Health Economics Program
Issue Brief
2003-09
October 2003
Trends in Minnesota’s Individual Health
Trends in Minnesota’s Individual Health
Insurance Market
Insurance Market
Introduction
Although the majority of Minnesotans get health insurance coverage through an employer, some purchase it direct-ly from insurance companies. While the individual health insurance market is much smaller than the employer group market, it plays a vital role in insuring people who do not obtain coverage through an employer. About 200,000 Minnesotans, or 4 percent of the population, purchase health insurance in the individual market (see Figure 1). Early retirees, students, individuals who are self-employed and individuals who do not have access to employer-sponsored health insurance are most likely to buy coverage in the individual market. Enrollees in this market must personally finance their insurance, which makes issues of affordability particularly important to policy makers.
Figure 1
Distribution of Insurance Coverage in Minnesota, 2001 (by Primary Source of Coverage)
Uninsured 5.4%
Individual Market 3.9%
Private Group Coverage: 67.7% Large Group 57.9% Small Group (2-50) 9.7% Public Programs: 23.0% Medicare 13.3% Medical Assistance 6.1% GAMC 0.5% MinnesotaCare 2.7% MCHA 0.5%
Recently, rising health care premiums have raised renewed concerns about access to affordable insurance in the individual market. This issue brief analyzes trends in Minnesota’s individual market using data from a variety of sources.
The Individual Health Insurance Market in Minnesota
The individual market has several characteristics that make access and affordability of coverage a challenge. Because people may wait to buy coverage until they have a medical need, applicants for coverage in this market may be likely to have higher medical expenses than average. (This phenomenon is called adverse selection.) To mitigate this problem, health plans perform extensive underwriting in the individual market, which may result in denial of cov-erage, high premiums, or limitations on benefits. As a result, the individual market has much higher overhead costs than the group market.1In addition, the market tends to be volatile because of high turnover among enrollees.2 In light of these market characteristics, the individual market in Minnesota is subject to the following regulations:3
z Guaranteed renewal, which means that health plans cannot refuse to renew coverage for an individual
except under specific conditions;
z Restrictions on premium variation, also known as “premium rate bands,” which are intended to reduce
pre-mium volatility;
z Regulatory approval of premium rates, which was modified in 2002 to allow companies to charge new rates
as soon as they are filed rather then waiting for the approval process, which the Department of Commerce has 60 days to complete.
z Minimum loss ratios, which are intended to limit profits of health plan companies by ensuring that a
mini-mum percentage of premiums is paid out for medical claims. For health plan companies with 10 percent or more of the total private health insurance market in Minnesota and HMOs with more than 3 percent of the market, the minimum loss ratio in the individual market is 72 percent. For HMOs with less than 3 percent of the total private health insurance market in Minnesota, the minimum loss ratio in the individual market is 68 percent. For other health plan companies the minimum loss ratio is 60 percent.
z The Minnesota Comprehensive Health Association (MCHA) is a high-risk pool established by the
legisla-ture in 1976 that offers individual health insurance to Minnesotans who have been turned down for health insurance in the private market. MCHA rates are capped at 125% of the average individual market rates. Expenses that are not covered by enrollee premiums are paid for through an assessment on all health plan companies doing business in Minnesota’s fully-insured market.4
Enrollment in the Individual Market
Table 1
Demographic Characteristics of Individual Market Enrollees, 2001 Individual Market Enrollees All Minnesotans
Gender Male 47.2% 48.1% Female 52.8% 51.9% Total 100.0% 100.0% Age 0 to 5 7.6% 7.1% 6 to 17 13.1% 16.3% 18 to 24 8.0% 8.5% 25 to 34 12.6% 13.5% 35 to 54 36.9% 33.5% 55 to 64 20.4% 9.5% 65 + 1.4% 11.7% 100.0% 100.0% Race/Ethnicity White 95.9% 92.4% Black 1.4% 3.3% Asian 1.6% 2.5% American Indian 0.7% 1.5% Other Race 0.5% 0.4% Hispanic/Latino 2.2% 3.2%
See note* See note*
Region Twin Cities 40.4% 46.3% Greater Minnesota 59.6% 53.7% 100.0% 100.0% Northwest 4.4% 3.3% Northeast 4.4% 6.6% West Central 7.0% 4.3% Central 13.2% 12.4% Southwest 11.6% 5.8% Southeast 19.0% 13.8% Twin Cities 40.4% 53.7% 100.0% 100.0% <100% 5.1% 6.0% 101% to 200% 16.5% 14.6% 201% to 300% 19.5% 19.5% 301% to 400% 18.1% 17.5% >400% 40.8% 42.4% 100.0% 100.0% Education**
Less than high school 3.5% 6.3% High school 29.8% 26.8% Some college 32.2% 32.6% College graduate 23.9% 23.4% Postgraduate 10.7% 10.9% 100.0% 100.0% Employment Status Self Employed 51.6% 10.8% Employed by Someone Else 25.1% 64.7% Not Employed 8.0% 8.0% Retired 9.3% 13.0% Full Time Student 6.0% 3.5%
Enrollees in the individual health insurance market are usually people who cannot access health insurance through an employer. Table 1 summarizes the demographic characteristics of enrollees in Minnesota’s individual market. As shown in the table, compared to the general population, people who have individual coverage are more likely to:
z Be older adults between the ages of 55 and 64 (20 percent of individual market enrollees compared to 9
percent of the general population);
z Be white (96 percent compared to 92 percent);
z Live in Greater Minnesota (60 percent compared to 54 percent); z Be self-employed (52 percent compared to 11 percent); and
z Indicate that they are in excellent health (46 percent compared to 40 percent).
The disproportionate number of enrollees in the individual market who are between the ages of 55 and 64 is likely related to the fact that early retirees who are not yet eligible for Medicare often purchase individual coverage.5
As noted above, the majority of individual market enrollees (60 percent) live in Greater Minnesota; in particular, the west central and southern regions of the state have the highest rates of individual coverage as a share of the popula-tion (see Figure 2). One reason for this is that these areas are more heavily dominated by agriculture, and employ-er-based health insurance is less widely available in these areas.
Figure 2
Percent of Population Enrolled in Individual Coverage, by Region, Minnesota, 2001
*Indicates statistically significant difference (95% level) from rate for state as a whole Source: MDH, Health Economics Program, 2001 Minnesota Health Access Survey
6.5% 5.2% 4.9% 3.7%* 6.7%* 9.8%* 7.9%* 3.3%* 0% 2% 4% 6% 8% 10% 12%
Not surprisingly, over half of the enrollees in the individual market are self-employed (52 percent). This reflects the fact that the individual market is often the only health insurance option for people who are self-employed. The fact that 25 percent of enrollees in the individual market are employed by someone else likely reflects gaps in the avail-ability and affordavail-ability of employer based coverage.
The majority of enrollees in the individual market indicated that they are in excellent or very good health (76 per-cent). This may be related to the fact that people in poor health are often denied coverage in the individual mar-ket through the underwriting process.
Enrollment and Premiums
As shown in Figure 3, enrollment in Minnesota’s individual insurance market declined quickly in the mid-1990s, then slowed and stabilized in the late 1990s. The reduction in individual market enrollment is likely the result of several factors, including market reforms that increased the availability of small employer coverage, and the strong economy and low unemployment in the late 1990s, which likely increased enrollment in employer-based policies.
Figure 3
Minnesota Individual Market Enrollment, 1994 to 2002
268,489 249,499 225,711 212,036 206,560 200,353 196,992 194,122 198,215 0 50,000 100,000 150,000 200,000 250,000 300,000
Figure 4
Change in Average Premium in Minnesota's Individual Market, 1998 to 2002* (Premium Per Member Per Year)
Source: MCHA Premium Survey and Minnesota Department of Commerce, loss ratio reports.
Figure 5
Average Premium Per Member Per Year in Minnesota's Individual Market, 1997 to 2002*
Source: MCHA Premium Survey and Minnesota Department of Commerce, loss ratio reports.
* The average premium per member per year is affected by many factors, including premium increases for a given product, shifts in the mix of prod-ucts that enrollees purchase, and changes in the characteristics of the enrollee population (e.g. average age, health status).
$1,009 $974 $1,138 $1,329 $1,533 $1,747 $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 1997 1998 1999 2000 2001 2002 -3.5% 16.9% 16.7% 15.4% 13.9% -5% 0% 5% 10% 15% 20% 1998 1999 2000 2001 2002
Financial and Industry Performance
As in the nation, Minnesota’s individual health insurance market is characterized by a relatively high degree of mar-ket consolidation (see Figure 6). In 2002, 17 firms offered products in Minnesota’s individual health insurance market and the largest carrier, Blue Cross Blue Shield of Minnesota (BCBSM), held 54 percent of the market. The top three carriers (BCBSM, Fortis and HealthPartners) held a combined 80 percent of the market in 2002. In 1997, the most recent year for which comparison is available, Minnesota was ranked twenty-eighth in the nation by share of the individual market held by the largest three insurers (at the time, the top three carriers held 76 per-cent of the market).6
Figure 6
Minnesota's Individual Market: Top 10 Carriers by Market Share, 2002
*Note: Companies with common ownership have been consolidated for purposes of this analysis. Fully insured market only, market share based on premium volume.
Source: Minnesota Department of Commerce, "Report of 2002 Loss Ratio Experience in the Individual and Small Employer Health Plan Markets for:
53.5% 14.4% 11.9% 7.1% 3.4% 3.2% 2.3% 1.2% 0.7% 1.2% 0.6% 1.2% 0% 10% 20% 30% 40% 50% 60% BCBSM, Inc. Fo rtis HealthP artners Medica Wo rld Insur ance Co . State F arm Mutual A utomobile Insur ance Co . Amer ican F
amily Mutual Insur ance Co
.
Golden Rule Insur ance Co
.
Amer ican Fidelity Assur
ance Co . Pioneer Lif e Insur ance Co . Thr ivent Financial f or Luther ans Other (6 Companies)
Figure 7
Loss Ratio Experience in the Individual Market, 1997 to 2002
*Note: Companies with common ownership have been consolidated for purposes of this analysis. Source: Minnesota Department of Commerce, loss ratio reports, 1998 to 2003.
Summary and Conclusion
The individual market is often the only health insurance option for people who are not offered coverage through an employer. Compared to the population as a whole, enrollees in the individual market are older, more likely to live in Greater Minnesota and more likely to be self-employed. Enrollment in the individual market declined throughout the 1990s, due in part to gains in employer-sponsored insurance and, more recently, to rapid premium increases.
Because of the key role of the individual market as a source of coverage for people without other options, it is par-ticularly important to ensure that coverage remains affordable. Like the private health insurance market as a whole, premiums and underlying medical expenses in this market have increased rapidly in the last few years, giving rise to renewed concerns about affordability of coverage. The Health Economics Program will continue to monitor trends in the individual health insurance market to determine the impact of rising costs on affordability and cover-age. 0% 20% 40% 60% 80% 100% 120% 1997 1998 1999 2000 2001 2002 Total Market BCBSM HealthPartners Fortis 72% statutory minimum for large firms
Endnotes
1Pauly, M. et al. “Individual versus Job-Based Health Insurance: Weighing the Pros and Cons,” Health Affairs, November/December, 1999.
2Chollet, Deborah. “Understanding Individual Health Insurance Markets.” Henry J. Kaiser Family Foundation, March 1998. 3Minnesota Statutes Chapter 62A.65.
4For more information on the financing and funding of MCHA see Minnesota Department of Health, Health Economics Program, “Health Care Coverage and Financing in Minnesota: Public Sector Programs,” January 2003.
5Thirty percent of Minnesotans aged 55 to 64 who purchase insurance in the individual market report their employment status as retired compared with 25% of all Minnesotans aged 55 to 64. This difference is statistically significant at a 95% confidence level.
6Chollet, Deborah, Adele Kirk and Marc Chow. “Mapping State Health Insurance Markets: Structure and Change in the States’ Group and Individual Health Insurance Markets, 1995-1997,” State Coverage Initiatives; December, 2000.
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For more information, contact the Health Economics Program at (651) 282-6367. This issue brief, as well as other Health Economics Program publications, can be found on our website at:
http://www.health.state.mn.us/divs/hpsc/hep/hepindex.htm
Minnesota Department of Health Health Economics Program 121 East Seventh Place, P.O. Box 64975 St. Paul, MN 55101 (651) 282-6367
