Blue Cross and Blue Shield of Minnesota, the biggest player in the state with 103,000 individual market customers, is the latest insurer to pull back from the state's ObamaCare exchange after piling up $500 million in losses.
The hit to Minnesotans buying coverage on and off the exchange is just the latest in a series problems for what ranks as among the least-stable markets in the nation. In 2014, the dominant insurer in the marketplace, PreferredOne, dropped out of the exchange. For 2016, Blue Cross and Blue Shield hiked premiums by 49%.
To top it off, marketplace demographics went from bad to nearly the worst in the nation as the relatively young and healthy shunned exchange coverage. As of April, just 20% of 2016 enrollees were in the 18-to-34 age group, down from 25% in 2015. Meanwhile, those 55 and over made up more than 38% of enrollees, up from 31% a year ago. Only West Virginia has an older tilt.
Minnesota is far from the only state to see insurers leave or premiums spike. UnitedHealth (UNH)has said it will exit almost all of the 34 state exchanges where it is doing business this year. Humana (HUM) also has dropped out of multiple exchanges. Yet a close look at the Gopher State's plight provides an especially useful window on the failings at the heart of ObamaCare because the state recognized many of those problems at the outset.
Starting with its launch in 2014, Minnesota's exchange was one of a kind: The state was alone in embracing ObamaCare's pseudo-public option, the Basic Health Plan. The BHP allows states to create a separate government managed care program for subsidy-eligible households earning up to 200% of the poverty level ($23,340 for a single this year).
Why adopt such a program instead of just letting those low-income individuals and families buy an exchange plan? Minnesota recognized what some have labeled ObamaCare's "bronze plan trap."
Silver-level coverage is really quite good for low-income purchasers, because it comes not only with generous premium subsidies, but also with cost-sharing subsidies that dramatically shrink deductibles and lower the ceiling on out-of-pocket costs. The problem is that many financially strapped households earning up to 200% of poverty are hard-pressed to pitch in up to 6.4% of their income on silver premiums. That leaves two lousy options: either buy a less-expensive bronze plan with a $6,000-plus per-person deductible — more than one-fourth of earned income — or go uninsured and face a fine.
The harsh reality of the ObamaCare exchanges recognized by Minnesota — as well as New York, which launched its Basic Health Plan this year — is that they fail a high percentage of low-income individuals who could sorely use some help. That group includes low-income full-time workers who, along with their spouses, are ineligible for exchange subsidies if their employer offers coverage that qualifies as "affordable" under ObamaCare even if it is nothing of the kind.
The Basic Health Plan fixes ObamaCare for some low-income households, those up to 200% of the poverty level who are eligible for subsidies. But it throws modest-income households under the bus and making things even worse for the middle class.
Bigger Subsidy Cliff
Minnesota and New York are giving a great deal to the lowest-income group. Those up to 200% of the poverty level in New York get zero-deductible plans for up to $20 per month. Coverage via MinnesotaCare, carries a $3 monthly deductible. But that creates a bigger subsidy cliff to fall off for those who earn just above 200% of the poverty level. As one ObamaCare navigator helping Minnesotans to select the most appropriate plan wrote in an op-ed, "a pay raise costs too much" under the law. ObamaCare "forces some people to make hard choices about how much more money they can really afford to earn," she wrote.
For relatively young households with income modestly above 200% of the poverty level, MNsure really doesn't have any affordable options. The cheapest bronze plan in Minneapolis costs about $950 for 30-year-olds earning $24,000 and carries a $6,450 deductible. The cheapest silver plan for these modest earners costs almost $1,500, likely far more than most healthy individuals at this income level can rationalize spending for a plan with a $1,700 deductible and maximum of $5,000 in out-of-pocket costs for accessing medical services.
Minnesota's effort to save low-income households from the bronze-plan trap is a big negative for middle-class households who qualify for little or no subsidy to buy coverage. The problem is that MinnesotaCare covers a lot of relatively young and healthy individuals, limiting the exchanges to a narrow, relatively high-cost slice of the population. While all states are facing this problem to some extent because of ObamaCare's affordability issues and the exclusion of low-wage full-time workers, it's even worse in Minnesota because it separates out another potential group of low-income enrollees.
To its credit, Minnesota realizes the bad deal that modest-income households are getting, so it wants to expand its managed-care plan up to 275% of the poverty level via a waiver. Doing so will further narrow the exchange pool and likely send rates still higher. Further, improving coverage for this next income tier will, of course, cost the state more, so it's much more of a wealthy blue-state strategy than something that can be replicated around the country.
One more problem with Minnesota's — and New York's — Basic Health Program: A federal judge recently ruled that the cost-sharing subsidies which help finance the program were illegally appropriated by the Obama administration, siding with House Republicans. Thus, this very flawed strategy for overcoming some of ObamaCare's serious failings remains in legal limbo.
