurance on their own for themselves or their family, the numbers are clear: a middle-of-the-road “benchmark” plan will cost a 40-year-old $595.72 per month in the 10 counties — including Steele County — that make up the southeast tip of the state, the highest rate in the state. Numbers for employer and group plans are less uniform, but companies consistently cite the cost of health care as a factor making it harder to do business in the region.

Determining why health insurance is so much more expensive is a more complicated question, and one of key importance to customers, health insurers and government leaders alike. A report issued Friday by the Minnesota Department of Health found that, at least on the individual market, prices and financial returns for insurance companies appear to have stabilized in 2017, thanks in part to a large infusion of state money, but noted declining enrollment and other factors could cause escalating price increases down the line.

As companies wrap up open enrollment for 2018 insurance — the final day to complete enrollment for private coverage is Sunday — they, too, are looking hard at ways to keep insurance affordable and their plans profitable in the years to come.

“You have a classic chicken-and-egg problem: How to get healthy people in while rates are high,” said Geoff Bartsh, vice president for individual and family business at health insurer Medica.

A bifurcated market

Understanding what drives the cost of health insurance in southeast Minnesota starts with the numerous forms insurance can take.

Many, if not most, people receive insurance through an employer, either theirs or a relative. The largest companies often run what are called “self-funded” plans, in which the company assumes responsibility for the financial risk of patient claims and contracts with a health insurance company to administer the plan. That’s how about 34 percent of Minnesotans get insurance. Other company plans are run entirely by the insurer, which are further divided into small group (between two and 50 employee, about 5 percent) and large group plans (18 percent).

Then there’s the individual market, either through the MNsure exchange, a broker or directly from an insurance company, which insures four percent of Minnesotans. In southeast Minnesota, individual plans are offered by Medica and Blue Cross Blue Shield. And on top of that, there are various government insurance plans, including Medicare for the elderly or disabled; Medicaid, for those in financial need; MinnesotaCare, the state’s Medicaid expansion program under the Affordable Care Act; and others.

To make matters even more confusing, each company or agency, and often each plan that they offer, negotiates separate rates with different health care providers, creating a dizzying patchwork of potential prices. The Department of Health released an analysis last week finding up to eight-fold variation in price for common procedures like knee replacements, even to different patients within the same hospital or clinic.

Bartsh said insurance companies succeed based on their ability to find advantageous prices for their customers.

“Especially when you start putting in Medicaid and Medicare to the mix, one provider might be getting paid 12 different things for the same service depending on the insurer and program they are in,” he said. “You might wish for that to be simpler, but that also creates the avenues for partnership and negotiation.”

It also drives companies to offer insurance customers better deals at certain health care providers, known as in-network plans, or even to not cover treatments at out-of-network providers. Blue Cross Blue Shield of Minnesota Vice President of Public Affairs Scott Keefer said his company used to offer customers access to its Aware network, covering all hospitals and nearly all physicians in the state, but ended that offering in 2017.

“We only have regional products,” he said. “We have a product built around the Mayo Clinic. In the Twin Cities, we built around the Allina system. The idea was those clinics would give us a discount in return for knowing we were going to bring a higher volume of patients.”

In recent years, Minnesota has become a more fragmented insurance market, with each portion of the state on its own to cover its own health costs. And for southeast Minnesota in particular, that’s proven to be a tall order.

Paying a premium for uninsurance

Kent Rossi of Owatonna is one of many who can testify to the challenge of finding affordable health care.

Rossi, an attorney with his own law office downtown, is old enough to get insurance through Medicare. Others in his family, though, are not, and the family’s income is too high to qualify for federal subsidies on a plan on the individual market.

The plan they have been able to find leaves much to be desired.

“We pay $945 per month, so approximately $12,000 a year, and we won’t use it,” Rossi said. “$945.32 a month for a $6,000 deductible.”

In fact, when one family member needed a particular medical procedure that would cost about $1,200 in Owatonna, they traveled instead to the Twin Cities to get the same procedure at a clinic that charged less than $400, even though their insurance only covers treatment in southeast Minnesota.

“We’re really uninsured but paying a premium for uninsurance,” he said. “When you have a $6,000 deductible, what you really have is catastrophic [insurance], and you’re paying $12,000 for that.”

Insurers say southeast Minnesota has been hit by a unique combination of factors that have driven up prices, especially since the passage of the Affordable Care Act in 2010, which restricts the ways in which insurers can charge different rates to different customers.

“The only difference that was permissible between insurance products was the difference that the products by age, smoking status, family size, and geographic area,” Keefer said. “As it turns out, if this was not the biggest change for the state of Minnesota, it was definitely the biggest change for the area you’re in south of the Twin Cities Metro.”

Before the ACA, each insurer divided up the state according to its own model. Blue Cross, for example, had three rating areas, Keefer said: southern, northern and Metro. But under the ACA, states standardized their rating areas, which in Minnesota meant nine distinct zones in which, if insurers offer a given plan, it must be at the same rate.

“Obviously if you have fewer rating areas, there’s more cross-subsidization of one rating area vis a vis another,” Keefer said.

All health care is local

It turns out, when other parts of the state are not averaged in, health care is very expensive in southeast Minnesota.

MN Community Measurement, a nonprofit health care industry group, found that the average cost per patient per month in southeast Minnesota was $601 in 2016, well above the $490 state average. While some of that cost is driven by Mayo Clinic in Rochester, which provides cutting-edge care for patients from around the world, other providers across the region charge well above the state average as well. At Mayo Clinic Health System-Owatonna, the dominant provider of local health care, the average patient cost $595 per month in 2016. And even at the Rochester clinic, 70 percent of patients come from within 120 miles.

Mayo Clinic Health System declined to make executives available for an interview for this article, but provided a statement:

“We must all continue to work together to bend the cost curve and create a more sustainable market. We are working to deliver high quality care to our patients more efficiently and effectively and will continue to do so. Our rate increases have been modest, we’re constantly working on ways to deliver care even more efficiently, while maintaining and even elevating quality. We are committed to the communities we serve and want to work together to ensure that there is access to high quality, affordable care. This includes working together to raise real policy issues.”

Bartsh said the drivers of health insurance costs include the raw cost of health care, the rate (utilization) at which it is used by a particular population, and the specifics of the health care plan, including co-payments and deductibles. Neither specific plan details or unusual utilization are major factors in southeast Minnesota, he said.

“Utilization can be driven by consumer behavior, or age can be a factor in utilization,” he said. “I think if you strip some of those things out, we don’t typically see a huge variation of utilization in southern Minnesota.”

Where will prices go next

Friday’s analysis at the Department of Health found that prices have stabilized after several erratic years, at least in the individual market.

“We see a more balanced financial picture for carriers continuing to serve the individual market into 2018, with premiums more in line with the health care needs of the enrollees, although some of that improvement may be due to plan design,” the authors write.

But, there is cause for concern, especially given changes in health policy at the federal level. The report also notes a key issue: in two years, the number enrolled in Minnesota’s individual market has fallen almost by half, from 309,000 in 2015 to 166,000 in 2017.

Insurers are watching that trend closely.

“An average person pays about $5,000 [per year],” Keefer said. “For every 10,000 people you take out of the individual pool, 10,000 times $5,000 is $50 million.”

Bartsh said one key way to bring health insurance rates down in Minnesota is to get more people back into those plans.

“Since the ACA, we’ve brought people into the market, the people we’ve brought in have been higher utilizers of care, and people have left the market, the people who’ve left are typ lower utilizers of care,” he said. “If you can figure out a way to get people back in, that expands the risk pool.”

Another variable is that the federal government recently repealed the so-called Individual Mandate, assessing a tax penalty to anyone who didn’t have health insurance. Both Bartsh and Keefer said they’re waiting to see what effect that has on the market, although Keefer called the move “unfortunate.”

“Even though the penalty people have to pay isn’t eliminated until 2019, behaviorally, you worry people aren’t going to participate because they think they don’t need to worry about it anymore,” he said.

As for southeast Minnesota in particular, there’s no quick solution: as long as health care in the region remains expensive, and the current rating area boundaries remain unchanged, it will cost more money to insure patients here as well.

“I readily acknowledge, as a Blue Cross executive, it’s disappointing for me, disappointing for all our executive, how this has worked out,” Keefer said. “I think there’s maybe some unintended consequences, not really anyone’s fault but that has played out with the Affordable Care Act.”

Rossi, in Owatonna, said he worries health insurance will soon be out of reach for many local residents.

“I’m OK, because I’m older and I make a good living, but I think it’s quite reasonable for someone to say, especially now, if nobody’s going to be enforcing the penalty … I’m going to skip it,” he said.

William Morris got his start in the newspaper trade as a recurring editorial intern in Wisconsin and has been writing about business, government and crime at the Owatonna People’s Press since 2015. He is now taking the reins of Forge as Associate Editor.

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