EXCHANGE OF VIEWS | The future of Minnesota: How to contain health care costs, revisited

Opinion Editor’s Note: Star Tribune Opinion publishes a mix of national and local comments online and in print every day. (To contribute, click Here.) This article is a response to the June 4 Star Tribune opinion call for proposals on the question, “Where does Minnesota go from here?” Read the complete collection of answers Here.

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

Reports need to examine the role administrative costs play in driving up Minnesota’s health care costs. For the past 50 years, legislators have been unaware of the role administrative costs have played in healthcare inflation. Starting with the HMO Act of 1973, he enacted laws that were supposed to reduce health care costs, but drove them up by increasing administrative costs (which in turn drive up prices) and encouraging mergers within of the insurance and hospital sectors.

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

Over the past half century, legislators, prodded by half a dozen commissions, have adopted policies based on a misdiagnosis of health care inflation. Total spending in any sector of the economy is the product of two numbers: price times quantity equals total spending. Regulators have long assumed that excess quantity is the problem, not excessive prices. However, the evidence indicates that the legislator has backtracked: excessive prices for everything (insurance premiums, hospital costs, doctors’ fees, drugs, etc.), not “overuse” of medical care, is the main reason thus health care costs are high in the United States compared to other countries and in Minnesota compared to other states.

Yes, pockets of overuse exist, but they should be addressed with carefully tailored solutions, not the HMO chainsaw that has been the legislator’s weapon of choice against rising healthcare 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, both the problems of sky-high administrative costs and the merger folly that led to healthcare consolidation have been compounded by the same “solution” adopted by the legislator to control alleged “excessive use”, which requires companies of insurance to influence and check the doctors. The legislator’s prescription, it turned out, was worse than the disease.

In the last session, the Legislature enacted legislation requiring these Minnesota administrative cost reports:

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

The lawmaker has authorized a fifth report, this one from the Departments of Commerce and Human Services, scheduled for February 1, 2024, on “different models” of “public option”. The law requiring this study doesn’t explicitly require the report to analyze a “model” without insurance companies (i.e., a version in which DHS would bypass HMOs and pay doctors and hospitals directly), but the implication is there. A public option bypassing insurance companies would cut administrative costs enough to cut premiums by about 15%.

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

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

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