Minneapolis-St. Paul: Health Care Market Overcomes Early State Resistance to National Reform

RWJF Reform Community Report

August 2013

Laurie E. Felland, Robert Mechanic, Amanda E. Lechner, Rebecca Gourevitch

Despite early pushback from state government against national health reform, the Minneapolis-St. Paul metropolitan area has made substantial strides in preparing for the Affordable Care Act, according to a Center for Studying Health System Change (HSC) examination of the region's commercial and Medicaid insurance markets (see Data Source). In the wake of the federal Patient Protection and Affordable Care Act (ACA) being signed into law in March 2010, then-Gov. Tim Pawlenty (R) and the Republican-majority state Legislature pledged to obstruct implementation of numerous key provisions. Yet after the election of Gov. Mark Dayton (D) later in 2010 and Democrats winning control of the Legislature in 2012, Minnesota moved forward with complete ACA implementation.

In March 2011, the state chose to broaden Medicaid eligibility for childless adults with incomes up to 75 percent of the federal poverty level (FPL) and will carry out the full Medicaid expansion in 2014. The state Legislature also mandated a state-run exchange, MNsure, which is scheduled to begin open enrollment in October 2013 for coverage effective Jan. 1, 2014.

The Minneapolis-St. Paul area’s health care market has long been characterized by robust insurer competition, large consolidated provider systems, and above-average rates of employer-sponsored insurance. The region is home to the largest private health insurer in the country, UnitedHealth Group, as well as other major insurers including Medica, HealthPartners, Blue Cross and Blue Shield of Minnesota, and UCare Minnesota. Five large hospital and physician systems dominate the provider landscape: Allina Health, Fairview Health Services (which is affiliated with the University of Minnesota), HealthEast Care System, HealthPartners, and Park Nicollet Health Services.

Insurer Landscape: Fierce Competition and ACA Preparation

The Minneapolis-St. Paul commercial insurance market features unusually intense competition among five major insurers: UnitedHealth Group, Medica, HealthPartners, Blue Cross and Blue Shield of Minnesota, and PreferredOne. UnitedHealth, while the country’s largest private insurer, actually holds a smaller share of the local market than some competitors. This competition has kept premium growth relatively moderate compared to many metropolitan areas.

As of 2013, all five major commercial insurers plan to participate in MNsure, the state’s health insurance exchange. Several have already developed new products specifically for the exchange, anticipating that the individual market will grow significantly. Health plan leaders reported investing heavily in technology and outreach infrastructure to compete for enrollment through the new marketplace.

The Medicaid managed care market also remains competitive, with HealthPartners, Medica, Metropolitan Health Plan, UCare Minnesota, and Blue Plus (a subsidiary of Blue Cross) all serving the state’s public program enrollees. Minnesota has a long history of managed care for its Medicaid population, and the expansion of Medicaid eligibility is expected to bring additional enrollment to these plans.

Provider Market: Consolidation and System Growth

The Twin Cities provider market continues to consolidate, with large integrated systems acquiring physician practices and smaller hospitals. Allina Health and Fairview Health Services are the two largest systems, each operating multiple hospitals and employing hundreds of physicians. Park Nicollet Health Services, another large multispecialty group, merged with HealthPartners in January 2013, creating one of the largest integrated health systems in the region.

This consolidation has raised concerns among insurers about provider leverage in contract negotiations. Several health plan executives reported that the growing size of provider systems has made it increasingly difficult to negotiate favorable rates, which could put upward pressure on premiums. At the same time, large systems argue that integration improves care coordination and reduces unnecessary utilization.

Independent physician practices have become increasingly rare in the Minneapolis-St. Paul market. Most primary care physicians and a growing share of specialists are now employed by or affiliated with one of the major health systems. This trend has accelerated as physicians seek the financial stability and administrative support that large organizations can provide.

State Political Dynamics and ACA Implementation

Minnesota’s path to ACA implementation was complicated by sharp political divisions. When the ACA was signed in 2010, Gov. Pawlenty joined other Republican governors in opposing the law and took executive action to prevent state agencies from implementing several provisions. The state Legislature, also under Republican control at the time, passed legislation blocking the creation of a state exchange.

The political landscape shifted dramatically with the 2010 election of Gov. Dayton, who supported the ACA. However, the Legislature remained divided, with Republicans controlling the House and Democrats the Senate. It was not until Democrats won full control of the Legislature in the November 2012 elections that the state moved decisively to implement the law, passing legislation in March 2013 to establish MNsure and expand Medicaid.

Despite the political delays, Minnesota’s strong existing health care infrastructure meant the state was relatively well-positioned for reform. The state already had lower uninsured rates than the national average, extensive public program coverage, and a competitive insurance market—all factors that stakeholders believed would ease the transition to the ACA.

MNsure: Building the State Exchange

Minnesota opted to build its own state-based health insurance exchange, MNsure, rather than default to the federally facilitated marketplace. The exchange was established by legislation signed in March 2013, giving officials approximately seven months to build and launch the marketplace before the October 2013 open-enrollment period.

The compressed timeline for MNsure’s development concerned many stakeholders, who worried about the state’s ability to build the necessary technology infrastructure and enrollment systems in time. Several insurers reported challenges in developing and pricing products for the exchange given uncertainty about the risk pool and enrollment patterns.

MNsure planned to use a combination of navigators, in-person assisters, and an online portal to facilitate enrollment. The exchange also sought to leverage Minnesota’s existing network of community organizations and county human services offices to reach uninsured populations. However, some stakeholders expressed concern that outreach efforts might not be sufficient to reach all eligible individuals, particularly those in rural areas and communities of color.

Medicaid Expansion and the Safety Net

Minnesota has a long history of expansive public coverage, including MinnesotaCare, a state-subsidized insurance program for low-income residents that predates the ACA. The state’s early Medicaid expansion in 2011 for childless adults with incomes up to 75 percent FPL brought thousands of previously uninsured adults into coverage. The full ACA Medicaid expansion in 2014, extending eligibility to 138 percent FPL, is expected to further reduce the state’s uninsured rate.

Safety-net providers, including community health centers and the Hennepin County Medical Center, reported preparing for significant changes in their patient mix as more uninsured individuals gain coverage through Medicaid or the exchange. While expanded coverage is expected to improve revenue for these providers by reducing uncompensated care, some expressed concern about whether Medicaid reimbursement rates would be adequate to sustain services.

The transition of MinnesotaCare enrollees to either Medicaid or exchange coverage under the ACA has raised questions about continuity of care and provider networks. Stakeholders worry that some individuals who currently have coverage through MinnesotaCare may face disruptions as they are transitioned to new programs with different provider networks and benefit designs.

Employer-Sponsored Insurance and Market Dynamics

The Minneapolis-St. Paul area has historically had high rates of employer-sponsored insurance, reflecting the region’s strong economy and large corporate presence. Major employers including Target, 3M, General Mills, and UnitedHealth Group have traditionally offered comprehensive health benefits to their workers.

However, as in many markets, employers have been shifting more costs to employees through higher deductibles, copayments, and premium contributions. Several large employers reported considering defined-contribution approaches that would give employees a fixed dollar amount to purchase coverage, potentially through private exchanges. The growth of these private exchange options could interact with the ACA’s public exchanges in ways that remain uncertain.

Small employers, many of which have faced steep premium increases in recent years, are watching the exchange with particular interest. Some small business leaders expressed hope that the Small Business Health Options Program (SHOP) exchange could offer more affordable options, while others remained skeptical that the exchange would meaningfully reduce costs.

Payment and Delivery System Innovation

The Minneapolis-St. Paul market has been at the forefront of payment and delivery system reform, with several initiatives predating the ACA. The Buyers Health Care Action Group (BHCAG), formed in the 1990s, pioneered value-based purchasing among large employers. More recently, insurers and providers have been developing accountable care organization (ACO) models and other alternative payment arrangements.

Several of the region’s large health systems have established ACOs or are participating in shared savings arrangements with commercial insurers and Medicare. These models aim to improve care coordination while reducing costs by holding providers accountable for the total cost and quality of care for defined patient populations.

Minnesota’s state government has also been active in promoting payment reform through its public programs. The state’s Medicaid program has implemented several value-based payment models, including health care homes (the state’s version of patient-centered medical homes) and integrated health partnerships, which are similar to ACOs for the Medicaid population.

Quality Measurement and Transparency

Minnesota has been a national leader in health care quality measurement and public reporting. The Minnesota Community Measurement (MNCM) initiative collects and publicly reports quality data from medical groups across the state, covering a range of clinical measures. This transparency has been credited with driving quality improvements, as providers can compare their performance to peers and consumers can make more informed choices.

Under the ACA, quality measurement and reporting requirements are expected to expand, and Minnesota’s existing infrastructure positions the state well to comply with these mandates. The state’s experience with quality measurement also supports the transition to value-based payment models, which require robust data on provider performance.

However, some providers have expressed concern about the growing burden of quality reporting requirements, particularly as different payers and programs use different measures. Efforts to align quality measures across payers have had some success in Minnesota but remain a work in progress.

Health Disparities and Underserved Populations

Despite the Minneapolis-St. Paul area’s generally strong health care market, significant health disparities persist along racial, ethnic, and socioeconomic lines. Communities of color, particularly African American, Native American, and immigrant populations, experience higher rates of chronic disease, lower rates of insurance coverage, and greater barriers to accessing care.

The ACA’s coverage expansions are expected to reduce but not eliminate these disparities. Medicaid expansion and exchange subsidies will extend coverage to many previously uninsured individuals from communities of color, but barriers related to language, culture, immigration status, and provider availability will likely persist.

Several community organizations and health plans are working to address these disparities through culturally specific outreach and care programs. HealthPartners, for example, has invested in programs to improve care for Somali and Hmong patients, two of the largest immigrant communities in the Twin Cities. The success of these efforts will be an important measure of the ACA’s impact on health equity in the region.

Looking Ahead: Market Outlook

As the Minneapolis-St. Paul market moves into the full implementation phase of the ACA, several key factors will shape the region’s experience:

MNsure’s launch and performance will be closely watched, as the state-based exchange is central to expanding coverage. The success of MNsure in enrolling the uninsured, maintaining insurer participation, and functioning smoothly will have significant implications for the market.

Continued provider consolidation could affect competition and pricing in the market. If large health systems gain greater leverage over insurers, it could lead to higher costs for consumers and employers despite the ACA’s emphasis on cost containment.

The transition from volume-based to value-based payment will continue to evolve, with the ACA providing additional incentives and mandates for alternative payment models. Minnesota’s early investments in these approaches may give the state an advantage in adapting to the new payment landscape.

Finally, reducing health disparities will remain a critical challenge. While the ACA provides new tools for expanding coverage, achieving health equity in the Minneapolis-St. Paul area will require sustained investment in community-based programs, culturally competent care, and workforce diversity.

Endnotes

1. The Center for Studying Health System Change (HSC) conducted site visits to 12 nationally representative metropolitan communities as part of the Community Tracking Study, funded by the Robert Wood Johnson Foundation.

2. Interview data were collected between March and June 2013 from health plan executives, hospital administrators, physician leaders, state officials, consumer advocates, and other stakeholders.

3. For more information on the Community Tracking Study and the broader State Health Reform Assistance Network, visit the Robert Wood Johnson Foundation website.

4. Data on insurance coverage rates and employer health benefits are from the Current Population Survey, Medical Expenditure Panel Survey, and the Kaiser/HRET Survey of Employer Health Benefits.

5. Information on Minnesota’s Medicaid expansion and MinnesotaCare transition is based on state legislative documents and Department of Human Services planning materials.

6. Quality measurement data are from Minnesota Community Measurement annual reports.

7. Health disparities data are drawn from the Minnesota Department of Health’s Advancing Health Equity in Minnesota report and the American Community Survey.

Data Source

As part of the Robert Wood Johnson Foundation’s (RWJF) State Health Reform Assistance Network grant program, HSC examined the commercial and Medicaid insurance markets in 12 metropolitan communities across the United States between 2012 and 2013. Minneapolis-St. Paul was one of the 12 communities studied.

This primarily qualitative study consisted of interviews with commercial health plan executives, Medicaid managed care plan officials, hospital and physician leaders, state regulators, exchange officials, consumer advocates, and insurance brokers. Approximately 30 interviews were conducted in the Minneapolis-St. Paul area between March and June 2013. Interview data were supplemented with analysis of publicly available data on insurance market trends, enrollment, and financial performance.

Sources and Further Reading

The Robert Wood Johnson Foundation has funded extensive research on how local health care markets adapt to national policy shifts. Their ongoing work tracks the effects of coverage expansion on providers, insurers, and patients across diverse metropolitan areas, including Minneapolis-St. Paul. Visit the Robert Wood Johnson Foundation for current program reports and community health data.

State-level variation in health reform implementation is a defining theme of the ACA era. The Kaiser Family Foundation Health Reform hub provides state-by-state comparisons of Medicaid expansion decisions, marketplace enrollment figures, and uninsured rates that contextualize Minnesota's trajectory relative to the rest of the country.

Health care employment trends in the Minneapolis-St. Paul metropolitan area reflect the region's large hospital systems and insurer headquarters. The Bureau of Labor Statistics publishes occupational and wage data that track how workforce demand in health services shifted as insurance coverage expanded across the Twin Cities market.

Minnesota's decision to establish its own state-based marketplace, MNsure, shaped how residents accessed new coverage options under the Affordable Care Act. The CMS Health Insurance Marketplace resource center details federal marketplace rules, qualified health plan standards, and enrollment reporting that apply to both state-run and federally facilitated exchanges.

Measuring the real-world impact of reform requires reliable population-level insurance data. The Census Bureau Health Insurance page offers annual estimates of coverage rates by state, age group, and income level, providing a demographic baseline for understanding how markets like Minneapolis-St. Paul responded to reform implementation.