Health Care Finance, Cost Control, and the State Budget: Are We Making Progress?

Our 2016 fiscal policy panel delved into the complicated world of public health care spending and what it takes to achieve fiscal sustainability in this large, high profile part of the state government budget.

In 2009 the State Budget Trends Study Commission issued a report whose findings fell somewhere on the continuum between “bleak” and “apocalyptic.”  According to the report, if historical annual rates of growth in revenues (3.9%) and health care spending (8.5%) in the state’s general fund were to continue over the following 25 years, by 2034 two-thirds of general fund dollars would be spent on health care.  As a result, to balance the budget all other general fund program spending would have to remain flat over the 25-year period.  If lawmakers were to also increase education spending by 2% per year over that time, they would need to cut every other area of state spending by 3.9% annually to compensate.

Now about one-third of the way into that forecast period, where do we stand today, what’s the prognosis going forward, and what more needs to be done?  Those were the questions at the center of our fiscal policy panel discussion.  Moderated by former television anchor and investigative reporter Rick Kupchella, panel discussants were Commissioner Emily Johnson Piper, Minnesota Department of Human Services; Jim Schowalter, President and CEO, Minnesota Council of Health Plans; Donna Zimmerman, Senior Vice President, Government & Community Relations, HealthPartners; and Tom Forsythe, Vice President of Global Communications, General Mills and former MNSure board member.

How Bad Is It?

The accompanying pie charts break down the details of state-financed spending on health care and the populations on which that money is spent.  The good news, according to the panelists, is that progress has been made.  Commissioner Piper noted that the Commission’s rather stark predictions haven’t been borne out.  Since that report was published, DHS has experienced average annual spending increases of 3.7% in Medical Assistance and MinnesotaCare.  In 2009 human service spending made up 28% of the state budget; today it makes up just slightly more – 28.8%.  This can be attributed, she noted, to efforts we have made to reform health care spending and delivery including competitive bidding for managed care contracts and developing accountable care organizations by partnering with provider groups to support alternative delivery models and payment reform.

State Financed Health Care Spending is Dominated by Medical Assistance….

Which is Comprised of Three Segments of Populations Served

Jim Schowalter, who during his tenure at Minnesota Management and Budget worked on the Commission’s report, confirmed that the trends to date have been much better than the projections.  He noted another key factor contributing to the improved trend line: the Commission did not anticipate the Affordable Care Act, which resulted in the federal government assuming more costs from the state.  Nevertheless, Schowalter cautioned that total health care spending keeps growing.  In the past few years it grew at rates roughly equal to GDP but that ended last year.  Underneath the recent numbers the volatility, pressure, and risks captured in the Commission’s report are still very much in play.

Donna Zimmerman echoed the theme that significant changes have taken place in the past several years to help bend this cost curve.  She noted 88% of Health Partners claims spending with medical groups are no longer based on payments for every service delivered but rather for improving the health of their patient population as a whole.  But progress is slow because it involves “changing the way doctors, nurses, and pharmacists work on the front line.”  She added that the prescription drug market presents a major challenge going forward, arguing “it doesn’t behave like any other part of the health care market.”  Noting that Health Partners prescription drug spending is now equal to their hospital spending, she argued it’s imperative to look upstream and evaluate the “value equation” for new drugs in terms of efficacy and cost.

Tom Forsythe cautioned against overlooking the root cause behind disturbing budget trends in the public segment and rapidly rising insurance rates in the private market segment – a completely dysfunctional health care market.  In a market where pricing doesn’t exist and consumers can’t play a role in making decisions, cost trends like those we are witnessing now and facing in the future shouldn’t be a surprise.  We need new models and mechanisms to pay for health care based on pricing and market discipline, otherwise there won’t be enough dollars to go around.  Noting that the median family income in Minnesota is $62,000 while the median family health care plan costs $18,000, he argued the sustainability challenge is as difficult as it was before and will likely worsen.

Points of Light

Given that so many of these challenges transcend state actions and boundaries, can state policy ever make a material impact?  Schowalter commented the state still has an opportunity to take a leadership role but “we have to be cognizant of the environment in a way we haven’t in the past.”  We need to be very aware of and responsive to federal developments; then we can work to adapt, respond and innovate faster than everyone else.  Commissioner Johnson Piper argued that the primary future cost driver, elderly care, offers the state considerable opportunities to innovate in areas like community and family supports for the elderly and disabled.

Some of these policy innovations are already in place and making a difference.  The Return to Community program identifies individuals going into nursing homes who are private pay and provides them with the necessary supports to allow them to return to their own homes instead of spending down their assets and being placed on Medicaid.  Since 2010, the program has enabled 3,700 nursing home residents to move back into the community saving the state an estimated $21 million.  The state’s “Own Your Future” initiative is morphing from an educational campaign on the need for long-term care planning to a program to establish new “term to long-term care” care insurance policies.  As state long-term care spending is expected to triple or quadruple from its current $1 billion per year levels, additional innovation is essential.

Tom Forsythe agreed that there has been some very innovative thinking at work in the state’s public sector health care programs.  He noted, however, that the other part of the market – the private pay insured market – is showing significant signs of stress and is ultimately connected to the state-supported programs.  He argued Minnesota must come to grips with the fact that our health care costs are no longer below average, that we are not different from everyone else, and that we must get back to the bipartisan effort to seek and adopt solutions which worked so well for us in the past.

Why are we getting more costly?  Jim Schowalter noted total spending on the state side has changed – its now more about elderly and disabled coverage.  But a big part of the problem is that we are thinking of elderly and disabled health care policy almost exclusively in budgetary terms – entitlement, program eligibility, etc. – rather than as part of a necessary broader social conversation.  “These are deeply personal, difficult things to talk about,” he said, and high quality cost effective health care has to include social determinants of health.  Using the example of people being discharged from the hospital to a homeless shelter, he argued tackling this long-term issue effectively can’t just be about the program.  Rather, real progress will come from understanding how all the parts of the puzzle – providers, support systems, care givers, and community – work together.

Studies of Medicare claims information have suggested one-third of spending is not necessary and can be considered “waste.”  What can be done about this?  Donna Zimmerman asserted that the key to tackling this issue is creating accountable care organization models – integrative partnerships focusing on where cost of care is high, where experience indicates there is a lot of variation in treatment, where there is a lot of information consumers need to make the right choices, and where the potential for “overtesting” exists. Health Partners reports bending the cost curve by 30% over the last six years.  There is nothing particularly glamorous about these efforts, she maintained, but you have to “line them all up” and do all of them to realize the cost saving potential that exists.  She noted Health Partners has now applied this strategy to working with the state in the public health care segment.

These innovations and advances, Rick Kupchella noted, operate in a demographic context in which, by 2050, the 65+ population will double, the 80+ population will triple, and the 90+ population will quadruple.  What responsibility do stakeholders have to begin a serious conversation about end of life care?  All the panelists agreed such conversations simply have to happen.  The problem is, while such conversations can be encouraged, they are ultimately deeply personal and outside of the influence of policy.

An Agenda Forward

Kupchella concluded the discussion asking each panelist to offer their biggest takeaway idea and the one thing that “has to happen” to make health care sustainable.  As the accompanying table shows, there are many different agendas that need simultaneous attention.  When the 2017 session commences it appears we will not be at a loss for new roadmaps, strategies, and policy recommendations to tackle this issue.  Whether we can navigate the political complexities, philosophical controversies, and conflicts of interest that accompany these proposals will determine whether we can realize lasting progress.


Single Biggest Takeaway Idea

The One Thing That Has to Happen to Make Health Care Sustainable

Commissioner Emily Johnson Piper

Our primary health care challenge is the “silver tsunami,” and Minnesota is ahead of the curve compared to other states in planning for it.

Redouble efforts in controlling cost of long-term care especially policies supportive of family care giving.

Jim Schowalter

Insurance premiums are expensive because health care is expensive.  Focusing energies on cost shifting and sharing is not a recipe for success.

Fix how people can buy insurance on their own.  If we can’t get everyone covered, the “hot potato” game of cost passing commences and everything starts to go backwards.

Donna Zimmerman

We need to get over biases that more health care is “better.”  Must focus on prevention, behavior changes, and avoid high cost products of marginal/no benefit.

Invest in health of young children and make sure their starts are successful.

Tom Forsythe

Insurance access and rate increases distract us from the core problem: the health care market is dysfunctional because pricing of health care doesn’t exist.

Payment reform at the federal level.  If the federal government would reform, states could follow suit and innovate.