Sensible administrative cost limits will hold down taxpayers’ costs.
Minnesota has long — and deservedly — been held up as a national model for health care quality and access. Now, after two-plus years of questions about the state’s oversight of outsourced medical assistance programs, Minnesota lawmakers and Gov. Mark Dayton’s administration are putting in place smart new administrative cost reforms that will help make the state a national leader when it comes to accountability for these taxpayer-funded programs.
Controversy has swirled in Minnesota since early 2011 over private managed-care plans’ profits from the $3.7 billion in taxpayer dollars they’re paid annually to administer medical coverage for the poor, disabled and elderly. Like many states, Minnesota outsources to private insurers the administration of some of these programs — funded jointly by the state and federal governments — in hopes of saving money.
An out-of-the-blue $30 million giveback to the state by one of the plans, UCare, in March 2011 raised questions about whether the state was paying the plans too generously and whether these higher payments had improperly used federal dollars to offset the plans’ losses on a state health program ineligible for federal funding.
The giveback spurred legislative scrutiny, a congressional hearing, numerous audits and an investigation by the federal Office of Inspector General (OIG). A state-ordered audit completed in March found the plans’ profits off these public programs often exceeded targeted levels from 2003 to 2011, resulting in $207 million spent heedlessly.
Rather than waiting for the OIG to release its investigation results at some unknown date, it makes sense for Minnesota to do what it can now to more effectively manage these programs.
The Department of Human Services, led by Commissioner Lucinda Jesson, has already launched competitive bidding and other contracting reforms estimated to save the state more than $1 billion compared with previous projections. The state now pays less on average for enrollees in managed-care medical assistance programs and MinnesotaCare than it did in 2010.
This year, Jesson’s agency teamed up with legislators to push through reforms that limit questionable administrative costs allocated by the managed-care plans to the state’s public health programs. A round of audits ordered by Dayton previously raised concerns about marketing costs — such as a Twins ballpark sponsorship by Blue Cross — and million-dollar charitable contributions by some plans.
Lawmakers this year more specifically defined allowable administrative costs and limited expenses that can be allocated back to public medical programs for rate-setting purposes. The reforms cap individual salaries allocated to public programs at $200,000. Marketing expenses and charitable contributions can no longer be counted. Neither can penalties or fines assessed to the plans by the state.
Savings from the administrative cost changes are estimated at $25 million in the next two years, and around $50 million in the 2016-17 biennium.
In a statement, the Minnesota Council of Health Plans said, “What’s missing from this conversation is the fact that the cost of care is what drives spending. Last year per-person spending in MinnesotaCare and Prepaid Medical Assistance increased nearly 5 percent for doctor visits, hospital stays, prescription drugs and other medical care.”
While it’s correct that these administrative expenses are not the programs’ primary cost driver, the bookable savings show that these costs aren’t insignificant, either. The state should be looking at efficiencies in all areas. The administrative reforms make financial sense and will help rebuild trust in these programs’ management.
The respected Office of the Legislative Auditor will soon launch an in-depth review of these programs, with an emphasis on ensuring that state officials have the data they need from the plans to more accurately set rates and prevent overpayment. Federal officials are continuing their scrutiny as well and sent a May 24 letter inquiring about the state’s new rate-setting methods. Legislators have more work to do to ensure oversight is sufficient.
Nevertheless, this year’s administrative cost limits are a solid step forward. And as more states rely on managed-care firms to run these programs, the reforms underway in Minnesota should pave the way for more effective management of these programs elsewhere.
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