Last week, I posted that PreferredOne, the largest insurer by membership on the Minnesota Exchange, was leaving the individual market. They were losing money on the policy and I looked at some basic information and came to the following conclusions:
It is not shocking though.
I think a few things are happening.
PreferredOne either was… over optimistic on their acturial modeling or had…engage in an extremely aggressive loss leader pricing strategy to build membership. If this was a loss leader strategy, than it may have been too effective…. People with high utilization and high complexity of cases are expensive on the medical side as they go to doctors/hospitals a lot AND they are administratively costly as they are calling in for help and care coordination on a frequent basis.
Secondly, the back-end infrastructure to support Exchange is extensive, especially as the risk spreading mechanisms such as risk adjustment require significant technical support. Building that type of infrastructure from scratch is painful and expensive. PreferredOne seems to have been only a commercial group insurer with a small staff before it decided to dip its toes into the water for individual Exchange. It had no pre-exisiting model it could rip off to modify for Exchange.
It had aggressive pricing, a population that is higher need than normal, and not a lot of administrative/technical depth.
PreferredOne is not providing any explanation beyond a letter to MNsure from its CEO that said continuing to offer coverage through the exchange “is not sustainable.”
After looking into the company’s filings and talking to others in the market, that seems to be a fair assessment….
In a news release a year ago, PreferredOne was pleased to announce that it offered “the lowest-cost individual and family health care insurance plans available at all metal levels in eight of the nine MNsure pricing regions.”
PreferredOne had made its decision. It was going to grab some market share.
It worked splendidly, too….
For those keeping score, that’s $1.31 paid out for every dollar coming in, a medical loss ratio of 131 percent….
So once someone actually looked at the facts, PreferredOne engaged in optimistic acturial assumptions, aggressive loss leader pricing and later on, it was shown that they don’t have a deep technical back-end. Not too surprising.