1. Background: Basics of the Low Income Programs

Medicaid (Medical Assistance);   MinnesotaCare;  plus others (GAMC; Medicare-combined programs)

2. How these services are Delivered:

A. Fee For Service

Dept. of Human Services (DHS) pays health care providers a standard fee each service, and decides what the fee is.  The providers send their bills to DHS, and then DHS pays them directly.

This was the original way that all Medical Assistance was delivered.  There is still a little bit of Fee For Service payments by DHS, but not very much, for a couple of counties, and some disabled people.

B. Pre-paid

DHS gives, in advance, a monthly payment to an HMO or county system, which they use to pay the medical providers for the services to their enrollees.  The payment is based on an amount for each enrollee, with some adjustments for things like the person’s age and overall health condition.   There is one formula that DHS uses statewide to calculate the monthly payment. The HMOs have a big input as to what the payments are.  The HMOs or counties decide on their own how much they want to pay the medical providers for each service.

If the HMO or county pays out, in total, more money than what they got from DHS, then they lose money.  

If the HMO or county pays out less money than what they got from DHS, they keep the difference.

An HMO or county can stop running these programs, if they give the state one year’s advance notice.

Overall, the HMOs and counties have made money from the programs – especially quite a lot for the HMOs, since they have been doing most of it, and for the longest period of time.  A ballpark guess is a few hundred million dollars total; perhaps more.

(1) Private HMOs

Private HMOs get the vast majority of the DHS prepaid money, about 87%. Their total is about 2 billion dollars a year.    The biggest ones are Blue Cross/Blue Shield of MN, through its Blue Plus division;  Medica; and U Care.  Next in size is Health Partners and U Care.  There are two others that are fairly small: First Solutions, which is another division of Blue Cross; and Group Health.

The amounts that the private HMOs pay the medical providers for each service is secret.  The HMOs’ books are also secret, although they must give financial reports to the state.  However, the state does not look at the HMOs’ books.

(2) County systems

County systems get the remaining, about 13%.  One of these is technically an HMO, not a County-Based purchasing system:  Metropolitan Health Plan, which is owned by Hennepin County.  They created their HMO before the CBP law was passed.

The others are County Based Purchasing systems.  There are three of them, with a total of 28 counties:

1) Itasca Medical Care, which is just one county – Itasca. The headquarters is in Grand Rapids.

2) South Country Health Alliance, which is jointly run by 14 counties. The headquarters is in Owatonna.

3) Prime West, which is jointly run by 13 counties.   The headquarters is in Alexandria.

The amounts that the counties pay the medical providers for each service is not secret.  Also, their books are not secret.

3. Why should Counties run these programs at all?

A. They are more efficient:  Their administrative cost, which is about 8%, is around half or less of what the HMOs’ administrative cost is.  This is because they have:  Lower executive salaries; less fancy office buildings; smaller marketing budgets; and they don’t have staff whose job it is to hassle with medical providers and enrollees, delaying or denying procedures and payments.

B. Enrollees get better services:  IM Care and Prime West pay dentists enough money so that enough of them participate to provide an adequate amount of services.  This also is more financially efficient and humane than the private HMOs, whose enrollees end up going to emergency rooms because dentists aren’t available.

C. More productive relationships with the providers:  They build cooperative partnerships, and let them help decide how services should be delivered and how the money should be spent.  The private HMOs often have antagonistic relationships with the providers.

D. Local Self-Sufficiency:  Many rural public officials see county-based purchasing as a way to have local control, instead of Twin Cities HMOs controlling the health care system.  A related motive is wanting to see local health care providers stay in business, and not be put out of business or swallowed up by the big HMOs.

E. Better Motives and Ethics:  A true concern for public purpose and public health, instead of the private HMOs’ motive of maximizing their revenue above all else.  Especially since the upper limit of HMO reserves was removed, they have an extra incentive to try to keep as much of the state payments for themselves as they can

4. Who is For, and Against, Counties running the programs?

FOR:  * County officials who believe they can care for their residents better than the big HMOs can;  

* Medical providers who believe they will be treated (and/or paid) better than under the HMOs;

* Enrollees who want better services, like dental care;

* Anyone who believes that health care should be administered by the public sector instead of private

   insurance companies.

* Some rural conservative public officials who like “local control” and want to protect local providers.

AGAINST:  * The HMOs who don’t want to lose business (“market share”) to the county systems;

* The State agencies who are supposed to be regulating the HMOs but are allies with them;

* Governor Pawlenty, and some legislators, who are allies of the HMOs and are ideologically against the

   public sector running health care programs.

5. How does County Based Purchasing work?

The county or counties in a system form their own arrangements with local health care providers, to set what services will be provided and what the payments will be.

The county system gets the monthly payments from DHS according to the enrollees that it has.

The county system sets up some managed care systems for its enrollees.

If it’s a rural county, then they run all of the Medical Assistance program themselves.

If it’s an urban county, then they have to compete against the HMOs for Medical Assistance.

Regardless if it’s a rural or urban county, the HMOs are allowed to compete against them for Minnesota Care and other programs.    Each enrollee picks if they want to get their coverage through the county, or through an HMO.

6. How does a county get started with it?

A county on its own, or a group of counties (by creating a Joint Powers Agreement) decide to do it.   Next, they talk with local health care providers to seek agreements on the services they will provide and what they will be paid for them.  The participating counties need to agree to loan some start-up money, which they can expect to get back within 4 to 5 years.   They create a business plan to predict how the finances will go.   They need to expect to get at least 5,000 enrollees in order for it to work out.

The county (or group of counties) then has to apply to the state Health Dept. and the state DHS to get approval to start up their system.   After the state agencies have given approval, then the federal government needs to give approval.

Counties might be able to join up with an existing system, if that system wants to include them.  Otherwise, a county by itself, or together with others, must start a new system.

7. Stage Two:  Expanding to cover other people

Once a county based purchasing system has established itself and is working well, it could decide to start offering coverage to people beyond the low income public programs.  In other words, offer a “public option” insurance for local business and households in the counties’ territory.

It would not have state subsidies, but it would likely offer better coverage value for the money than private insurance policies, because of the county’s lower administrative cost and better attitude to health providers compared to the private insurance companies.  If most everyone in the county area joined this plan, then in effect it could become a local, “mini” single-payer.