Minnesota’s future: How to contain health care costs, revisited

This is an interesting occurrence. On its own Minnesota is moving forth with a health care study to be completed by March 2024. The study topic is the implementation of single payer within the state and its impact on administrative costs.

This year the state began questioning its present commitment to traditional healthcare’s and its administrative role in healthcare. Kip on numerous occasions has pointed out the costs of administrative costs of 15-20% make healthcare needlessly expensive. Also, Minnesota has not experienced a cost improvement with its prior actions. I will not add more to this discussion at this point. Minnesota is moving toward with a the prelim single payer cost model. The experiment will test whether single payer and the associated claims of lower costs actually happens,

Minnesota’s future: How to contain health care costs, revisited, Star Tribune, Kip Sullivan

The 2023 session of the Minnesota Legislature might be remembered as the year Minnesota began to question its 50-year-old approach to containing health care costs. This will depend on the results of several reports ordered by the Legislature and the Legislature’s reactions to them.

The reports must examine the role administrative costs play in driving up Minnesota’s health care costs. For the last 50 years, the Legislature has been oblivious to the role administrative costs have played in health care inflation. Beginning with the HMO Act of 1973, it enacted laws that were supposed to reduce health care costs but which drove them up by driving up administrative costs (which in turn drive up prices), and encouraging mergers within the insurance and hospital sectors.

A new approach is long overdue. Thanks largely to our evidence-free cost containment policies, Minnesota has one of the highest per capita costs of health care in the country according to the latest federal data.

For the past half-century, the Legislature, egged on by a half-dozen commissions, has adopted policies based on the wrong diagnosis of health care inflation. Total spending in any sector of the economy is a product of two numbers: Price times quantity equals total spending. The Legislature has long assumed excessive quantity is the problem that needs to be addressed, not excessive prices. However, the evidence indicates the Legislature got it backward: Excessive prices for everything (insurance premiums, hospital charges, physician fees, drugs, etc.), not “overuse” of medical care, is the primary reason health care costs are high in the U.S. compared with other nations, and in Minnesota compared with other states.

Yes, pockets of overuse exist, but they should be addressed with carefully tailored solutions, not the HMO chain saw which has been the Legislature’s weapon of choice against rising health care costs for half a century.

Prices are high mainly because the cost of administering our Byzantine system is so high, and because the entire health care system has become highly concentrated in the hands of a relatively small number of insurance companies and hospital-clinic chains. And, ironically enough, both of those problems — sky-high administrative costs and merger madness leading to consolidation of the health care system — were aggravated by the very “solution” the Legislature adopted to control the alleged “overuse,” which calls for insurance companies to influence and control doctors. The Legislature’s prescription, it turned out, was worse than the disease.

In the last session, the Legislature enacted laws requiring these reports on Minnesota’s administrative costs:

  • A report due on March 1, 2025, from the Department of Health recommending “a set of actionable strategies to address administrative spending volume and growth.”
  • “Periodic reports” from a new Center for Health Care Affordability within the Department of Health that describe the center’s research on “unproductive administrative spending,” among other topics.
  • A report due on Jan. 15, 2026, from the Department of Human Services (DHS) on how much money Minnesota could save by bypassing the HMOs that now participate in Minnesota’s Medicaid and MinnesotaCare programs (the report should indicate savings will come almost entirely from reduced administrative costs generated by the HMOs).
  • A study due on Jan. 15, 2026, from the Department of Health on how much universal health insurance under a single-payer system would cost (single-payer systems reduce health care costs primarily by reducing administrative costs such as money spent by insurance companies on advertising, limiting patient choice of doctor, and second-guessing doctors, and money spent by doctors and hospitals coping with insurance industry attempts to control “overuse” of medical services).

The Legislature authorized a fifth report, this one by the Departments of Commerce and Human Services, due on Feb. 1, 2024, on “different models” of a “public option.” The law calling for this study does not explicitly require the report to analyze a “model” with no insurance companies in it (that is, a version in which DHS would bypass HMOs and pay doctors and hospitals directly), but the implication is there. A public option that bypasses insurance companies would cut administrative costs by enough to cut premiums by about 15%.

The Legislature is to be commended for enacting these laws. Now it’s up to the agencies in charge of writing the reports to write unbiased reports that are based on research, not the groupthink that has allowed the obsession with alleged overuse of medical services to dominate policymaking in Minnesota for half a century.

Kip Sullivan is a member of the advisory board of Healthcare For All Minnesota.