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Nelson, Consultant, Public Strategies Group
Caucus, 8301 Creekside Circle, Bloomington, MN 55437
June 17, 2011
Dave Broden (phone); Paul Gilje, Sallie Kemper, Ted Kolderie, Dan Loritz,
Tim McDonald, John Mooty (phone), Wayne Popham (phone), Clarence
Schallbetter, Sandy Vargas
Summary of meeting:
Connie Nelson, consultant with Public Strategies Group, describes the
report, "Beyond the Bottom Line", which the group prepared for a cohort of
Minnesota foundations. While the original report proposes several
public-sector reforms, this interview focuses on health care issues,
including paying for positive health outcomes and eliminating tax breaks
for employer provided insurance plans. The recommended reforms could
result in health care savings of nearly $1 billion a year.
Welcome and introductions
Nelson, Partner Emeritus with The Public Strategies Group ("PSG"), has
been closely involved with the crafting of the consulting firm's "Bottom
Line" reports on state finances. She has also led design processes in the
areas of child protection, property tax equity, child support collection,
health consumer advocacy, and wastewater treatment. Prior to joining PSG
in 2004, Nelson was an 18-year veteran of state government having served
as Assistant Commissioner of the Minnesota Department of Revenue and
fiscal analyst with the Minnesota House of Representatives.
Nelson opened the
interview by stating that a collection of Minnesota foundations have
courageously come together to bring forward ideas that could offer
alternatives in the present budget controversy to cutting services or
"They gave us a tough
challenge back in 2009," she said. "They told us: 'You have six weeks to
find ideas that have the capacity to significantly affect the state budget
- and improve public services.' We did this-we found many opportunities
for improving public value."
Then she continued,
PSG went deeper on nine areas, and produced the report, Minnesota's Bottom
Line (MBL). This year the Foundations revisited the ideas covered by MBL,
and chose to highlight seven with particular potential. This additional
research was published March 2011 as Beyond the Bottom Line (BBL) (http://tinyurl.com/69q25e3).
"We think of
redesigning as rethinking a system anew," she said of The Public
Strategies Group. Redesigning isn't planning-it is looking for a few
breakthrough ideas that will torque a new change. It includes examining
incentives lying deep down in the system.
The goal of Public
Strategies Group, in their work with other clients and on this project
particularly, is to improve the ratio between results citizens receive and
public dollars spent. Both parts of that ratio need to be visible, Nelson
said, and continually reexamined.
She then described
some ideas from Beyond the Bottom Line, pertaining to the subject of this
health, not sickness, by changing incentives.
"Minnesota has an
opportunity to spend $2 billion less in the 2013-14 biennium by buying
health rather than sickness," Nelson said. This savings relies on two
fundamental ideas: health care payment reform, and reduction of
health-related tax "expenditures".
reform, Nelson asked, "What if Minnesota took its portfolio of publicly
paid state health care and thought of that as one purchasing block?" The
state could use this buying power to purchase health and wellness-instead
of just buying a series of procedures to treat someone who is ill. To
hasten a move toward this approach, BBL urged taking advantage of the
health insurance exchanges recently authorized by the new federal health
care law. The law requires insurance exchanges to be in place by 2014, and
states can obtain funds for developing their own exchanges. No one wants
the alternative, she said, which would be waiting until the Federal
government steps in to do it for us.
"The bottom line in
health is that the price we pay is too high. The costs are not
sustainable, and are bankrupting businesses, individuals and the state."
Nelson said that her perspective for why the cost is rising so quickly is
that we are paying by the episode of illness. Doctors and other medical
providers are going to determine how they can make money within the
constraints of any health care insurance schema, she said, and they're
going to conduct their practices accordingly. So the state needs to find
out how to pay for wellness and provide the right incentives to providers
toward that end.
She argued that
fundamental payment reform is needed. To implement payment reform, she
said, 30 percent of the market is needed to tip the way payments are made.
That is, payment reform will not start to gain widespread acceptance until
30 percent of health insurance is structured in this new manner.
Minnesota could reach 30 percent with its public purchasing alone. (All
public health purchasing - at the state, county, school district levels -
for public employees and people served under public programs constitutes
approximately 2 million covered lives). She hopes that other employers
would join in, until the whole marketplace is "tipped" toward buying
A participant asked
Nelson whether she has a sense of how much of the growth in total health
payments is due to volume increase, with people getting older and needing
more care, versus cost increase?
A lot of it is a
result of the aging population, she replied-because the most expensive
year is the final year of life. But, it's also because we all want access
to every test, every procedure, every specialist - without realizing that
higher spending is not correlated with better outcomes, according to two
generations of Dartmouth research.
"Coming down to the
mechanics of a new system," a participant asked, "what are the two or
three major questions that have to be answered in the process of lowering
the total cost of care?"
Nelson replied that
she believes a task force convened by Governor Pawlenty came pretty close
to focusing on those questions. "Total cost of care" is not a new idea,"
she said, "it just hasn't been completed." The key, she contends, is
rooted in competitive bids from providers, based on both health outcomes
and price. To do so, three main issues need to be addressed:
Who is going to
be in a purchasing block?
Do they agree
to operate by the same rules (i.e. basic benefit set, buying outcomes)?
structure common risk-adjusted populations as a basis for bidding?
And, all the
experimentation the health care plans and providers have been doing in
Minnesota - around health care homes, total cost of care and shares in
savings - position Minnesota well.
Sandy Vargas, guest
and President of the Minneapolis Foundations commented on the positioning
of the new BBL report during the interim. "As we have moved forward, we
have hired a lobbyist and PR strategist. We were naïve in the first round
(with The Bottom Line), thinking that all we had to do was hand these
brilliant ideas to the public officials and they would be taken up."
Now, she said, the
foundation leaders "have made a concerted effort to meet with the
leadership on both sides, and both sides are interested."
commented: Imagine if you could get a group of people to come together and
petition the government to underwrite an effort to devise something that
could be a model for the rest of the nation.
Improve results and Save money through redesign of medical assistance.
Health care costs
including medical assistance for the poor is growing at 8.5 percent per
year, Nelson said. Meanwhile, health outcomes received for Minnesota's
Medical Assistance payments of $5 billion a year are not visible. We
don't hear if the health status of people on Medical Assistance has been
maintained, improved, or worsened. BBL says it is time to redesign MA -to
achieve better health outcomes at a dramatically reduced rate of
expenditure growth. To a question about seeking the waiver from federal
regulations regarding Medicaid-and whether Minnesota should instead
redesign the system itself-Vargas commented that the issue has been
politicized too much, so she is not sure the foundations would be involved
Even so, "Just think
if we could move from talking about unfunded mandates, to talking about
un-mandating funds. It is possible-Rhode Island has an effort working on
the initiative in the design of Minnesota's health exchange.
Every state by 2014
must create health care exchanges. Each state is given a tremendous range
of opportunity to choose how they design it.
"A health care
exchange is a market," Nelson said. "One way to think about it, a
Minnesota way, is as a farmer's market where you come to a common site to
see many options for purchase. Another way is to view an exchange is as an
opportunity for the leverage it provides: for each group that comes in to
provide service you can demand results on performance. The health
insurers, plans, and providers will have influence in how the exchange is
designed, but we have the opportunity to build in the kind of incentives
that will ultimately lower overall costs."
Nelson added, "The
health exchanges need design work now. Even though 2014 sounds far away,
it's right around the corner."
Address health tax expenditures.
"There's one thing in
the BBL report that can be done right now, for this biennium's budget,"
Nelson said, "and that's the elimination or capping of the health
insurance tax 'expenditure' or exclusion. This "tax expenditure" is the
exclusion of employer-paid health insurance premiums from an employee's
taxable income. This part of an employee's overall compensation is not
currently taxed. Minnesota could lead the way by placing a cap on the
amount of this benefit that is tax exempt in Minnesota, or by eliminating
the exemption entirely.
If the purpose of this
tax expenditure was to encourage employers to purchase insurance as part
of a compensation package for employees, she argued, the evidence doesn't
support that it has been effective. And if the purpose was to help
low-income people, the evidence doesn't support that either.
If this exemption were
eliminated, Nelson said, it would save approximately $1 billion per year
in otherwise foregone state taxes. With this change the value of the
non-exempt employer contribution would be treated as taxable income for
Once that income is
taxed, a participant asked, do the corporations continue to buy the health
care for their employees?
"That will be a
question," Nelson replied. "But, for employers, there would be no reason
to drop or add health care due to this change. There will be many new
questions that come up-it hasn't really been fully debated."
Is there any other
state leading on this kind of change? "No, I have looked around. Several
recent Federal budget task forces have called for exactly this. But no
one else at the state level has done it, to my knowledge."
One important result
of this change would be to expose the true cost of health care to
consumers and put greater pressure on providers and consumers to contain
costs. Tax expenditures do not receive the same kind of scrutiny as other
areas of spending, and they often cover up the true costs of services.
Removing this exemption would help Minnesotans understand the full per
capita "bite" that health care takes.
We need to ask what
vision we have for the state, Nelson said, and work to innovate toward
that. The Bottom Line and Beyond the Bottom Line were intended to start
conversations, and to provide opportunities for action. But there is much
more work that can be done, she insisted.
Beyond the Bottom Line
contains additional ideas, including some that would embed redesign as a
practice into our public systems. Some ideas are brand new; several have
been contemplated before; none has been completed. At its core, each
intends to offer hope that even in this fiscal challenge can still
come better ways to meet the needs of Minnesotans. Even if not these
specific ideas, we'd love the civic caucus to say: "We need
more ideas like these. We're signing up for redesign."
Thank you to both
Nelson and Vargas for the visit.