Administrative costs hit $1.82 billion at health plans in Minnesota

A new state report finds administrative spending by health insurers in Minnesota increased slightly in 2017 to $1.82 billion, a seventh consecutive annual rise that underscores concerns that complexity in the health care system is contributing to waste.

The annual study by the Minnesota Department of Health looks at the sums health insurers pay to process medical claims, market their services and manage how patients use care among other administrative duties.

The rate of annual increase in these expenses was less than 1% in 2017, lower than in previous years, but the report said the broader trend remains that administrative costs have been growing faster than general inflation.

"We've built a system that has, likely, unnecessary complexity," said Stefan Gildemeister, the state health economist. "And to administer that unnecessary complexity produces probably administrative spending that is in excess? I would say: Yeah. There is a portion of the spending that is undesirable and perhaps excessive, but I'm not saying that we can identify any bucket here pointing to it."

He added: "A lot of the administrative spending in here may be really important to ensure accountability, to avoid fraud, to create transparency. But undoubtedly, a portion of this does not contribute to better health."

The Health Department report collects data from health plans that spend more than $3 million in total health premiums from about 5.2 million Minnesota residents.

It tracks $1.82 billion of spending on administration in 2017, meaning those expenses accounted for about 7.3% of the total $24.76 billion spent by health insurers during the year. The previous year, the report tallied $1.81 billion of administrative expense on total expenses of $23.51 billion.

It could be that insurers during 2017 were no longer spending extra to handle changes brought by the federal Affordable Care Act, Gildemeister said. Major changes in the insurance market due to the law kicked in during 2014.

It might also be that carriers during the year simply slowed down or paused spending on new technology, Gildemeister said.

"I think it's not a trend," he said.

Administrative spending is a component of overall insurance costs, so it affects the premiums that consumers pay, Gildemeister said. As a share of all expenses, health insurers over the past decade have been spending between 7 and 8% on administration per year.

In 2008, the cost of administration expenses per insured Minnesotan was $276. By 2017, the per-person cost of administration grew by roughly one-quarter to $348.

The state's four largest nonprofit health plans accounted for the vast majority of spending tracked in the report.

In 2017, administrative expense at Eagan-based Blue Cross and Blue Shield of Minnesota increased by about $10 million, or 1.6%, to $640.7 million, according to a Star Tribune analysis of data released by the Health Department. Bloomington-based HealthPartners spent $358.4 million on administration, up about $17.4 million, or 5%, compared with 2016.

The analysis shows that Minnetonka-based Medica and Minneapolis-based UCare saw bigger percentage changes in administrative expenses between 2016 and 2017 — a decrease at Medica, and an increase at UCare. Representatives from the insurers cited the same driver, as a large group of enrollees in the state's Prepaid Medical Assistance Program and MinnesotaCare shifted during 2017 from Medica to UCare.

"The main driver of increases in UCare's administrative expenses was a 96% member increase from 2016," the nonprofit HMO said in a statement.

Representatives from Blue Cross and HealthPartners did not immediately answer questions about the report's findings.