Minnesota would become one of the first states in the nation with a "public option" in the marketplace for individual health insurance under a plan pitched by Gov. Mark Dayton and endorsed Monday by two outstate DFL legislators.

Private health insurance options are dwindling for rural Minnesotans, said Rep. Clark Johnson, DFL-North Mankato, so opening more space in the 25-year-old MinnesotaCare program makes sense.

"The fact is, where I live, people know about Minnesota­Care and they like it," Johnson said Monday, adding that it's "passed the test of time."

The idea would need action in the Legislature by April 1, said Human Services Commissioner Emily Piper. That would allow Minnesota to meet state and federal regulatory requirements in time to offer MinnesotaCare to consumers in 2018.

But Dayton's idea faces opposition from Republicans, who control the state House and Senate and who have generally opposed expanded public insurance options competing with private insurers.

Doctors and hospital groups are also likely sources of opposition, as they receive lower reimbursement rates from MinnesotaCare than from private insurers.

MinnesotaCare was created in 1992 to provide reduced-cost coverage for low-income Minnesotans, who often struggle to buy private coverage but earn too much to qualify for the state's Medical Assistance program.

Dayton's "buy-in" proposal would make MinnesotaCare available to Minnesotans at or over 200 percent of the federal poverty level, who are not currently eligible. They would have to pay MinnesotaCare's premiums without state help, but some would be eligible for the same federal tax credits that consumers can use to buy private coverage on the MNsure insurance exchange.

The proposal would create a new option in Minnesota's individual market, where about 250,000 people bought coverage last year. The market was on the verge of collapse, regulators say, with private health insurers threatening to pull out due to financial losses.

The remaining choices have pinched consumers and providers in rural areas, since the remaining health insurance plans have tight networks of doctors and hospitals.

Friction in the marketplace

The expansion of MinnesotaCare would "guarantee for people across the state that they will have at least one high-quality insurance product," Piper said. The proposal includes $12 million in start-up costs to add staff, but otherwise would not increase state spending, officials said.

The Minnesota Hospital Association has argued that expansion of MinnesotaCare would give private insurers more reasons to drop out of the individual market in places that already have few options.

MinnesotaCare pays lower rates than private plans, so hospitals and clinics would lose money if people switched to it from private plans, said hospital association spokeswoman Wendy Burt. "Providers need a mix of commercially covered patients to make up for the underpayments from public programs," Burt said.

The association at least wants an upper-income limit so that wealthier Minnesotans remain in the private market. Piper said other provisions in the governor's budget would help providers through increased payment rates for dental, primary and mental health care.

Sen. Tony Lourey, DFL-Kerrick, said he hopes rural Republicans and doctors will support the proposal, since no other alternatives have been presented to stabilize the state's insurance market.

Sen. Michelle Benson, R-Ham Lake, did not reply to requests for comment on whether the plan would get a hearing in the Health and Human Services Finance committee, which she chairs.

Five other states are considering public options this year, according to the National Conference of State Legislatures.

Jeremy Olson • 612-673-7744