Walz seeks to shake up Minnesota’s human services system amid fraud concerns

Minnesota has for decades been shifting toward outsourcing management of its social services system. Gov. Tim Walz is now looking to reverse that trend in an effort to prevent fraud.

But the proposals, including having the state take on some work now handled by counties and eliminating the use of managed care organizations, like Blue Cross and Medica, in Medicaid programs received a frosty legislative response after Walz announced them Tuesday, March 10. One lawmaker called them “dead on arrival.”

Walz is moving forward with one idea that doesn’t require legislative sign-off: Bringing in an outside entity to study how the state administers human services and propose long-term changes. He also teased that he plans to devote part of his upcoming supplementary budget proposal toward starting to modernize the decades-old technology that is the bane of social services work.

Walz’s proposed reforms come after his administration has been rocked for the past year by investigations into fraudulent providers abusing government-funded programs. The governor has made tackling fraud a priority in his waning months in office. He said Tuesday that simplifying the administration of Medicaid services is a key piece of that effort.

“Minnesota’s system of delivery around social services is a bit of an outlier,” Walz said, adding that many states have more oversight and control over where money is going.

State Budget Director Ahna Minge said a couple hundred jobs would need to be added to do what Walz proposed.

His idea to end the state’s eight contracts with managed care organizations — which handle benefits for more than 80% of Minnesotans enrolled in Medicaid — would require legislative approval. The proposal comes not long after Minnesota’s Medicaid Director, John Connolly, told the Minnesota Star Tribune the state was going to continue working with the managed care organizations but amend their contracts to ensure strong fraud protections.

GOP Rep. Kristin Robbins, who leads a fraud prevention committee, questioned the idea of severing ties with managed care groups. She said the organizations have processes to scrutinize payments the state lacked.

When fraud occurs in the funding they distribute, the organizations often eat the losses. The Minnesota Council of Health Plans, which represents the managed care organizations, said they have absorbed hundreds of millions of dollars in losses over the past few years and warned that consolidating Medicaid administration into a single statewide entity “would concentrate operational and financial risk to an unprecedented degree.”

“Any major structural change must clearly demonstrate improvements in affordability and outcomes without creating new risks for beneficiaries, providers, or the broader insurance market,” the council said in a statement. It warned that “policymakers should carefully evaluate how such a shift may affect accountability, competition, innovation, and long-term market stability.”

Walz would also need legislative approval for having the state take some of the counties’ responsibilities in determining Medicaid eligibility.

Minnesota is one of about 10 states where the state supervises services and counties and tribal governments administer them. State officials and workers in the social services industry have described challenges with oversight and consistency across the state’s 87 counties.

To further complicate things, many counties have contracted with outside companies to handle case management. Some people with disabilities and people working in the field have shared concerns with the Minnesota Star Tribune about case managers’ turnover, training and high caseloads. They questioned whether the workers are able to do enough to support beneficiaries and ensure they are getting needed services.

Any changes to the state and counties’ work would have to be done thoughtfully, Association of Minnesota Counties Executive Director Julie Ring said, warning, “the devil is in the details.”

However, Ring and others applauded the study that Walz is launching, which will assess how Minnesota administers Medicaid, MinnesotaCare, behavioral health, housing, economic assistance, licensing, child support and child care programs.

“We support the heart of the proposal — which is the comprehensive study of the human services system. We are excited about a serious examination of the roles within the system," Ring said, adding that she also supports updates to the outdated social services technology — expensive work that counties have long pushed for and has bipartisan Capitol support.

Senate Human Services Committee Chairman John Hoffman expressed disappointment that Walz did not work more closely with lawmakers before announcing his ideas.

“Major structural changes to a system that serves hundreds of thousands of Minnesotans require thoughtful collaboration between the executive branch and the Legislature,” the DFL legislator said in a statement.

The Association of Residential Resources in Minnesota, which represents providers who deliver disability services, also warned that centralizing human services work at the state level needs to be done cautiously with input from those with personal stakes.

“People with disabilities rely on a complex network of supports to live safe, independent, and fulfilling lives,” the association’s CEO, Sue Schettle, said in a statement. “Large structural changes to the human services system carry real risks if they are not implemented thoughtfully.”

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