A costly change

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Charles Moline’s job is much easier now that the Patient Protection and Affordable Care Act, also known as Obamacare, went into effect Oct. 1. When clients come to the Austin-based financial adviser for advice on health insurance, all Moline has to do is walk them through choosing a plan on MNsure, Minnesota’s new health insurance marketplace. However, Moline says that may not be a good thing.

Moline isn’t satisfied with what he is advising customers to do regarding insurance. The 18 or so clients he has helped over the past few weeks with individual insurance plans, and the 25 to 30 businesses seeking health insurance advice are, more often than not, finding MNsure plans cost much more to provide the same amount of benefits. Many of those clients are middle-class families that don’t qualify for federal subsidies to offset increased costs.

As the Affordable Care Act’s open enrollment period comes to a close and federal health insurance mandates kick in next year, many area residents may find their plans are more expensive than expected. And it’s all because of where they live.

“Living in southeastern Minnesota, we are the most expensive place to live in, in the state, as far as health care,” Moline said.

A lack of options

At its root, experts including Moline say southeastern Minnesota’s lack of health care options has worked against it under new federal health insurance mandates.

That’s one reason premiums for MNsure plans in the area have been among the highest in a state that, according to the Associated Press, has some of the lowest overall rates in the country for coverage offered on the online marketplaces, which are a core component of the President Barack Obama administration’s health care overhaul.

“We have most insurance companies not even offering insurance down here in southeastern Minnesota,” Moline said.

Only Blue Cross Blue Shield and Medica offer individual plans in Mower and Freeborn counties, and Blue Cross is the only small business insurance provider in the area. The lack of insurance providers, according to Moline, comes directly from the lack of health care options offered in southeastern Minnesota. Health insurance plans in southeastern Minnesota can be up to several hundred dollars higher than comparable offerings in the Twin Cities.

According to the MNsure website, a 51-year-old, non-smoking man in Austin would pay between $369 and $563 a month without subsidies, while the same man would pay between $168 and $407 a month if he were living in Minneapolis.

For a family of four, the prices are between $848 and $1,295 in Austin without subsidies, while in Minneapolis the cost would be between $386 and $937.

“There’s such a perception out there that this was going to be such a blessing for everybody. While it is for some, for other situations, it’s much worse,” said Mike Petersen, co-owner of Security Insurance in Albert Lea. “We feel glad for people who are helped by it, but we feel bad for those who are outside of the subsidies.”

Mike and Andy Petersen, another co-owner of the company, estimated they have hundreds of clients who will experience rate increases of more than 50 percent through either their group or individual plans in 2014. Many of these people barely fall outside of the subsidies and cannot afford the increase, Mike said.

Mayo’s dominance

Mayo Clinic’s dominance in the Rochester region, which includes Mower County, has also made it a tough market for insurers to enter, as the world-renowned clinic can set its own prices.

Mayo’s quality of care is high, but people who have to buy their own insurance and don’t qualify for subsidies under the federal health care overhaul pay the price, Minnesota Public Radio reported Monday.

Mayo’s position as the Rochester area’s top health care provider makes it an expensive market for any insurer to enter, said Jean Abraham, a health policy expert at the University of Minnesota. She added that it’s also a problem in other parts of the country where there’s a single, dominant provider.

Mayo Clinic’s costs are higher because it treats patients with very complex illnesses, said Kathleen Harrington, Mayo’s government relations chair. Mayo also supports the cost of research and education, which not all hospitals do, she said.

“We’re not a community-based hospital. This is an academic medical center that does research, education and top-of-the-pyramid care for the sickest of the sick,” Harrington said. “The cost is naturally higher.”

Anne O’Connor with the Minnesota Department of Commerce said the Affordable Care Act and MNsure in Minnesota has helped shed light on variations that have always existed in rates and health costs.

“Perhaps consumers weren’t aware that those variations existed, but they did, and now we can focus our efforts on finding ways to reduce those costs so we can create more affordable options in this region,” O’Connor said.

More regulations, older population

There are other reasons behind higher health insurance costs in general. More insurance requirements, like mandated dental coverage for children, has driven up insurance prices. By taking away the risk factor in insurance plans and inserting insurance requirements, insurance providers in many cases have to work off a baseline instead of allowing for competitive pricing, according to Moline.

Mayo Clinic Health System — Albert Lea and Austin CEO Dr. Mark Ciota said one reason for higher costs may be the area’s high number of elderly residents.

“Freeborn and Mower counties have some of the highest aged populations, which typically means that health care is higher,” Ciota said, which insurance companies will take into account.

That’s part of the imbalance to MNsure and the Affordable Care Act in general, Moline said. For the program to work, more young, healthy people need to pay into the system to lower costs for older or infirm residents.

Historically, a higher percentage of U.S. residents go without insurance when they are younger. That may not be the case in the future, as Congress has enacted penalties for those who forego insurance. The penalty for the 2014 fiscal year will cost $95 or 1 percent of a person’s income, whichever is greater, and drastically increase over the next several years. In 2015, the penalty will be the greater of $325 or 2 percent of income, $695 or 2.5 percent of income for 2016 taxes, and will increase based on inflation in subsequent years.

The penalty tax is capped for families, up to three times the amount-per-person penalty, which means a family that foregoes insurance may pay up to $285 in 2015, $1,075 in 2016, $2,085 in 2017 and more in the future.

In the short term, that may not be enough of an incentive to get insurance at about $200 a month for an individual.

“When you take a look at paying the premium or paying the penalty, why would anyone decide to pay the premium, especially if they’re not paying the premium today?” Moline said.

Another cause, according to Ciota, is that insurance companies in the Twin Cities may be purposefully bringing premiums under cost to gain market share. Then, premiums in rural Minnesota would appear inflated when compared to the Twin Cities.

Those plans appear to have much higher deductibles than normal plans — Moline has found individual and family plans under Medica with a $12,750 deductible in southern Minnesota.

Small businesses aren’t immune to increases or regulations. Businesses are classified as large based on whether they have 50 or more employees, but the way insurance companies count employees depends on formulas rather than employee counts. Thus, Moline wasn’t surprised when one of his clients, a small business with a little more than 40 employees, actually counts for about 83 employees, according to health insurers.

Yet those classifications will change in 2015, when a large business will be defined as having 100 or more employees. Because of that confusion, Moline’s clients are wondering whether to save the paperwork and the hassle by doing away with insurance costs and increasing worker pay to allow employees to purchase individual plans.

Future effects

The market may not right itself any time soon, as more government and insurance changes take effect in the area. Medica recently added seven plans for Dodge and Olmsted counties after working with the Minnesota Departments of Commerce and Public Health, as residents in one zip code only had a single option under MNsure. A spokesman with the health department said the state has no further plans to expand insurance options elsewhere, though private insurers could expand on their own.

There was also the news on Thursday that at least 140,000 Minnesotans who buy health insurance on their own are being notified that their plans will no longer be available under the new federal health care law, adding to the national furor over canceled policies that has overtaken the health care debate.

Unlike many states, Minnesota guarantees renewability of health insurance plans, meaning that technically, no policies are being canceled. Some who are being offered different plans, however, say that’s a distinction without a difference.

Industry officials say higher premiums and added benefits are likely in store for most of those who now buy high deductible/limited coverage plans on the individual market. Medica Vice President Dannette Coleman said that while some customers could see lower rates, “there could be some tough conversations. These are big impacts to a lot of people.”

But Minnesotans, whether they like the system or not, are signing up for health insurance through MNsure.

MNsure officials say about 3,700 visitors to the site are in the enrollment process — they’ve taken the step of selecting coverage through MNsure and are in the payment process if their plans require payment. That’s about 30 percent of the total number of accounts opened. The majority of those in the enrollment process qualify for government programs such as Medicaid or MinnesotaCare, the state’s plan for low-income people. About 400 accounts are enrolling in individual or family commercial plans. Only four small businesses have completed setting up an employee health plan through MNsure.

In addition, Medicaid will expand nationwide starting Jan. 1, which means about 152,000 people will become eligible for free health insurance under the federal program. People can go online to MNsure to see if they’re eligible for Medicaid, or medical assistance in Minnesota. But they won’t be able to enroll in a plan — they need county workers administering medical assistance to help with that — for some time, perhaps six months or a year.

Gov. Mark Dayton said earlier this month he is pleased with the performance of Minnesota’s health insurance exchange so far, but that it’ll be at least a year before it can be judged a success or failure.

In that time, more kinks in the system will likely come to light, but without changes to health care costs, insurance costs may stay higher in southeastern Minnesota.

“What have we really done to affect health care costs?” Moline said.

—Reporter Sarah Stultz, the Associated Press and the Minneapolis Star Tribune contributed to this report.