2014 health care savings date back to when Republicans controlled the Minnesota Legislature

The Star Tribune reports Minnesota spent $1.2 billion less than projected on public health care programs in 2014.  Lower spending is, of course, great news for Minnesota’s budget.  Lower spending on Medicaid and MinnesotaCare is even better news for the future sustainability of state spending because health care traditionally grows faster than any other area of spending.

In addition to reporting on savings, the article offered a good overview of the current and future issues facing the state’s public health care programs.

So how did the state achieve $1.2 billion in lower spending?

The Star Tribune focused on two recent developments in Medicaid that lowered spending.  First, new Medicaid and MinnesotaCare enrollees are much healthier than projected and therefore less costly.  Secondly, the state introduced a competitive bidding process that resulted in paying lower premiums to managed care health plans.

These are indeed the main drivers behind recent drops in spending.

But to add up to $1.2 billion in lower spending, you have to go back to projections from the 2011 Legislative Session when the Republican-controlled Legislature and Governor Dayton negotiated to close a $5 billion budget deficit without raising taxes.

This is, of course, the budget negotiation that resulted in the 2011 state government shutdown, an event many political observers believe shares at least some of the blame for Republicans losing control of the Legislature in the 2012 election.  Though, there was plenty of blame to go around.

The table below outlines Medicaid and MinnesotaCare spending projections prepared by the Department of Human Services for Minnesota Management and Budget (MMB) economic forecasts.  These data show actual 2014 spending is $1.3 billion lower than the February 2011 Economic Forecast projected before the 2011 budget deal, which is roughly consistent with the $1.2 billion savings the Star Tribune reports based on MMB and Senate Research sources.

Projected and Actual Spending on Minnesota Public Healthcare Programs in FY2014 (in 1,000s)

Notably, as the table shows, the spending reductions negotiated during the 2011 Budget Deal is a large component of the spending reduction reported by the Star Tribune.  Comparing projections made before and after the 2011 Budget Deal shows the budget changes negotiated during the 2011 shutdown reduced projected 2014 spending on public health care programs by an estimated $735 million.   This is a rough estimate of the 2014 health care spending reductions attributable to the 2011 Budget Deal and this drop is very consistent with change estimates made immediately after the deal.

By contrast, the last column in the table shows actual 2014 health care spending was nearly $600 million lower than the spending projected after lawmakers struck the 2011 Budget Deal.  This reflects a rough estimate of 2014 health care spending reductions attributable to the more recent changes.  These data points show the 2011 Budget Deal potentially produced over half the savings reported by MMB and Senate Research.

Yes, there have been intervening changes in the economy, program experience and law that have altered the original 2011 projection of the 2014 health care spending reduction attributable to the 2011 Budget Deal.  Thus, the impact of the deal on actual 2014 spending is something less or more than $735 million.  Whatever the precise impact, there is no question the impact was a very large part of why the state spent less on public health care programs in 2014.

So, ironically, while Republicans seem to have paid a heavy political price in the 2012 election for successfully holding down spending during the 2011 shutdown to avoid tax increases, the Dayton administration is today happy to highlight health care savings that are in large part “shutdown savings.”

Politics aside, the lower spending on public health care programs today demonstrate the important role spending reductions and program efficiencies can play in maintaining a sustainable state budget into the future.