CEO Nancy Feldman still slides on the tiara when there’s a milestone to celebrate at UCare, the health insurance company she has run since 1995.
The tradition began not long after Feldman arrived, when she donned the crown and handed out 40,000 M&Ms to employees, with each chocolate morsel representing one of the enrollees in the still-young insurer’s health plans.
But the biggest tiara party could come in the year ahead. UCare expects to see enrollment expand beyond the 400,000 mark, extending an unrivaled growth spurt that sets it apart from its peers among the Star Tribune’s 100 largest nonprofit companies, where it ranks No. 7 on our list.
Much of UCare’s gains have come from winning state contracts as part of a new competitive bidding process launched two years ago. UCare won contracts in all seven counties in the Twin Cities area in 2012, grabbing market share from much larger competitors Blue Cross and Blue Shield of Minnesota (ranked No. 1) and Medica (No. 3).
Next year, UCare will see gains from state contracts in 27 counties outside the metro area, where it often is the sole carrier and low-cost bidder, meaning UCare will become the default insurer for those who don’t make a choice.
And now UCare has made a bold step to enter the commercial market for the first time, and is selling plans to individuals on the new MNsure insurance exchange.
“Even with that growth, they’ve stayed pretty close to their roots, which always emphasized community health,” said independent health care analyst Allan Baumgarten. “To their credit, that’s still very much their focus.”
UCare’s growth comes at a time when the insurance industry is under unprecedented pressure to change. The Affordable Care Act no longer allows them to deny coverage based on pre-existing conditions even as the state and federal governments cut reimbursements to doctors and hospitals.
But UCare considers itself well-suited to the new world. It was formed 25 years ago by family doctors at the University of Minnesota as way to provide stable insurance coverage for their poorest patients. The company’s leaders say they were players in coordinating care efforts long before it became a centerpiece concept of health reform efforts.
Until this year, UCare’s sole business had been focused on government-subsidized programs, including Medical Assistance and MinnesotaCare. UCare has the largest Hmong and Somali population of any Minnesota health plan, and it serves more people with disabilities and those enrolled in Medical Assistance.
The explosive growth has boosted UCare’s workforce to more than 600 employees, whose offices are stretched across three buildings around its longtime base in northeast Minneapolis.
“I used to say that we were the little tugboat … vs. the big ocean liners,” Feldman said in an interview. “That made us more flexible. But something didn’t occur to me — waves.”
Having been tossed about by waves during its formative years, a larger UCare is now more able to absorb some of the turbulence in today’s medical insurance marketplace, Feldman said.
Part of that came after UCare voluntarily returned $30 million in excess reserves to the state in 2011. The unprompted move ended up bringing greater scrutiny on itself — and on other health insurers — and the way in which the Department of Human Service had traditionally doled out more than $3 billion in contracts.
“That’s the ‘No good deed goes unpunished,’ ” Baumgarten said. “Legislators didn’t blame UCare, they blamed DHS for mishandling it.”
More recently, Feldman has been focused on putting systems and infrastructure in place to handle an estimated 100,000 new customers next year, ever mindful that the marketplace remains volatile in the age of Obamacare.
“What the state giveth, the state can take away,” Feldman said. “And the exchanges are kind of a crapshoot for everybody.”
But the organization and its board have always “taken the long view,” she continued. “We have a unique role in the market of bringing health care to those who have challenges getting it, and we have always stayed focused on that mission.”
The last big leap UCare took came in 1998, when it began offering Medicare Advantage plans to seniors 65 and older.
It marked the organization’s first push outside of its roots of serving a low-income market. In many ways, it was a bolder move for the organization than selling commercial plans on MNsure, Feldman said, as UCare hired a sales force to market the Medicare plan. The organization also lost $16 million on the program in its first three years.
But the strategy worked and in 2008, UCare expanded its Medicare coverage into Wisconsin. Today UCare’s business is about 60 percent from state-based public programs, such as Medical Assistance and MinnesotaCare, and 40 percent from federal Medicare plans.
Ghita Worcester, UCare’s senior vice president of public affairs and marketing, said developing health plans to sell on the exchange was a logical next step. UCare is aiming at two groups — people who move in and out of public programs as their jobs and income change, and couples where one person is covered by a Medicare plan and the other is too young.
“We didn’t do it to diversify our member base,” Worcester said. “It was an extension of who we’ve always been.”
Still, the changes are apparent. Up until 2005, the company grew mainly by word-of-mouth. But UCare has slowly ramped up marketing. It is advertising jointly with Fairview, which operates the University of Minnesota Medical Center, and is running ads to attract a younger audience on the Current (89.3 FM).
With challenges ahead, Feldman said she feels confident about the organizational structures in place. She keeps the tiara where she can see it, and turns to wisdom found in “The Hitchhiker’s Guide to the Galaxy,” the comic science fiction series of books. To her staff, she hands out signs from the series that say: Don’t panic.
Nonprofit 100, by the numbers
Overall revenue for the Nonprofit 100 rose 6.7 percent to $50.27 billion in 2012, up from $47.14 billion in 2011. Expenses rose 6.6 percent to $48.3 billion.
Three of the four categories saw revenue rise year-over-year — health care, social services and education. Revenue at arts and culture organizations fell 6.8 percent.
“These largest nonprofits are an economic force in their own right — and for the most part develop reliable revenue streams and plans for continued growth,” said Jon Pratt, director of the Minnesota Council of Nonprofits, a St. Paul-based nonprofit that tracks the industry.
Health care nonprofits, including insurers like Blue Cross and Blue Shield and health care providers like the Mayo Clinic, accounted for 92 percent of the revenue on our 2012 list, the same as in 2011.
Education groups, including private colleges, universities and prep schools, account for the next-biggest portion with about 5 percent of revenue. Social services and arts and culture nonprofits account for the remaining 3 percent.
Health care and education organizations traditionally are the most recession-resistant types of nonprofits, in part because demand for their services tends to remain steady and they can pass along costs by raising fees and tuition.
Passage of the Affordable Care Act, with its emphasis on expanding coverage and cost controls, has the potential to change that trend in the future. In 2012, health care nonprofits spent about 97.9 cents in expenses for every $1 of revenue, slightly more than 2011.
“If there are more people with health care coverage, then there’s more total revenue and future growth’’ for providers, Pratt said.
Education nonprofits spent 95 cents on expenses for every dollar of revenue they took in during 2012 — about the same as last year.
Social services agencies and arts group are more vulnerable to economic downturns, in part because they rely more heavily on contributions and government grants, which have fallen in recent years.
As a group, the 35 social services nonprofits we surveyed spent 98 cents on expenses for every $1 of revenue they raised, slightly less than 2011. That marks a third consecutive year where revenue exceeded expenses following the recession years of 2008-2009, when the agencies spent more than they raised in revenue.
The improvement suggests that social service nonprofits are growing accustomed to a new funding environment that may be less dependent on some forms of government support.
Arts and culture groups have struggled in recent years with declining contributions, as many cash-strapped donors gave less or diverted contributions to organizations that address basic needs such as food, clothing and shelter. Revenue for arts and culture groups fell 6.8 percent in 2012, as eight of the 12 organizations saw revenue declines.
Charitable giving in Minnesota rose 3.4 percent to $5.5 billion in 2011, the most recent year for which numbers are available. In its annual “Giving in Minnesota’’ report in October, the Minnesota Council on Foundations said giving by individuals accounted for 70 percent of the total, or $3.8 billion. Foundations and corporations granted $1.7 billion in 2011, up 14.7 percent from 2010. Employment in the nonprofit sector has shown slow-but-steady growth even through the recession and slow-recovery years, according to the Minnesota Council of Nonprofits.
In 2012, the council reported that there were 304,236 nonprofit workers — many of them in the health care sector — up about 1.6 percent over 2011. Nonprofits of all kinds accounted for about 11.5 percent of Minnesota’s workforce in 2012, the same as 2011.
“As the private sector cut jobs [during the recession], the nonprofit sector was a source of stability for the state’s economy,’’ said Pratt.
Because of state law and regulatory policies, HMOs and most hospitals in Minnesota are incorporated as nonprofits. As a result, health care nonprofits dominate the Nonprofit 100 survey, accounting for 52 of the top 100 organizations in 2012.
We looked at 57 health care organizations for this year’s survey, including large and small health care systems, senior care organizations and blood and organ donor organizations. In 2012 their combined revenue was $46.5 billion, a 6.7 percent increase over 2011. Expenses for the group rose 6.5 percent to $44.6 billion.
Sixteen of the 57 health care organizations we surveyed spent more than they generated in revenue last year.
At Blue Cross and Blue Shield of Minnesota, the largest nonprofit on our list, revenue rose 3 percent to $9.5 billion. Expenses slightly exceeded revenue at Blue Cross.
At No. 2-ranked Mayo Clinic, revenue rose 9.6 percent to $9.3 billion. The big Rochester-based health care provider spent 91 cents on expenses for each dollar of revenue. No. 3-ranked Medica saw revenue jump 6 percent to $4.6 billion.
The merger of the St. Paul and Minneapolis YMCAs puts the resulting “YMCA of the Greater Twin Cities” at No. 1 on the social services list with $118.5 million in revenue and $120.8 million in expenses for 2012.
The combination of the two organizations was long anticipated and follows a trend of regional organizations with similar missions combining to broaden their reach and reduce overhead. We have excluded the YMCA from the group comparison because of the merger.
Revenue at the 34 other social service nonprofits rose 2.4 percent while expenses rose more slowly at 1.8 percent.
Expenses exceeded revenue at 12 of the 35 organizations in 2012, up from seven in 2011.
Revenue jumped 9 percent at Second Harvest Heartland to $115.5 million in 2012 as the hunger-relief organization continued its rapid growth. During the Great Recession and its aftermath, organizations that provide for basic human needs, such as food, have tended to see more philanthropic resources directed at them.
Second Harvest also has moved beyond distribution of shelf-stable groceries and now delivers more higher-margin produce and refrigerated and frozen products to its clients.
Revenue at the Greater Twin Cities United Way rose 1.4 percent to $93.7 million. The United Way is a major contributor to other social services organizations in this category.
Revenue grew 1.8 percent at the 33 education nonprofits in the survey while expenses for the group rose 2.7 percent. Contributions rose just 2.6 percent.
Revenue rose at 26 institutions and fell at seven.
The biggest revenue decliner was Dunwoody College of Technology, down 24.3 percent to $19.4 million. Dunwoody officials said the school has experienced a several-year drop in enrollment beginning in 2008 that was attributed largely to the decline in construction-related jobs. Enrollment has since stabilized at the private college that trains for careers in manufacturing, electronics, construction and other trades.
At Northstar Education Finance, a student loan financier, revenue dropped 17.4 percent $117 million. Northstar has seen revenue fall steeply in recent years as the student loan industry evolved as a result of reforms in federal student loan funding. As recently as 2009, the lender posted $226 million in sales.
As a group, education nonprofits appear to have recovered from the recession. Just six of the 33 organizations surveyed spent more than they took in last year, compared with eight in 2011 and 14 in 2010.
Most of the colleges and universities have a May or June year-end, and the most recent data are from the year ended June 30, 2012. Fortunes improved mainly due to improved stock market returns at organizations with large endowments.
Revenue at No. 1-ranked University of St. Thomas rose 1 percent to $331.9 in 2012 after jumping more than 16 percent in 2011.
The Rev. Dennis Dease, who served as president of St. Thomas for 22 years, retired, in June. During his tenure, St. Thomas capital campaigns raised more than $700 million.
ARTS AND CULTURE
At the 12 organizations we surveyed, total revenue dropped 6.8 percent as expenses rose 1.4 percent. That left the group spending slightly more than it generated in 2012 revenue. Total contributions rose 5 percent in 2012.
Eight of the 12 organizations saw revenue decline in 2012 compared with six last year. Five of the 12 organizations posted expenses that were greater than revenue including American Public Media — whose revenue decline accounted for much of the group’s overall decline — the Science Museum of Minnesota and the Guthrie Theater Foundation.
At No. 1-ranked American Public Media Group, revenue fell more than 16 percent to $110.8 million after soaring nearly 15 percent to $132.6 million in 2011. The organization provides financial and administrative support for Minnesota Public Radio, Fitzgerald Theater Co. and Southern California Public Radio.
A spokesman attributed the revenue decline to investment losses in fiscal 2012, which have since been reversed. Nonprofits with sizable endowments can see their investment portfolios fluctuate with global markets. For accounting purposes, investment gains and losses are counted as revenue.
Revenue jumped 22.9 percent at the Minnesota Orchestral Association, to $44.7 million for the fiscal year ended Aug. 31, 2012. But those numbers, boosted by contributions for the renovation of Orchestra Hall in Minneapolis, don’t reflect the drama that has played out at the orchestra since then.
In October 2012, musicians and the orchestra board began a protracted labor dispute that resulted in the lockout of the players, cancellation of the 2012-2013 season, and the departure of renowned music director Osmo Vänskä.
On Dec. 10, the orchestra released results for the year ended Aug. 31, 2013, that showed revenue of just under $12 million, all but $14,000 coming from contributions, draws and distributions from endowments and trusts. The $14,000 came from ticket sales that buyers essentially donated to the orchestra. The association also reported an operating deficit of $1.1 million for the fiscal year ended Aug. 31, down from a record deficit the year before of $6 million.