The federal government has launched an investigation into whether Minnesota has set premium rates too high on health insurance coverage for low-income people, officials said Tuesday.

The probe came to light at a state House committee hearing, at which one critic of the state's nonprofit plans said they earn more on the state plans for Medical Assistance than they have on commercial plans, even as doctors and hospitals collect less reimbursement.

But even as lawmakers pushed for answers during a sweeping four-hour session, few details were forthcoming.

Department of Human Services Commissioner Lucinda Jesson told the House Health and Human Services Committee she found out about the investigation when federal authorities contacted her last summer. But Jesson could not say what federal agency was leading the investigation, nor could she talk about scope of the query.

"There's an investigation by federal authorities into some of the allegations that have been raised here," Jesson said after the meeting, which focused on transparency and rate-setting around the state's health care coverage for low-income Minnesotans. "We're cooperating with that investigation. That is all I can say. "

The allegations Jesson referenced were raised by David Feinwachs, an ousted former lawyer for the Minnesota Hospital Association and critic of the state's nonprofit health insurance plans.

Feinwachs questioned how the rates are set for the matching Medicaid dollars from the federal government, which are used to help the state pay for health care coverage for the poorest of its citizens. He blamed lawmakers for lack of oversight on the plans, saying that while there was plenty of data, it was difficult to determine how premiums are being calculated and spent because of a lack of transparency and accountability.

"Are we going to allow the people's business to be conducted in secret?" Feinwachs said in a half-hour presentation. "Should not the people know where their dollars go?"

The state will spend about $3.3 billion on Medicaid this year, and $3.6 billion next year. At Gov. Mark Dayton's behest, Jesson last year instituted the state's first-ever competitive bidding process in the seven-county metropolitan area. She told House members she aimed to create a "third way" to address problems in the way the state contracted with plans in the past.

For the first time, some plans lost business, and more than 80,000 people on state plans are being moved to new plans.

A flashpoint came last year when the health insurer UCare gave the state $30 million in excess reserves at a time when lawmakers were facing a huge deficit and questioning whether the plans were raking in profits at the expense of taxpayers. The other plans -- Blue Cross and Blue Shield of Minnesota, Medica and HealthPartners -- joined UCare in agreeing to cap this year's profits at 1 percent.

Some at the hearing questioned whether some of that $30 million belonged to the federal government. Jesson said she told federal officials about the money but that she believes it was a donation to the state.

Rep. Steve Gottwalt, R-St. Cloud, who co-chairs the committee, which focuses on addressing financing and reform of health and human services, said he believes the investigation is coming from the Centers for Medicaid and Medicare. He favors letting the investigation play out before having state lawmakers launch a separate investigation.

"What I'd rather say is, 'Federal government, complete your investigation and give us the findings so we can take those findings and determine do we need to do something different -- enact some state policy to ensure that never happens again,'" he said.

The questions Feinwachs raised about reimbursing the federal government were an important part of Tuesday's hearing, Gottwalt said, but sparked a much-needed and broader discussion.

Gottwalt said he hopes to introduce a bipartisan bill that would require independent audits by third parties.

"It touches on a much bigger issue," Gottwalt said. "Where is the accountability where we judge how taxpayer dollars fall out of the pocket of taxpayers to where they're helping people in need? We've had that frustration at the Legislature for as long as I've been there."

Jackie Crosby • 612-673-7335