Editorial: Is state overpaying health plans?

At the heart of a landmark legislative hearing held this week on public health programs were two key questions:

• Has Minnesota manipulated Medicaid payment data to improperly draw down matching federal dollars?

• Is the state overpaying its nonprofit health plans to manage care for medical-assistance patients?

The lengthy hearing Tuesday at the State Capitol wasn't intended to yield definitive answers to these critical questions, nor did it. But the hearing -- and legislators' intelligent handling of the issue -- is a strong, if overdue, step toward addressing accountability concerns about the $3.8 billion spent annually in the state to outsource public patients to private health plans.

There's too much money at stake, and too little understanding of how the state pays the plans, to let that momentum flag. Legislators should have dived headlong into the issue last spring after UCare, one of the health plans that manages public patients, unexpectedly gave $30 million back to the state.

But strong leadership on this issue this year from Republican state Reps. Jim Abeler and Steve Gottwalt suggests they are taking the issue seriously. Their good work makes the relative silence from DFL legislators and from the GOP's Senate leadership stand out.

News this week that federal authorities began probing Minnesota's Medicaid program last summer should heighten the priority both parties place on this issue. Details about the investigation remain under wraps, which would not be unusual if it were triggered by a whistleblower lawsuit.

The legislative hearing covered a lot of ground. Gov. Mark Dayton's administration has made laudable changes since January 2011 -- competitive bidding for health plans and capping 2011 profits. The health plans, to their credit, said Tuesday that they are open to an independent third-party audit, a worthy measure some GOP lawmakers are already pushing.

Still, much work lies ahead. Notably absent at the hearing was Allan Baumgarten, a respected Minnesota research consultant who analyzes state health care markets.

Baumgarten has compared Minnesota's Medicaid managed care costs with those of two Upper Midwest states: Michigan and Wisconsin. The comparison should be interpreted cautiously because of differences in demographics and benefit designs, among others. Still, the results are striking.

In 2010, Minnesota paid an average of $441 per month, per Medicaid managed-care enrollee, to the state's four big nonprofit health plans: Medica, Blue Plus, HealthPartners and UCare. In Michigan, the average monthly amount paid to four big plans was $283. In Wisconsin, where Baumgarten had analyzed only 2009 data, the amount was $298.

There was also a striking difference in the annual operating margins of the plans on Medicaid managed-care enrollees. In 2010, in Minnesota, the average annual operating margin was 8.9 percent; Michigan's 2010 average was 2.4 percent, and Wisconsin's 2009 average was 2.6 percent.

In response, Julie Brunner of the Minnesota Council of Health Plans noted Minnesota's often more extensive benefits, and said that this can "greatly influence" the cost per person. Brunner also said that because financial results are cyclical, reviewing results one year and one product at a time shows an incomplete picture. (The state contracts with the plans for other public health care programs.)

Rick Murdock, the executive director of the Michigan Association of Health Plans, said that margins are necessary to ensure plans' financial vitality. Of Minnesota's 8.9 average operating margin in 2010, he said: "I'm just surprised that anyone would have that high a margin in the Medicaid area. Quite frankly, [even] in the commercial area, that would be a high margin."

Medicaid is funded jointly by the state and federal government. Lawmakers have an obligation to ensure that Minnesota payment and oversight practices are not so flawed that they jeopardize the annual flow of federal dollars that helped pay for the care of 740,000 aged and needy Minnesotans in 2010.

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