April 1, 1999

St. Paul, Minn. – Minnesota health plans experienced growth in enrollment for the tenth year in a row and continued to see the growth in medical care expenses outpace the growth in premium revenue. According to a Minnesota Council of Health Plans summary of health plan financial reports filed today with the Minnesota Department of Health, overall enrollment in Minnesota plans increased to approximately 2.5 million, compared to 2.4 million in 1997, an increase of about 4.7 percent.

"Continued growth in enrollment demonstrates that employers continue to choose managed care products because of high consumer satisfaction, high quality of care and low cost," said Michael Scandrett, executive director of the council.

Growth in Medical Expenses Outpaced Growth in Premiums

Health plans paid $3.9 billion for medical care in 1998, compared to $3.5 billion in 1997. Because growth in medical care expenses (11.2 percent) outpaced growth in premium revenue (9.7 percent) for the second consecutive year, Minnesota's nonprofit health plans experienced net financial losses of $6.1 million in 1998, compared to $1.9 million in 1997.

"We're constantly balancing a focus on low premium increases by employers and the desire and need for more services by patients," said Kirby Erickson, executive vice president of administration and health, HealthPartners, and president of the council.

According to a qualitative survey of health care finance experts and CEOs in March, increased use of existing pharmaceuticals, new pharmaceuticals and new treatments and technology are the top three drivers of health care costs.

Operating losses of approximately $58 million were offset by significant investment returns on state-mandated health plan reserves. State law requires nonprofit HMO plans to have 1 - 2 months of financial reserves. Minnesota health plans averaged 1.53 months of reserves in 1998, compared to 1.56 in 1997.

Despite costs of preparing for year 2000 information systems changes, administrative costs have declined slightly over the past five years. In 1998, administrative costs were 8.7 percent of revenues compared to 9.1 percent in 1993.

Costs of Government Regulation

Minnesota health plans also paid $43.0 million in state health care-related taxes and assessments in 1998. The percentage of buyers' premiums that goes to pay state health care taxes has increased 606 percent since 1987, even though the amount was lower than 1997 taxes due to temporary tax relief provided by the Minnesota Legislature.

The council estimates that up to 25 percent of premiums paid by buyers of state-regulated health plans (primarily small and medium-sized employers and Minnesotans with individual insurance policies) is due to state taxes and state-mandated coverage requirements. Federal law exempts self-insured organizations (such as large employers and large group purchasers) from state taxes and mandates.

Several legislative proposals before the Legislature this session could significantly add to the cost of regulations and taxes, on top of already rising medical inflation. With the growth in self-insured enrollment, these regulations increasingly burden small employers and individuals.

Growth in Self-insured Enrollment

Enrollment in self-insured health care plans (which are exempt from state regulation and taxes due to federal law) grew by 14.1 percent to 1.1 million in 1998, while enrollment in fully-insured commercial health plans declined by about 2.7 percent to 1.0 million. Self-insured enrollment is now nearly 52 percent of council members' total commercial enrollment.

"Government regulations and taxes are forcing more employers to switch from a state-regulated plan to a self-insured plan," said Scandrett. "The burden of state taxes and mandates falls mostly on small employers and individuals - those least able to afford health care cost increases." The council's plan members offer both state-regulated and self-insured plans.

Just under half (1.2 million) of those enrolled in Minnesota health plans are in a point-of-service plan, meaning they can choose health care providers who are not in the health plan's regular network by paying a higher co-payment. While this number declined slightly from 1997, enrollment in point-of-service products has nearly doubled since 1993.

# # #

Established in 1985, the Minnesota Council of Health Plans is a trade association of 10 licensed nonprofit health plans. Council members have pioneered a style of health care that has improved quality and consumer satisfaction and expanded access to health care for all Minnesotans.

The council and its members are leaders in health care reform, practice guidelines development, technology assessment and data collection and analysis.

EDITOR'S NOTE: Tables listing individual health plan data and industry-wide data are available by calling the Minnesota Council of Health Plans

FOR INFORMATION ABOUT INDIVIDUAL PLAN NUMBERS, CONTACT: