Legislators last month struck down Minnesota's 40-year ban on for-profit HMOs, saying the reversal might draw competitors to the state's beleaguered market where individuals buy coverage.
The historic move chipped away at the state's long-held reputation as one of the nation's premier homes for nonprofit health care.
But some doubt the move will have much practical effect, at least any time soon. For-profit insurers across the country have been retreating from the individual market in many states, and new carriers in Minnesota go up against big networks of hospitals and doctors when negotiating prices.
"I hope that allowing for-profit HMOs will create more competition, but the high concentration of provider markets in the state will make it difficult for any insurer to enter," said Roger Feldman, a professor of health policy and management at the University of Minnesota.
There's a long-running debate over whether for-profits or nonprofits deliver better care at lower costs when it comes to hospitals and health insurance. Some nonprofit health plans tend to get very high marks, but health policy experts say it's difficult to make general statements that apply to all insurers.
Last month, the debate rekindled at the State Capitol, with DFLers saying for-profit HMOs would wrongly shift health care dollars to shareholders.
"We know that a profit motive in health care … is antithetical to the needs of people who are very sick," said Rep. Erin Murphy, DFL-St. Paul, during a debate in the House. "The people who are very sick are the ones who cost the most."
Status quo isn't working
Republicans countered that the status quo in Minnesota's insurance market isn't working.
"Forty-nine other states have for-profit HMOs," said Majority Leader Paul Gazelka, R-Nisswa, during a Senate debate. "You can look up and find negative comments about nonprofit and for-profit and almost every aspect of our present health care system."
The change on for-profit HMOs was part of a bill focused on premium rebates for some in the individual market, where about 190,000 people who are self-employed or don't get coverage from their employer buy coverage.
The federal Affordable Care Act (ACA) brought fundamental changes to the individual market starting in 2014, and the market has been volatile ever since. Insurers have boosted premiums and/or pulled back from the market in the face of financial losses.
The legislation passed last month responded to premium spikes with more than $300 million for rebates, plus a few market measures like allowing for-profit HMOs.
"We have big problems in the individual health insurance market," said Rep. Joe Hoppe, R-Chaska. Attracting new competition today could be tough, Hoppe agreed, but for-profit HMOs might consider Minnesota's market in the future depending on Republican plans in Washington to change the ACA.
Last to ban for-profits
In 1973, Minnesota lawmakers blocked for-profits from getting licenses to sell coverage as health maintenance organizations. The legislation was driven by consumer protection concerns, and it was a particularly big deal during periods like the 1990s when HMO coverage was popular.
"We felt that it was important for them to be more transparent and accountable to public officials," said Linda Berglin, a former DFL state senator who crafted the landmark HMO legislation.
Over time, however, most in Minnesota with commercial insurance moved out of HMOs to coverage via insurance companies — carriers operating under different licenses that faced fewer regulatory costs and limits.
For-profits were never banned from being licensed as health insurers. So large players like Cigna, Humana and Minnetonka-based UnitedHealthcare already compete in certain segments of Minnesota's health plan market, according to the state Commerce Department.
While other states pulled the plug on for-profit HMO bans years ago, Minnesota apparently is the last to let for-profits compete.
'Chicken and egg' dilemma
Feldman of the U said he was skeptical the HMO change would expand insurance options, because doctors and hospitals practice in large groups that make it difficult for newcomers to negotiate competitive payment rates. The disadvantage in paying doctors and hospitals, in turn, makes it hard for new insurers to sell coverage at competitive prices.
Stefan Gildemeister, director of the state health department's health economics program, agreed that market entry would be difficult for new players. "If there would be more competition, it likely will be in areas where there's already pretty reasonable competition, like in the Twin Cities," he said.
New insurers face a "chicken and egg" dilemma, said Allan Baumgarten, an independent health care analyst in St. Louis Park. To get competitive discounts on fees they pay doctors and hospitals, insurers need to offer health care providers a large volume of business. But new insurers struggle to sign up subscribers without competitive discounts.
Baumgarten said the chance of a carrier coming into the state specifically to do individual market business is "slim." But he said the new law could shake up the market in other ways.
Nonprofit to for-profit?
HMOs in Minnesota are required to bid on the state's public health insurance programs, including Medicaid and MinnesotaCare. So the public program market could see more competition, Baumgarten said, noting that some for-profit HMOs in other states have successfully extended the Medicaid business into the individual market.
Changes in the Medicare market scheduled for 2017 mean the new HMO law could allow for new for-profit providers of what are called Medicare Advantage health plans, he said. Finally, there could be changes in how current nonprofit insurers operate.
"The national companies could instead acquire an existing nonprofit HMO and convert it to for-profit," Baumgarten said via e-mail. "Or one of the existing HMOs could convert to for-profit status."
The prospect is troubling to Sen. Tony Lourey, DFL-Kerrick, who said charitable assets might wrongly shift to business purposes under those scenarios. Sen. Michelle Benson, R-Ham Lake, said she thought current law would prevent such a shift, but added she's drafting follow-on legislation for "a little extra certainty."
Reached for comment, four of the state's nonprofit health plans said they have no interest in becoming for-profits.
Neither the Minnesota Medical Association nor the Minnesota Hospital Association took a position on allowing for-profit HMOs. Wendy Burt, a spokeswoman for the hospital group, said consolidation among doctors and hospitals has been driven by a desire to provide better care, not negotiate better health plan contracts.
Dave Renner, a lobbyist for the doctors group, said some physicians think the ban on for-profit HMOs has been good, while others think the market could benefit from for-profit competition. Many health care providers in the state practice in large groups, Renner said, but the largest health insurers here have dominant market shares that provide negotiating leverage, too.
The Minnesota Nurses Association passed a resolution back in 1996 that opposed for-profit HMOs. The group still holds that view, but is now focused on a single-payer system rather than private insurance.
"With for-profit insurance companies, and even our current nonprofit insurance companies, they reduce costs and cut corners by cutting benefit sets and narrowing networks so patients can't even choose their doctors," Jon Tollefson, a government affairs specialist for the nurse association, said in a statement.