A state of flux - universal health insurance in Minnesota by 1997 - Health Care Reform in the States: Minnesota

Business & Health, Feb, 1995 by Dan Wascoe, Jr.

The goal is health insurance for all by 1997, but a shift in state leadership and a turbulent market leave the outcome in doubt. Meanwhile, business continues at the forefront of change.

While barnstorming last year to push his health-reform plan, Bill Clinton made Minnesota a frequent stop. He touted the state's plan--MinnesotaCare--as a cutting-edge managed competition initiative and as inspiration for his own efforts. The comparison did neither him nor Minnesota's reform advocates any good. The Clinton plan died, and MinnesotaCare faces new scrutiny this year, with its ultimate fate uncertain.

The plan, originally passed in 1992 and amended in 1993 and again last year, aims to achieve universal coverage by the summer of 1997, through an individual mandate and a range of health-system changes. That target date is likely to be set back, however, as state lawmakers and health officials now talk of a need to pause, review, and reevaluate.

Reasons for the slowdown aren't hard to find. Although both houses of the Minnesota legislature remain in Democratic hands, the margin of control narrowed significantly in the last election. Even last year, with a more solid Democratic majority, MinnesotaCare barely passed its most recent legislative test. What's more, Gov. Arne Carlson, a moderate Republican, has pledged no new taxes, and that could make it next to impossible to come up with the money to bring another 320,000 uninsured Minnesotans into the system.

Key leaders of Minnesota's reform effort are moving on, perhaps having sensed the shifting winds. Mary Jo O'Brien, the state's health commissioner since 1993, and Michael Scandrett, executive director of the Minnesota Health Care Commission, charged with implementing MinnesotaCare, both resigned in December. And several veteran pro-reform lawmakers lost bids for reelection.

Also standing in the way of MinnesotaCare's progress is the state's failure to get a federal exemption from provisions of the Employee Retirement Income Security Act of 1974 (ERISA). Without an ERISA waiver, Minnesota won't be able to impose MinnesotaCare provisions on self-funded employers. (See "Will ERISA's Wall Come Tumbling Down?" page 35.)

But despite such bleak omens, some MinnesotaCare supporters remain optimistic about its prospects. "We may have to slow down, but I don't see us going back on anything," says state Rep. Lee Greenfield, a Minneapolis Democrat who helped shepherd the reform bill through the legislature.

Indeed, the law has already helped transform the private health-care market. A hotbed for managedcare innovation for a decade (the state's 33 percent managed-care penetration is second only to California's), Minnesota now seeks to have most providers, insurers, and managed-care groups organized in so-called integrated service networks, or ISNs, by July of 1997. Each ISN would serve 50,000 or more enrollees.

Four or five large integrated networks have begun to form already. But the legislature last year added a measure that gave smaller players a way to get in the game. The law permits new "community" ISNs to serve populations of 50,000 or fewer. Insurers and HMOs had argued successfully that they needed more time to build the larger networks, considering the fierce managed-care competition in the state. In addition, the law prescribes that ISNs eventually move to full capitation and better data collection, and be subject to caps on premium increases. (By 1998, rates are to rise no more than the Consumer Price Index plus 2.6 percentage points.) All these measures have potent fiscal implications that will alter the way health care is delivered and purchased in the state.

The competition among HMOs and the nascent integrated networks has so far been good news for Minnesota employers. Most HMOs, for example, have kept rate increases below 6 percent annually for several years running. But it has been a mixed blessing for the state's managed-care industry. Two HMOs in the state reported operating losses last year, although they still made money from investment income. And the turmoil led one emerging player, Prudential Insurance Co., to pull out of the managed-health-care business in Minnesota altogether. A Prudential spokesperson said the clout of its bigger competitors had made it difficult to recruit a critical mass of new employers and enrollees.

Will the recent moderation in health costs continue? Some experts warn that an uptick in premiums and prices could come soon, as the managed-care industry consolidates and discounting reaches a natural end point. Still, employers expect MinnesotaCare to help them keep cost increases well below the double-digit annual hikes of the late 1980s. "We're in a lull in the battle" against rising health-care costs, says Lawrence Schwanke, vice president of human resources at Bemis Corp., a specialty packaging company. He says the law will give employers the framework within which to contain costs. "But it's going to be the market that does it," he adds.