Health insurers in Minnesota spend more on overhead

Administrative costs picked up again for health insurers in Minnesota during 2016, with the total tab for overhead increasing by about 7 percent to $1.81 billion, according to a new report.

It was the highest annual tally during the past decade, according to the Minnesota Department of Health.

The report doesn't explain what's driving changes from year to year, nor does it draw conclusions on whether administrative spending is too high, said Stefan Gildemeister, the state's health economist, in a Thursday interview.

"As we think about getting to sustainable health care costs, looking at how we administer the delivery of health care [and] the delivery of insurance coverage is really important," Gildemeister said. "Like everything in health care, the topic is complex, and simple answers that apply to all players in the market may not exist."

The rate of administrative costs in the report was relatively low for Minnesota's largest nonprofit health insurers, said Jim Schowalter, chief executive of the Minnesota Council of Health Plans, a trade group for those carriers.

Schowalter noted that during 2016, the state's nonprofit insurers were handling a large number of health plan switches among Minnesotans in public health insurance programs as well as the state's market for individuals.

"Insurers needed to make sure those transitions worked smoothly," Schowalter said.

On a per-person basis, administrative spending increased from $322 in 2015 to $343 in 2016. Back in 2007, per-person administrative costs were $266, according to the report, but those expenses accounted for a higher share of overall health plan spending at 8.3 percent.

"Health plan administrative spending has grown two-and-a-half times faster than inflation in Minnesota, and since 2011 at rates near or above spending on health care services," the report states.

At Eagan-based Blue Cross and Blue Shield of Minnesota, administrative expense increased by $104.9 million, or 20 percent, to $630.7 million, according to the Health Department. In a statement, Blue Cross said its administrative expense increased along with gains in Medicaid enrollment.

Minnetonka-based Medica saw administrative spending increase by $63.7 million, or 20 percent, to $389.9 million. The insurer attributed the increase to significant growth in enrollment between 2015 and 2016.

"Administrative expenditures are highly correlated with membership," Medica said in a statement. "In 2016 we added about 180,000 members, including more than 120,000 public programs members and 40,000 individual plan members."

Conversely, Minneapolis-based UCare in 2016 lost about 300,000 enrollees in state public health insurance programs after losing a statewide competitive bid. Administrative expense at the health insurer declined by $68 million, or 31 percent, to $148.9 million.

"The organization lost administrative scale, and, with diminished revenue to absorb fixed costs of administering health plans, the administrative cost ratio increased by 2.2 percent," UCare said in a statement.