How to Contain Health Care Costs, Revisited

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2023 may be remembered as the year the Minnesota Legislature began questioning Minnesota’s 50-year approach to containing health care costs. This will depend on the results of several reports ordered by the legislature and the legislature’s response to them.

The reports should examine the role that administrative costs play in increasing Minnesota health care costs. For the past 50 years, the legislature has been oblivious to the role administrative costs have played in health care inflation. In the year Beginning with the HMO Act of 1973, he enacted laws that purported to reduce health care costs but also raised administrative costs (which drove up prices) and encouraged insurance and hospital consolidation.

A new approach is long overdue. Thanks to our largely evidence-free cost containment policy, Minnesota has one of the highest per capita health care costs in the country, according to recent federal data.

For the past half century, the Legislature, supported by half a dozen commissions, has enacted policies based on a misdiagnosis of health care inflation. Total cost in any sector of the economy is the product of two numbers: price times total cost. The Legislature has assumed that the problem of excess volume needs to be addressed, not excessive pricing. But the evidence suggests that the Legislature has it backwards: excessive prices for everything (insurance premiums, hospital fees, physician fees, drugs, etc.), not “overuse” of medical care, is the main reason for high health care costs. US compared to other nations, and Minnesota compared to other states.

Yes, there are pockets of overuse, but they must be addressed through carefully crafted solutions, not the HMOs that have been the legislature’s tool of choice for half a century of health care cost containment.

The inflation is mainly due to the fact that the cost of running our byzantine system is too high and the entire health care system is in the hands of a relatively small number of insurance companies and hospital-clinic chains. And, ironically, both problems – high administrative costs and the madness leading to consolidation of the health care system – are exacerbated by the legislature’s “solution” to control “overuse”, which requires insurance. Companies influence and control doctors. The legislature’s prescription turned out to be worse than the disease.

Last session, the Legislature passed laws requiring these reports on Minnesota administrative costs:

• In the year A report from the Department of Health, “A set of actionable strategies to address the scale and growth of administrative spending” due March 1, 2025.
• “Current Reports” from the new Center for Health Care Affordability at the Department of Health describe the center’s research on “unproductive administrative costs” among other topics.
• By January 15, 2026, the Minnesota Department of Human Services (DHS) will report how much money they could save by bypassing HMOs that now participate in the Minnesota Medicaid and Minnesota Care programs (the report should indicate that savings will come almost entirely). reduced administrative costs incurred by HMOs).
• January 15, 2026 from the Department of Health, a study on the cost of universal health insurance in a single-payer system (single-payer systems reduce health care costs primarily by reducing administrative costs incurred by insurance companies on advertising, limiting patient choice of doctor, and second-guessing doctors, and money that doctors and hospitals spend to fight the insurance industry’s attempts to regulate “overuse” of medical services).

The Legislature authorized a fifth report, this one by the Departments of Commerce and Human Services, on February 1, 2024, on “various models” of the “public option.” The law calling for this study doesn’t explicitly ask the report to analyze a “model” without any insurance companies (ie, a version where DHS bypasses HMOs and pays doctors and hospitals directly), but the implication is there. A public option that bypasses insurance companies would reduce administrative costs enough to reduce premiums by 15 percent.

The Legislature should be commended for enacting these laws. Now the agencies responsible for writing the reports are tasked with writing unbiased reports based on research, not the same group whose obsession with medical overuse has allowed it to dominate policymaking in Minnesota for half a century.

Kip Sullivan is a member of the Health Care for All Minnesota Advisory Board.