Minnesota Health System ‘Under Siege’ As Costs, Premiums Rise Faster Than National Average

Minnesota's health care system, a "unique national experiment," is now "under siege," as costs continue to rise and "market clout" held by a few health care companies prevents "new competition" in the state, the Minneapolis Star-Tribune reports. Health care costs in Minnesota, which were once "well below" the national average, have pulled even with national rates, prompting state Attorney General Mike Hatch to investigate the not-for-profit organizations managing the state's health care system. In 1993, the state enacted a law, known as MinnesotaCare, that allowed insurers to merge with hospitals and doctors to control costs by "eliminat[ing] ... duplicative administrative and overhead functions." The law also "effectively" prevents large national companies from operating in the state, as only not-for-profit companies are allowed to operate HMOs. As a result of the law, a "deluge of mergers and acquisitions followed," and today "four mega systems" -- Allina, Blue Cross and Blue Shield of Minnesota, Fairview and HealthPartners -- insure 90% of the state's residents, own or invest in most of the state's "major hospitals and clinics" and "wield market power unheard of elsewhere in the country."

Industry Response
Senior executives at Fairview, HealthPartners and Blue Cross and Blue Shield of Minnesota have offered "qualified criticism" of the market, but "disputed" the idea that the system is "broken." David Page, CEO of Fairview, said, "Consolidation was meant to contain cost. In some part, that has been unrealized." While Allina declined comment, Blue Cross Vice President Richard Neuner said labor costs, "national price trends" and "state mandates" are the cause of the increased premiums. For its part, HealthPartners representatives said the premium increases are caused by the higher prices charged by specialists and hospitals. Additionally, HealthPartners CEO George Halvorson said that increased health plan competition would not lower prices, as the plans would not "have as much leverage in negotiations with hospitals and doctors."

Critics Concerns
With Minnesota's health costs rising nearly twice as fast as the national average over the last year and economists predicting that the "wave of mergers ... has resulted in higher costs and less competition," Hatch has launched an investigation into Allina and is planning to review other companies. "You have very concentrated plans at the health plan level and at the clinic level. That creates a real barrier to market entry." In addition to the state's lack of competition, critics also blame the system's "potential conflicts of interest" for the escalating costs, saying that insurers may accept higher fees from hospitals they own, while at the same time "pushing for lower prices" from competing companies. "Small, rival firms" are also critical of the system, as the "control" held by the "big four" prevents new competition. For example, Vivius, a St. Louis Park-based health plan, is preparing to launch a new product in every state except Minnesota, as it has been "unable" to reach hospital contracts with the state's health care companies. The end result in Minnesota, then, "is not what we thought it would be," Duane Benson, executive director of the Minnesota Business Partership and a former state legislator who supported MinnesotaCare, said. Roice Luke, health care economics professor at Virginia Commonwealth University, added, "Everyone thought the Twin Cities would be the model for the rest of the country. It hasn't worked out that way" (Wieffering/Fiedler, Minneapolis Star-Tribune, 7/22).