UCare's bid for a valuable state contract came with a much higher price tag than those from competitors, according to documents released Tuesday, and the gap helps explain why the state is switching more than 350,000 enrollees in public insurance programs to other health plans.
To illustrate the cost difference, state officials said taxpayers would need to spend an extra $137 million next year if all program enrollees in Hennepin County were covered through UCare rather than by Minnetonka-based Medica, which had the lowest cost bid in the state's most populous county.
But the decision also was based on the "technical" merits of bids, including the quality of services provided and the network of health plan providers.
It was a closer call on those scores, but Minneapolis-based UCare still didn't keep pace with bids from Medica, Bloomington-based HealthPartners and Blue Plus, which is a division of Eagan-based Blue Cross and Blue Shield of Minnesota.
"On price, their bid was not competitive across most regions of the state," said Lucinda Jesson, the state human services commissioner. "Their technical score is closer, but it was still surpassed by higher scoring plans in most counties."
In a statement, UCare executives said they were still evaluating the data but defended the cost bid by saying it represented a discount on rates the HMO received last year.
"Our proposed rates were actuarially sound and sustainable, and they were 5 percent lower on average than our 2014 rates," the company said. "We believed our proposed rates would be competitive, and would ensure the financial stability of these important programs and access to quality medical care for members."
For decades, Minnesota has hired managed care organizations for most covered in the state's Medical Assistance and MinnesotaCare programs, which provide health insurance to lower income residents. Over the past four years, the state has phased in a competitive bidding process when awarding these contracts to health plans.
Results this year have brought an unprecedented volume of change, because UCare — currently the largest HMO in the programs — will see its role shrink dramatically.
The bid results were announced on a preliminary basis this summer. State contracts with health plans were finalized this week, which allowed for Tuesday's public release of the bid documents.
The new contracts will direct many more enrollees to Medica, which expects growth of about 110,000 people, while giving Blue Plus and HealthPartners shots at growth, too, in certain parts of the state.
In the process, the new contracts will save state and federal taxpayers about $450 million next year, according to the state Department of Human Services (DHS).
Under its current contract, UCare generated about half its $3 billion in total revenue for 2014 for work in the public programs. Facing the prospect of the lost contract next year, UCare said this fall that it would need to cut 250 jobs.
The documents released Tuesday provide the first detailed look at why UCare lost out.
One example comes in Hennepin County, where UCare offered to manage care for Medical Assistance enrollees at a cost of about $498 per member per month next year. Medica, meanwhile, offered to do the job for about $426 per member per month — a difference of about $72.
That's a big difference, state officials say, considering how the dollars multiply given the size of the public programs. HMOs and county-based purchasing groups manage care for about 800,000 people.
"Every $2 increase in [per member per month] represents more than $19 million in total spending over all managed care enrollees for a year, based on our 2016 projected enrollment," the DHS said in background materials that were released Tuesday.
But cost was not the only factor — or even the majority factor, Jesson said.
In Hennepin County, for example, a county-based organization called Hennepin Health had a cost bid that was about as uncompetitive as UCare's, Jesson said. But on the strength of Hennepin Health's technical score, the group wound up with a contract to be one of the managed care options, Jesson said.
"There were a couple of health plans that had high technical scores, [but] their price bids were not very competitive," Jesson said. "Because their technical scores were so high, they still got contracts with us."
In its statement, UCare said it received "relatively strong technical scores from counties" that played a role in evaluating the quality of bids. UCare said the scores fit with actions by 55 county boards to recommend the HMO as a public health care plan in 2016.
"Many counties appealed the state's decision because of their confidence in UCare, and Olmsted County was successful at retaining UCare," the HMO said in its statement.
UCare officials maintain that the health plan has a "bright future" even without the state contract.
The nonprofit insurer will continue to manage care for certain special populations in state public programs. UCare will continue to operate a large Medicare health plan, while also selling policies in the individual market through the MNsure health insurance exchange.
Christopher Snowbeck • 612-673-4744
Twitter: @chrissnowbeck
