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Minnesota: Price Competition to Drive Payment Reform

The Minnesota Legislature is currently engaged in a dramatic health care reform debate. Legislation based on the work of a pair of study panels passed the state Senate and House of Representatives and was handed to a conference committee for fine-tuning. The reform proposals were drawn from a Republican-led Health Care Transformation Task Force appointed by Governor Tim Pawlenty, which recommended that the state require all residents to obtain health coverage by 2011 and provide subsidies to cover the uninsured. A Democrat-led Legislative Commission on Health Access concurred. The cost of the coverage expansion, an estimated $866 million in 2011, would be covered by promoting healthy behaviors and overhauling how providers are paid—changes that proponents claim could reduce Minnesota's overall health care spending by $7.1 billion (14%) in 2011.

The proposed payment reforms are based on strategies developed by Minnesota's Buyers Health Care Action Group (BHCAG). BHCAG received considerable attention in the late 1990s for its employer-managed, consumer-driven approach for managing competition on behalf of subscribers to overcome attempts by insurers to avoid price competition. As proposed by the Health Care Transformation Task Force, the state would require providers to charge a single price for the same service, prohibit providers and insurers from negotiating in-network discount rates, merge the individual and small group insurance markets, and require health insurers to guarantee they will issue a policy, regardless of an applicant's medical condition.

The ultimate goal of these payment reforms is to move toward a single, all-inclusive price of care per person that eliminates variations in insurance premiums, except as they relate to age, geography, and incentives for healthy behavior. The Task Force points out that some health care providers are farther along than others in having systems in place that would enable them to coordinate care, and recommends implementing payment reform in stages:

  • Level 1—tie payment to quality of care;
  • Level 2—establish care management payments for providers with the infrastructure in place to coordinate care and function as a medical or health care home; and
  • Level 3—implement a system of accountability for the total cost of care, in which provider groups and care systems compete for patients by submitting bids on the total cost of care for a given population.

In addition to payment reform, the study panels also recommend health promotion initiatives designed to reduce smoking, binge drinking, and obesity. They propose requiring that all insurance plans include prevention services with minimal or no cost sharing.

The House proposal would not make such extensive payment reforms. Instead, the House bill would create a system to measure the cost and quality of care provided at clinics and hospitals. Physicians' pay would then be linked to these measures.

Despite bipartisan agreement on many aspects of reform, the state's $935 million budget deficit makes it difficult to set aside the resources needed to achieve the proposed coverage expansions, and the governor has said he opposes an individual mandate, leaving the future of the Task Force and Legislative Commission recommendations uncertain.

For More Information
See: Task Force Report
Minnesota Buyers Health Care Action Group site

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