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The Problem | The Fix | The Alternatives

The cost of health insurance is straining the budgets of Minnesota employers and consumers. Double-digit premium increases are forcing Minnesota lawmakers to try to find solutions. Legislators say there's no easy answer to rein in health-care costs. They're looking at several ideas that might have an impact, but there's no consensus on what will work.

	"From 1999 to 2000, our rates went up 12 percent. This year, our rates decided to go up 41 percent," said Anne Lundstrom, owner of All-Flex, a Northfield manufacturing company that employs 45 people. (MPR Photo/Laura McCallum)

Employers packed a recent legislative hearing in Northfield to complain about rising health insurance bills.

"From 1999 to 2000, our rates went up 12 percent. This year, our rates decided to go up 41 percent," said Anne Lundstrom, owner of All-Flex, a Northfield manufacturing company that employs 45 people.

She says the higher premiums mean employees pay more for clinic visits and prescription drugs. Lundstrom says the company tries to hold down costs by encouraging employees to quit smoking and join health clubs. She thinks one reason insurance rates are going up is that consumers don't know how expensive their health care actually is.

"We never see the bill until the insurance company said 'Yes, I paid for it' or 'This is the rest you have to pay.' I think it's too easy to go to the doctor and the insurance company just pays it and we never are personally responsible for that," Lundstrom said.

	Attorney General Hatch says HMOs may cut their administrative costs as a result of his Allina audit. But he acknowledges consumers shouldn't count on paying less. "Health care costs are not going to go down. Health care costs are not going to be affected solely by public policy," according to Hatch. Listen to an extended interview with Hatch. (MPR Photo/Laura McCallum)

Others at the hearing asked lawmakers to require clinics to post their rates so consumers can choose less expensive care. Rep. Fran Bradley, R-Rochester, chairman of the House Health and Human Services Policy Committee, says he likes the idea of giving consumers more information on health care billing.

"I tell you, in the end, there's nothing more powerful than an informed consumer," said Bradley, who also believes the lack of competition in the state drives up costs.

Three large health plans control more than 80 percent of the state's market. Minnesota law requires health plans to be non-profit. Bradley supports changing the law to allow for-profit HMO's to compete in the state. "Every time we do it, of course, people get horrified and say that evil things will happen and so forth, but look at what's happening to us with lack of competition," he said.

Opponents argue that allowing for-profit health plans in Minnesota will likely increase costs.

Sen. Linda Berglin, DFL-Minneapolis, chairs the Health, Human Services and Corrections Budget Division in the Senate.

At a restaurant in her south Minneapolis district, Berglin said there's a reason the Legislature has always rejected the idea. "If you look at other places in the country where for-profits have taken over, they're in worse shape than we are in terms of cost and quality, and we've seen for-profit health plans go under,"Berglin says.

And because Minnesota health plans are non-profit, the attorney general has the authority to scrutinize their finances and make sure they're abiding by certain standards.

Attorney General Mike Hatch's recent audit of Minnesota's largest health plan, Allina Health System, found Allina spent millions of dollars on executive perks and consultants. The audit also determined Allina's HMO Medica was spending 19 percent of premium dollars on administrative costs.

Sen. Sheila Kiscaden, R-Rochester, says she wants to require HMOs to disclose their administrative expenses. "What it might lead to is to more confidence that the fees collected are really being used to the benefit of the enrollees, and not to the benefit of employees, and that's the concern," Kiscaden says.

Kiscaden says full financial disclosure may or may not result in lower health-care costs. Attorney General Hatch says HMOs may cut their administrative costs as a result of his Allina audit. But he acknowledges consumers shouldn't count on paying less. "Health care costs are not going to go down. Health care costs are not going to be affected solely by public policy," according to Hatch.

	Opponents argue that allowing for-profit health plans in Minnesota will likely increase costs. Sen. Linda Berglin, DFL-Minneapolis, says there's a reason the Legislature has always rejected the idea. (MPR Photo/Laura McCallum)

Hatch says the factors driving up health-care costs include an aging population, medical advancements, and prescription drug costs; issues over which the state has little or no control.

Some Minnesota lawmakers have tried unsuccessfully to lower drug prices. Sen. John Hottinger, DFL-Mankato says he'll keep pushing his bill to allow uninsured Minnesotans to buy prescription drugs at the same prices charged through Medicaid.

"The example in Maine, I think they're showing around a 5 to 10 percent decrease in costs. That's not dramatic in the sense that it cuts it in half by any means, but I think what that gets at primarily are the excessive administrative costs that go into the prescription care industry as it does elsewhere in health care," according to Hottinger.

Opponents have questioned whether Hottinger's proposal is constitutional. Hottinger points out that the Maine law, which goes farther than his bill, survived a court challenge this year.

	THE PLAYERS In the Senate, Minneapolis DFLer Linda Berglin is one of the top health care policymakers. The chair of the Health, Human Services and Corrections Budget Division, Berglin was one of the Gang of Seven, a bipartisan group of legislators who came up with the 1992 law that established MinnesotaCare, the state's subsidized health insurance program for the working poor. The law also encouraged the creation of ISN's, or integrated service networks, that led to consolidation among HMO's, hospitals and clinics. Berglin is the only member of the Gang of Seven still serving in the Legislature. One of the top health care experts in the House is Republican Fran Bradley, who chairs the Health and Human Services Policy Committee. An engineer who tends to talk about practical solutions and more consumer choice, Bradley represents the health care-dominated community of Rochester, home of the Mayo Clinic. Other legislators active in the health care debate include Senators Don Samuelson, Dallas Sams, Sheila Kiscaden, and John Hottinger, and Representatives Kevin Goodno and Tom Huntley. But many observers say there are just a handful of legislators who really understand and are interested in health care. Minnesota Health Commissioner Jan Malcolm speaks for the Ventura administration. Prior to being appointed Commissioner, Malcolm worked for two of the state's large health plans, as vice president for public affairs at Allina Health System, and senior vice president at HealthPartners. Malcolm also formulated health policy for several health care delivery systems. Attorney General Mike Hatch is also a key player in the debate, particularly since his audit of Allina Health System has prompted legislators to hold hearings on the matter. Hatch represented patients suing their HMO's for treatment when he was in private practice, and made health care one of his top campaign issues when he ran for Attorney General in 1998. -Laura McCallum

Prescription drugs account for nearly a fourth of the growth in health-care costs in Minnesota, according to the state Health Department. The Health Department also found the biggest contributor to rising costs is physician salaries, which account for 42 percent of the growth between 1998 and 2000.

Health Commissioner Jan Malcolm says there's not much the state can do about either drug prices or doctor salaries, because health care is an international market. But she says state officials can continue to tell people to live healthier lifestyles. "We need to start by looking in the mirror and confronting what all of us can do individually and collectively to wrestle with those things that create the need for more expensive medical care to begin with," Malcolm says.

Minnesota business groups say one thing the state can do is reduce the number of mandated benefits they must provide.

The Legislature agreed to allow small health plans to offer the option of health insurance without some mandated benefits such as maternity care or chemical dependency treatment. But the state Commerce Department has refused to implement the idea, citing legal concerns.

Only about half of Minnesota employers provide health insurance for their workers. Business groups say allowing those who don't to offer at least some benefits would lower the cost of caring for uninsured Minnesotans.

Sen. Berglin says that will simply shift the cost of maternity care and mental health to other businesses. "Is it fair that only companies that have women of child-bearing age who work for them should pay for maternity costs? I don't think so," Berglin says.

Berglin says what the state should do is increase the number of students going into the field of health care. A shortage of health-care workers drives up wages and contributes to rising costs.

Still, legislators who want to control health-care costs will have a tough time passing anything next year. The short session is likely to be dominated by a budget shortfall, bonding and anti-terrorism measures. Representative Bradley says he'll keep trying to eliminate the state's 1.5-percent tax on doctors, hospitals and clinics, which funds the MinnesotaCare health insurance program for the working poor.

Bradley says eliminating the provider tax would save $200 million a year, but says it's a long shot. "Not only is it not a budget year, but we have different financial condition. There's no surplus sitting around here, so if something's going to happen this year, it's not going to happen because we take a piece of surplus and apply it."

Bradley says he'd consider raising the state's tax on cigarettes to replace the lost revenue for MinnesotaCare, but says that too is unlikely to happen. One thing is for certain: with health insurance premiums going up about 16 percent a year in Minnesota, the cost of health care will be a top campaign issue in 2002 legislative races.