Legislative Auditor finds inadequate controls on HMO administration costs

I was part of a packed House hearing on Monday (listen to audio from the February 11th hearing) where the Legislative Auditor introduced a new evalution of the financial management of health care programs. The majority of Minnesotans who receive health care through state programs are served through “managed care,” with the state paying a health plan a set amount for services to enrollees. The costs of administering state health care programs topped $300 million last year – with $200 million of that going to HMOs (the rest to DHS). The question is – are HMOs and the state doing everything they can to keep administrative costs low? The Legislative Auditor’s answer: Not really. 

The Auditor found that there’s not enough oversight of administrative spending – the state needs more carrots and sticks. For example, the health plans are not required to report why they have exceeded administrative cost targets set by the Department of Human Services (as they have in the past three years). The departments do not even have a standard for a “reasonable” level of administrative spending. And past efforts to contain costs have had mixed success.

Overall, however, the report concludes that while Minnesota should enhance its efforts to contain medical and administrative spending, the practice of relying on managed care to serve enrollees is worth sticking with.

There’s no smoking gun here, but the Auditor’s recommendations are sure to provoke a debate.

-Katherine Blauvelt

About Katherine Blauvelt

Katherine Blauvelt served as the Minnesota Budget Project’s policy analyst from 2007 to 2009.
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