Minnesota state leaders trying desperately to tamp down expenses have found an unlikely area where they saved more than $1 billion — health care for low-income residents.

State officials are starting to see results after taking aggressive steps in recent years to ease the sting on the state budget as residents age and use up more tax dollars.

Part of it has been luck, as healthier-than-expected residents joined Medicaid, the state's medical assistance program, as well as MinnesotaCare, an insurance program for lower-income residents.

Other efforts have been more deliberate. Last year, Minnesota launched a competitive bidding process statewide that trimmed payments to some managed-care providers and is expected to save the state $234 million over the current two-year budget period, according to the Department of Human Services.

State officials were surprised that new enrollees in the state's Medicaid program "were actually healthier" than what they projected, said state budget director Margaret Kelly. "There were similar things going on in our MinnesotaCare," said Kelly, noting that new enrollees also were healthier than expected and the share of federal contributions has grown.

Minnesota spent $4.6 billion on Medicaid and MinnesotaCare in 2014, about $1.2 billion less than what had originally been projected, according to Senate fiscal research and the Minnesota Management and Budget agency.

Two-thirds of that Medicaid spending, $3.1 billion, paid for nursing homes and other services for seniors and those with disabilities. By comparison, spending on other Medicaid participants such as single adults and families with children was $1.5 billion. MinnesotaCare accounted for $254 million of that overall spending.

Legislators and human services officials in the coming years will grapple with how to best manage the growing cost of caring for the state's aging population. Older residents are more likely to require more expensive medical treatments for chronic conditions or other ailments.

"That's the portion of our budget that's the largest … from a state dollar perspective and the part that continues to grow," said Chuck Johnson, deputy commissioner for the Department of Human Services.

To that end, Minnesota is working toward encouraging the use of more home-based services, which are cheaper compared to services and treatments in hospital settings.

The rate of spending on MinnesotaCare and Medicaid recipients such as adults and families with children is expected to be relatively modest, growing about 6 percent between fiscal years 2012 and 2019, according to Senate research.

By comparison, the rate of spending on long-term care, seniors and those with disabilities is expected to grow 52 percent over the same period.

MinnesotaCare's future

Last year, the GOP-controlled Minnesota House voted to eliminate MinnesotaCare, arguing that the roughly 100,000 people covered under the program could be moved onto the state health insurance exchange. Fierce opposition by state Democrats and others resulted in a legislative budget compromise that spared the program, for now. A 29-member task force is studying its future and is expected to develop recommendations on its fate. Though it is unclear how legislators will act on the program, the task force also will have to consider how to act on a special tax that makes up the bulk of its funding. The tax is set to expire in 2019.

State Rep. Matt Dean, chairman of the House Health and Human Services Finance Committee, argues that Minnesota would be better served in the long run by ending MinnesotaCare. Those low-income workers, primarily concentrated in rural parts of the state, could shop on MNsure, the state's health insurance exchange, and find more choices, he said.

That action would also create "a broader, more robust pool of people who are purchasing insurance in Minnesota," said Dean, R-Dellwood, potentially driving down premiums.

State Sen. Tony Lourey, chairman of the Senate Health and Human Services Finance Committee, countered that it makes little sense to eliminate MinnesotaCare, particularly since the growth rate of spending there is low compared with spending on seniors and those with disabilities.

Competitive bidding savings

Lourey, DFL-Kerrick, said updated projections in November showed MinnesotaCare costs the state less, partly the result of competitive bidding.

Estimates by the state budget office from last summer showed that overall the monthly cost of MinnesotaCare per enrollee was $537. The most recent forecast showed the cost is now expected to be $413 per month, of which nearly 70 percent is paid by federal funding, up from 42 percent last summer.

"My concern is that when folks look at the total [medical-assistance] growth and blame MinnesotaCare and say we need to eliminate MinnesotaCare and that fixes this problem — that's just not true," Lourey said.

Johnson, of the state Human Services agency, says the state will face budget challenges as its demographics shift. "Our overall state Medicaid budget will continue to be driven by the cost of serving seniors and people with disabilities, and we're working as best as we can to manage the cost of care and to provide the best value we can for people," Johnson said.