Four health insurers who cover low-income Minnesotans agreed to cap profits.
Gov. Mark Dayton claimed a victory for taxpayers on Tuesday, saying efforts to curb the state's health spending have delivered an estimated $73 million bonus from four health insurance plans.
With other reform efforts underway, the savings to the state and federal government could reach $500 million, he said.
Last year, in the face of rising health care costs and a state budget shortfall, Minnesota's four largest nonprofit insurers agreed to a one-time limit on profits from insurance coverage to low-income Minnesotans. Blue Cross and Blue Shield of Minnesota, HealthPartners, Medica and UCare capped their operating margin at 1 percent and agreed to return the rest to taxpayers.
"We don't think that they operated outside the boundaries of the contracts they signed, we just think the contracts were too generous at taxpayers' expense," said Dayton.
About half of the money will go directly to the state general fund, Dayton said. The rest will be returned to the federal government, which provides matching Medicaid dollars to the state for Medical Assistance and for MinnesotaCare, a subsidized program aimed at low-income, working Minnesotans. The exact amounts won't be known for a couple of months.
Based on financial reports filed with the state, the plans will repay the following amounts: HealthPartners, $31 million; Medica, $25 million; Blue Cross and Blue Shield of Minnesota, $9 million, and UCare, $8 million.
Rep. Jim Abeler, R-Anoka, chairman of the House Health and Human Services Finance Committee, said lawmakers were surprised at the amounts.
"If there's any indication we're on the right track, this is it," he said. "The governor was wise to negotiate the 1 percent."
Although the state's health plans aren't in business for profits, they aim to make some money and set side a reserve. Overall, seven nonprofit plans last year earned an average 1.8 percent margin, including their commercial insurance, which was the best in years, according to the Minnesota Council of Health Plans.
"People are going to be scrutinizing these numbers and trying to understand what the return of that much money says about how much money the state is paying the plans," said Allan Baumgarten, a researcher who analyzes health plan finances.
Dayton has called for an audit of administrative costs, executive salaries and other expenses. Legislators also have called for greater accountability and transparency in the plans' public health insurance programs.
The unprecedented agreement between the state and the nonprofit plans came last April, after UCare returned $30 million in excess premium reserves to state coffers. The money, which UCare and the state characterized as a donation, sparked controversy.
U.S. Sen. Charles Grassley, R-Iowa, has sent letters to the state, the U.S. Justice Department and insurers, raising questions about whether the federal government deserves a part of the largesse. On Tuesday, Grassley said Minnesota's track record for calculating Medicaid payments is "questionable, so there isn't much confidence in the process behind today's announcement."
A separate federal investigation also is underway over how Minnesota has set premium rates, but state officials have not released details about it.
This year, the state is expected to spend $3.8 billion on managed-care plans, which provide insurance for about 580,000 children and adults. The payback agreement covers the final year of a three-year contract with the state, which was negotiated under former Gov. Tim Pawlenty.
"The real issue is how do we correct this going forward," Dayton said. "And the best way is to have competitive bids."
As part of reform efforts already underway, the plans last year took part in the first-ever competitive bidding process for public health insurance programs in the metropolitan area. The state Department of Human Services plans to expand the bidding process as contracts come due across the state. The state also has launched pilot projects in which it is contracting directly with Hennepin County and some hospital systems rather than the plans.
Julie Brunner, executive director of the Council of Health Plans, said that while $73 million is "a lot of money," it's the equivalent of eight days' worth of state-paid health care coverage. The state spends about $9.2 million a day in health care costs, the council says.
Operating margin on state plans last year was 1.5 percent, or $55.7 million, the council reported. Although Dayton expanded eligibility for people on Medicaid when he took office, medical costs were not as high for some plans as expected, which helps explain why the health plans are giving back so much money, Brunner said.
Determining premiums is a challenge, she added, because they are set more than a year in advance. The plans must predict how sick people will get and how many emergency room visits they'll make. An unexpected flu outbreak could mean dipping into reserves.
Jackie Crosby 612-673-7335