“The Minnesota Compromise” on Health Reform?

In the health reform debate, the Senate is split between “public option,” and “private only.” It’s reminiscent of the mid-19th century, when the split was “slave” versus “free,” and the Senate ultimately landed on middle ground, the Missouri Compromise of 1850.

In the waning days of 2009, the Senate is once again desperately searching for middle ground. For instance, some Democratic compromisers propose dropping the public option in favor of expanding eligibility of Medicare and Medicaid.

But as Minnesota Democrats look for that elusive middle ground, they, like Kansas’s Dorothy, are effectively arguing that “there’s no place like home.” Call it the Minnesota Compromise of 2010. Minnesota Senator Al Franken and Congressman Keith Ellison are pressing an amendment mandating that all health plans emulate Minnesota health plans and spend 90% of consumers’ premiums on care costs, rather than administrative and salary costs.

The Minnesota Compromise – my term, not theirs — is ideological middle ground that would require any health plan to match the efficiency of the nation’s most efficient plans. According to Minnpost:

Non-profit health plans in Minnesota spend an average of 91 percent of premium costs directly on health care. Franken’s office said the national average is around 70 percent, with large plans spending considerably more percentage-wise on average, and individual plans less.

Under this Minnesota Compromise, corporate health plans would have to get as administratively lean as the nation’s leanest plans. Business-as-usual wouldn’t be tolerated, but there would still be a way to do business.

This move is interesting from a strategic communications standpoint. The Ellison-Franken amendment is framed around hard-headed efficiency, rather than soft-hearted ideology. It will be very uncomfortable for elected officials to explain to consumers why they oppose making sure that 90% of consumers’ premiums go for direct health care.

The Minnesota Compromise probably won’t pass. Franken and Ellison are not powerful players, and there is simply too much corporate health insurance money on the table. But Minnesota’s congressional backbenchers are offering an intriguing approach that should get more consideration than it probably will.

– Loveland

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12 thoughts on ““The Minnesota Compromise” on Health Reform?

  1. Newt says:

    This amendment is fine, but understand that it does nothing to address healthcare costs. In fact, it likely will stand to increase costs through increased capital to providers.

    1. Joe Loveland says:

      Newt, I agree that some or most of the billions saved by paying 10% overhead instead of 30% overhead might go to health care providers rather than to consumers. Therefore, I agree there has to be cost containment measures on the care side.

      That’s why I’d support an expansion of Medicare. Medicare has done a better job than the private sector of controlling costs on the care side. From 1996 to 2006, per capita health spending for similar benefits grew 4.6 percent annually under Medicare, while spending under private health insurance rose by 7.3 percent.

      1. Newt says:

        I agree. Although freezing medicare payments has the effect of driving up costs on the privately insured.

    1. Dennis Lang says:

      This conversation remains fascinating, vitally relevant and most of it a complexity way over my head. Can’t help but relate a personal experience. My mother, up unitl August a picture of health, required a pacemaker, and then out of the blue, in September two serious stomach operations. She’s now in transition care with hopes of getting back to her home. These costs are knee-buckling, unimaginable to someone unfamiliar with hospital and after-care costs these days. Medicare has made her treatment and hopefully recovery possible.

    2. Joe Loveland says:

      Here’s another peer reviewed study that found Medicare controlled costs better than private insurers. We probably could go all day with dualing links, but the other thing I’d add anecdotally is that in my experience doctors will gripe more about reimbursements from Medicare, which tells me something.

      Let’s assume for a minute, though, that you’re correct that Medicare and private insurers have been about equal in terms of controlling costs. I think that’s debatable, but let’s assume it’s so. It’s still worth noting that Medicare has delivered a much better experience for roughly the same cost. After all a non-partisan Commonwealth Fund study found:

      “…elderly Medicare beneficiaries are more likely than enrollees in employer-sponsored plans to rate their health insurance as excellent (32% vs. 20%) and less likely to report negative experiences with their insurance plans (43% vs. 61%). Medicare beneficiaries are also less likely than those with private insurance to go without needed care owing to costs (18% vs. 22%). The survey also finds that elderly Medicare beneficiaries are more likely to report being very satisfied with the care they received compared with those with private insurance (62% vs. 51%).”

  2. Mike Kennedy says:

    You are right. We could find numbers supporting each side. No one disputes — at least most people who have used it or had family use it — that Medicare is a good program, though it is going to go broke and that needs to be addressed. The amount of confusing paperwork is also incredible. My best friend from college — an MBA and a high level FBI agent, had trouble figuring out his parents Medicare paperwork. Imagine the average person. No doubt it covers a lot of expensive things that are life saving. My 75-year old dad, a picture of health, had a tumor near his brain diagnosed Sat. Mayo in AZ removed it yesterday (no cancer cells in preliminary workup) in a 90 minute procedure. I can’t imagine what that bill will be.

    1. Dennis Lang says:

      Of course this is purely anecdotal but ironically it’s my mother’s supplemental private insurer that is resisting various claims. Not entirely understanding their reasoning I contacted the Office of the Attorney General, who informed me that this particular insurer has been dealt with before and found to be particularly “cold-hearted”. Ours is a long story but leads me to believe that there must be many horror stories far more personally damaging.

  3. Joe Loveland says:

    A couple interesting tidbits from a Huffington Post piece on this subject:

    Today, insurers only pay about 81 cents of each premium dollar on actual medical care. The rest is consumed by rising profits, grotesque executive salaries, huge administrative expenses, the cost of weeding out people with pre-existing conditions and claims review designed to wear out patients with denials and disapprovals of the care they need the most.

    This equation is known as the medical loss ratio (MLR), an aptly named figure that is widely seen by investors as the most important gauge of an insurance company’s current and future profitability. In a private health insurance industry that collected $817 billion this year, a 14 percentage point difference in the MLR represents $112 billion a year! Over 10 years, that would be more than enough to pay for health reform.


    The senators are proposing a reform that strikes at the heart of a health insurance system that puts profits first, and it would have a profound effect. When MLRs increase, that eats into profits, and Wall Street becomes very unhappy. A case in point is Aetna, the nation’s third largest publicly-traded health insurance plan. Three years ago, the company reported that its quarterly MLR had inched up from 77.9 percent to 79.4 percent in 12 months. On the day this was disclosed, Aetna’s share price plunged 20 percent as investors sold off their shares, reducing the company’s market value by billions of dollars.

    Wall Street investors expect insurers to pay as little as possible for medical claims. As a result, the nation’s health insurance industry has evolved into a cartel of huge for-profit companies that together reap billions of dollars a year at the expense of their policyholders.

    1. Dennis Lang says:

      “Wear out patients with denials and disapprovals….” Man, this is hitting right at home right now with someone who has been a policy holder for over twenty years with her insurer.

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