As spending on medical claims continued to climb, Minnesota's largest insurance companies posted a combined annual operating profit of 0.57 percent, or $120 million, last year across public and private health plan options.

It was the smallest margin since 2008, according to financial data released Monday by the Minnesota Council of Health Plans.

Rising medical claims combined with stiffer competition among the plans helped keep overall profit margins slim, said Julie Brunner, executive director for the industry group.

"We hear stories about companies moving from one insurer to another for 1 or 2 percent — it's a very competitive market," Brunner said. "But we continue to see the cost of health care grow, which is of concern."

The report consolidates financial performance across seven nonprofit insurance companies — Blue Cross and Blue Shield of Minnesota, HealthPartners, UCare, Medica, Preferred One, Metropolitan Health Plan and Sanford Health Plan of Minnesota.

Costs rose by double digits for outpatient hospital care, emergency room visits, prescription drugs, and addiction and mental health treatment during the year, according to the report.

Insurers collected 5.8 percent more revenue in premiums, or $21 billion, while health care spending was up 7.4 percent, to $19 billion. On a per-person basis, the plans spent 5 percent more on care, compared to a nearly flat 0.4 percent rise during the previous year.

The data combines results across both private and public health plan offerings — including policies that cover individuals and businesses as well as managed care plans that cover Minnesotans enrolled in public programs, such as Medical Assistance and MinnesotaCare.

Operating profits on public programs were 1.39 percent, according to the report. That compares with a 1.5 percent margin the previous year, when the plans agreed to return profit above 1 percent to the state to address a growing budget deficit in which health care costs play an outsized role. The one-time agreement netted $75 million in excess reserves for state coffers.

Individual insurance companies posted vastly different financial results and did not separate profit margin details on public plans.

Blue Cross Blue Shield of Minnesota, the state's largest nonprofit company, reported an operating loss of 0.6 percent, or $54.8 million. Blue Cross said its investment portfolio and additional sources of income buffered some of the operational losses from the insurance side to lift the company to a net income of $68.4 million.

More seeking care

Blue Cross officials said the operating losses came as the economy began to strengthen and people who might have put off visits to the doctor when budgets were tight began to seek care again.

"During the recent recession, our members did not seek levels of care consistent with historical patterns, and utilization was lower than expected," Chief Financial Officer Jamison Rice said in a statement.

HealthPartners, meanwhile, posted the biggest gains, with operating margins of 4.4 percent, or $140 million.

UCare's operating income was 2.8 percent, or $62.5 million, while Medica reported operating income of 1.2 percent, or $36 million.

Enrollment in health plans grew by 2 percent during the year, reflecting greater numbers of Minnesotans taking advantage of expanded Medicaid offerings for low-income citizens and an improving economy in which businesses are starting to hire and provide health benefits.

Building up reserves

The plans pushed up the amount held in reserves, money that gets set aside to cover medical bills in the case of an unforeseen event, such as a flu pandemic, or to invest in technology.

The plans set aside $252.4 million, or 1.2 percent of total revenue, in reserves during 2012. That would cover 3.3 months for HMO plans and 2.6 months on private insurance.

A rising stock market led to a 24.6 percent increase in income from the plans' investments, or $145.7 million.

Last week, a long-awaited auditor's report found that health plans serving Minnesota's poor through state contracts collected nearly $207 million more than planned between 2002 and 2011.

Under questioning by state and congressional lawmakers, the profits spawned a third-party audit as well as a federal investigation into the state's rate-setting process on Medicaid, a joint federal and state program to cover low-income Minnesotans.

The Minnesota Department of Human Services has instituted a number of changes to get a firmer grip on how the health plans use state dollars, including the 1 percent cap on 2011 profits and a competitive bidding process, which Commissioner Lucinda Jesson claims has saved taxpayers more than $1 billion.

Jackie Crosby • 612-673-7335