PreferredOne swipes big share of new Minnesota health insurance market

PreferredOne didn't expect to have some of the lowest health insurance premiums in the country this year.

It just turned out that way.

'We were, frankly, as surprised as anybody,' said Marcus Merz, chief executive of the Golden Valley-based insurance company.

For years, PreferredOne has been a small player in Minnesota for individuals who purchase coverage without help from an employer. The company had just 2 percent of the $688 million market in 2012 -- a sliver that was dwarfed by the 65 percent share held by Eagan-based Blue Cross and Blue Shield of Minnesota.

So, to grab a bigger membership base, PreferredOne figured it needed to offer competitive prices, Merz said.

In the Twin Cities, the strategy involved selling polices with its new 'Select' network, allowing consumers to save about 10 percent on premiums because they are steered toward a limited number of doctors and hospitals.

The strategy appears to be working -- at least on the state's MNsure health insurance exchange. As of April 13, PreferredOne had about 59 percent of the MNsure market, while Blue Cross had 24 percent.

The exchange does not represent everyone shopping for non-employer sponsored insurance. Individuals can bypass MNsure and purchase policies directly from insurance companies, so it's not clear yet how each company's overall share of the individual market stands.

Jim McManus, a Blue Cross spokesman, said exchange enrollment accounts for less than 10 percent of his company's overall individual market business.

Even so, PreferredOne's story seems part of a national trend in 2014, as insurers offering low-cost products with limited networks are getting noticed by those shopping on government-run exchanges.

'The folks who are gaining market-share and making a splash in the exchange markets tend to have very low costs and tighter networks,' said Tim Michaels with PwC in Minneapolis.

'People are not necessarily looking for a name-brand insurer,' Michaels said. 'They're looking for a plan with benefits that meets their needs with an affordable price.'

Founded in 1984, PreferredOne is 50 percent owned by Fairview Health Services, a large nonprofit network of hospitals, clinics and pharmacies based in Minneapolis.

Robbinsdale-based North Memorial Health Care and a group called PreferredOne Physician Associates each has a 25 percent share of the ownership.

Over the years, the vast majority of PreferredOne's customers have been employers who hire the company to provide group health insurance for employees.

That fits with the general split in Minnesota, where only about 5 percent of residents last year were covered by individual policies, compared with about 55 percent covered through employer groups.

In 2013, PreferredOne had fully-insured enrollment of 128,387 people, including about 15,000 covered through individual policies.

Dramatic changes brought by the federal Affordable Care Act likely will cause this individual market to grow.

Many people buying individual insurance policies can now qualify for federal tax credits to discount their costs. Plus, most individuals are required starting this year to have health insurance or pay a tax penalty.

Finally, insurance companies no longer can deny coverage to people with pre-existing conditions, nor can they charge higher premiums to those with health problems. These changes are making it easier for consumers to comparison shop, said Christopher Schneeman, an insurance agent with Seven Hills Benefit partners in St. Paul.

'What you see is what you get on price,' Schneeman said.

With the changes, the number of people lacking health insurance is expected to shrink while the number covered through individual insurance policies is expected to grow. The state expects the employer-covered pool to stay roughly the same size.

While it's unclear how many uninsured residents in Minnesota have found coverage, enrollment in individual policies at PreferredOne has increased more than five-fold this year -- to nearly 82,000.

'I see the role of price becoming more important in the market,' said Roger Feldman, a health policy expert at the University of Minnesota.

THE PRICE ADVANTAGE

The Affordable Care Act lets insurance companies charge different premiums to people based on age, smoking history, where they live and the quality of policies purchased. The federallaw requires that insurance companies categorize policies' quality according to bronze, silver, gold and platinum levels.

Looking across more than 130 combinations of age and quality levels, PreferredOne's lowest-price policy for a nonsmoker is also the lowest-cost policy in the country in 73 percent of all cases, according to a Pioneer Press analysis.

The analysis looked at premiums available for bronze, silver and gold policies on health exchanges in all 50 states plus the District of Columbia. It did not survey the highest-level platinum prices or policies sold outside the exchanges.

While PreferredOne didn't set out to be the absolute lowest-cost option, it didn't want to be the highest-cost choice, Merz said.

Actuaries believe that insurance policies with the most expensive premiums attract people with costly health conditions, figuring that those consumers are 'paying more for some reason,' he said.

If the converse is true -- that healthy people purchase lower-cost policies -- PreferredOne's low premiums could make the company a big winner.

'In general, you would think you should get that population that doesn't use any care -- because there's always 15 percent to 20 percent of the population that does not see a provider,' Merz said. For insurance companies, 'you want those.'

Still, low premiums are not necessarily a guarantee of attracting low-risk consumers.

A low-cost bronze plan might attract people who don't use care, but a low-cost platinum plan might attract people with health risks.

About 41 percent of policies sold by PreferredOne on the MNsure exchange, for example, provide platinum benefits. Across all companies, only 28 percent of MNsure shoppers have bought platinum.

In the individual market, PreferredOne sells only in Minnesota.

'We're a little worried about our platinum mix,' Merz said. 'On the other hand, the (average) age is not scary because, when we look at it, we've got a lot of families.'

'There's always risk,' Merz added. 'I don't think it's a scary risk.' He noted the company's overall enrollment growth: 'That should be a large enough base to give you a reasonable spread of risk.'

SELECT PLANS, LIMITED DOCTORS

The PreferredOne story caught the attention of researchers at the Kaiser Family Foundation, which in March published an analysis of competition on non-federal health exchanges in seven states.

PreferredOne and a California company called HealthNet stood out for capturing a larger share of the exchange market than might be expected given past performance.

The health care foundation's analysis noted that PreferredOne's Select network in the Twin Cities steers patients to a much smaller group of hospitals, including those in the Fairview, HealthEast and North Memorial systems plus Hennepin County Medical Center.

It's no coincidence that some of these select providers are owners of the company.

'In the Minneapolis region, PreferredOne is able to offer the least expensive silver plan in part by offering a narrow network version of its other plans,' researchers wrote. 'The Select network comes with lower monthly premiums: a 40-year-old enrolling in an Accent Select silver plan would pay $154 per month, compared to $172 per month for a broader network Accent Choice silver plan.'

In general, PreferredOne's broad-network plan remains most popular, Merz said, but a larger share of those buying on MNsure opted for what he called the company's narrower 'high-value' network.

The question going forward is whether consumers will push back against these narrow networks, said Stephen Parente, a health policy expert at the University of Minnesota. Consumers in the 1990s, during the HMO era, bristled against such restrictions.

Patients might also find the doctors they're limited to don't have enough time to see them, Parente said, although he doubts consumers in the Twin Cities will have such troubles.

PreferredOne's hospital and physician owners like the insurance company's growth, Merz said, because it likely means more patients will seek care from those health care providers.

Growth this year means PreferredOne's owners may need to contribute more capital, Merz added, so that the insurance company can satisfy regulatory requirements for financial reserves.

A chunk of the growth has come through the health exchange -- glitches and all.

TIPTOEING INTO RETAIL

Among other things, the MNsure system has struggled to send complete information to insurance companies about subscribers enrolling through the health exchange website. So, PreferredOne had to hire about 25 temporary workers to contact subscribers and verify coverage details.

'It's been labor intensive,' Merz said.

When MNsure users have website troubles, enrollment and payment data can be inaccurate and not timely, said Steve Peterson, a PreferredOne spokesman.

It's frustrating for consumers, he said, adding that some people have experienced over-payments, under-payments and lost billing.

Another problem involved cases where the MNsure system has dropped dependents from a policy.

'The dropped dependent affects the billing and possibly the member's subsidy...,' Peterson wrote in an email. 'All these issues create additional expense in administration and staff to service MNsure enrollments.'

The dropped dependents issue has been fixed, a MNsure spokesman said, and the company has hired a firm to help solve lingering website problems.

About 70 percent of PreferredOne's individual market share growth has come from people buying policies outside the health exchange. Individual policyholders now account for about one-fourth of PreferredOne's business, whereas in the past it was more like 5 percent.

With the shift, PreferredOne must adopt more of a 'retail' mode of reaching customers, Merz said, as opposed to the 'wholesale' model of selling to employers.

As a starter, that's meant hiring about 40 new employees this year alone, taking the company's head count to about 380.

'We're more than tiptoeing into the retail,' Merz said. 'It's much more advertising, much more PR, much more retail focus with the buses and the billboards....'

'Inside the organization, it's real different to send out bills -- those 80,000 members are in 40,000 households, so that's 40,000 bills,' he said. That's different than 'an employer that has 500 employees that gets one bill.'

Digital First Media Senior Reporter Mary Jo Webster contributed.

Christopher Snowbeck can be reached at 651-228-5479. Follow him at http://ift.tt/1pMbIes.