Minnesota officials had described the money as a 'donation' and tried to keep it all, but now the U.S. Treasury will get half the cash.
Minnesota officials reversed course on Monday and said the state will give the federal government half of a $30 million contribution it received last year from UCare, an insurance company that contracts with the state to provide insurance for low-income and disabled people on Medicaid.
The contribution, which came from UCare's excess cash reserves, has long been described by state officials as a "donation." But in recent months federal lawmakers questioned whether the U.S. Treasury should receive a portion of the money because Medicaid is funded jointly by the state and federal governments.
Commissioner Lucinda Jesson of the Minnesota Department of Human Services said the change of heart was tied to an agreement she brokered last year with four plans to cap their 2011 profits at 1 percent.
As part of that agreement, UCare, Blue Cross and Blue Shield of Minnesota, Medica and HealthPartners were expected to return a total of about $73 million in excess profits, which would be split between the state and federal governments.
UCare's portion was originally set at $8 million, but didn't factor in the $30 million "donation," which the state banked in its general fund in November. Under Monday's settlement with the federal Centers for Medicare and Medicaid, the state will parse out about half of the combined $38 million in UCare's excess reserves to the feds.
"We're victims of our own success," Jesson said. "We were very successful with the 1 percent cap. Because of that it triggered reexamination of the UCare contribution."
Coming to terms with the federal government on the UCare repayment may put to rest the controversy over the $30 million, but questions remain about state public health programs.
Apart from the UCare payment, the state remains part of an ongoing federal investigation related to its contracts, though state officials have not given details about the nature or scope of the investigation.
Jesson is scheduled to testify in Washington on Wednesday at a House of Representatives hearing on Medicaid fraud. While the UCare repayment is certain to come up, an e-mail from the office of committee Chairman Darrell Issa, R-Calif., said Jesson should be prepared to talk more broadly about how Minnesota sets rates for both Medicaid and non-Medicaid plans.
Sen. Chuck Grassley, R-Iowa, who asked the Justice Department to look into whether the federal government deserved some of the $30 million, also is listed as a witness. Grassley said Monday's announcement about the UCare repayment doesn't mean an end to his investigation.
"The state clearly has structural problems with its Medicaid payments that need examination," he said in an e-mail. "If a state is gaming the federal government to get more out of Medicaid, the state is gaming taxpayers nationwide and ultimately hurting the people who need Medicaid. Congress needs to make sure this situation isn't duplicated elsewhere."
Parting with $15 million is not likely to have significant budget implications for the state. The UCare repayment was added to the general fund, which has expenditures of about $34 billion in the two-year budget.
UCare said Monday that it used generally accepted accounting principles when it listed the $30 million as an administrative expense in its filings with the state this month.
"The decision on how to treat the $30 million was a matter for the state and the Centers for Medicare and Medicaid Services to decide," UCare said.
Jesson said the decision to consider the money part of the 1 percent cap was a matter of fairness.
"If another health plan had donated $30 million to a charity to avoid paying it to the government under our cap, we'd say that was wrong and they owed the government the money," she said. "In fairness we should treat the UCare donation in the same manner."
Jackie Crosby • 612-673-7335