Last year's return to profitability for Minnesota's nonprofit health insurers included smaller losses from the state's biggest contract in the Medicaid and MinnesotaCare health insurance programs.
The business generates more than $3 billion in annual revenue for HMOs, which for decades have served as managed-care organizations in the state's health care programs for lower-income residents.
The financial improvement in 2017 for insurers comes amid hints that for-profit HMOs such as Minnetonka-based UnitedHealthcare might for the first time compete for the Minnesota public program business over the next year or so.
The latest numbers suggest big losses in 2016 were "a one-year blip in a decadelong or longer record of strong profitability for the Minnesota HMOs contracting with the state," said Allan Baumgarten, an independent health care analyst in St. Louis Park.
But Jim Schowalter, chief executive of the Minnesota Council of Health Plans, said the 2017 improvement looks bigger than it actually was because some insurers accounted for some of last year's losses in advance, and recorded them in their 2016 results.
As opposed to a one-year blip, Schowalter said: "I think 2016 was a learning year — a low point that both the [health plans and state] are learning from and trying to get to a sustainable place, so that enrollees can count on the same care and the same providers every year."
In April, the Minnesota Council of Health Plans reported that the state's seven nonprofit health insurers collectively posted in 2017 net income of $307.9 million on $27.6 billion in revenue, for a profit margin of about 1.1 percent. The trade group noted the results marked a turnaround from the two previous years, when the seven carriers collectively lost money on operations.
A big part of the improvement came in the market where individuals buy health insurance, which has generated considerable losses for insurers since major Affordable Care Act changes kicked in during 2014. But there also was financial improvement for carriers from the state contract for managing care in MinnesotaCare and the largest chunk of Medicaid, which is called the Prepaid Medical Assistance Program (PMAP).
A Star Tribune analysis of regulatory filings shows that in 2016, the four largest nonprofit HMOs in the state collectively lost $344.7 million on PMAP and MinnesotaCare. The collective loss shrank last year to $53.7 million for the four health plans — Blue Cross and Blue Shield of Minnesota, HealthPartners, Medica and UCare.
"They didn't lose as much in public programs," Schowalter said of the 2017 results, although the trade group says the collective loss from PMAP and MinnesotaCare last year was $146 million.
Over the years, HMO profits on the Medicaid business have been controversial at the State Capitol, with some lawmakers arguing that insurers have made too much money on the state contract.
State caps profits
For 2018, the state is capping profits, but for a somewhat different reason than a cap in 2011, said Marie Zimmerman, the state's Medicaid director. DHS is increasing payment rates to the health plans by 6.4 percent in PMAP and 9.3 percent in MinnesotaCare, but is concerned because some costs in the "fee-for-service" portion of Medicaid are increasing at a lower rate, Zimmerman said.
The goal for the cap is to make sure "that those dollars are going to the medical expenses, and they're not going into excess health plan profits," Zimmerman said.
In early 2017, state lawmakers eliminated a 40-year ban on for-profit HMOs that had effectively reserved the state government's public programs for Minnesota's nonprofit carriers. Since that happened, DHS officials said they met once last year with officials from St. Louis-based Centene Corp. and twice over the past year or so with officials from UnitedHealthcare. Both companies are for-profit insurers with big Medicaid HMOs in other states.
In late 2017, UnitedHealthcare applied for an HMO license in Minnesota, according to the Minnesota Department of Health. This spring, UnitedHealthcare hired Shannon Mayer, who had been chief executive at Hennepin Health, the smallest Minnesota-based nonprofit HMO.
A department within Hennepin County government, Hennepin Health last year reported $186 million in PMAP premium revenue.
Mayer's work "is focused on initiatives to better serve people across many states," said Tyler Mason, a UnitedHealth Group spokesman, via e-mail. "It is common practice to have ongoing discussions and share best practices with many states as they seek options and approaches for individuals in Medicaid programs."
Minnesota expects to issue its next request for proposals from potential managed care vendors in PMAP and MinnesotaCare early next year, for operating in the Twin Cities metro in 2020. DHS is proposing to change the contract with managed care organizations while also allowing direct contracts with health care providers.
Minnetonka-based Medica cut its losses by dropping out of the state contract at the end of April 2017. Eagan-based Blue Cross and Minneapolis-based UCare were eligible for transition payments from the state for enrolling their portion of the roughly 300,000 Medica enrollees who needed a new managed care organization.
Bloomington-based HealthPartners also was eligible for transition payments last year, and all HMOs operating in the southern portion of the state were paid at a higher rate following Medica's departure. Yet HealthPartners differed from the other three health plans in seeing more red ink last year from the Medicaid contract.
Blue Cross, which is the state's largest nonprofit insurer, said in a statement that it lost less on the Medicaid business in 2017 because of "focused efforts to drive operational efficiencies while ensuring that members get the care they need." Beyond the state programs, Blue Cross sells coverage for employer groups, individuals and people who qualify for Medicare.
Across all lines of business, Blue Cross reported net income for 2017 of $50 million on $12.48 billion in revenue, for a profit margin of 0.4 percent. The results were worse than 2016 when Blue Cross reported net income of $104 million on $12.09 billion in revenue, for a profit margin of 0.9 percent.
Across all lines of business, Medica in 2017 posted net income of $146.9 million on $3.72 billion in revenue, for a profit margin of 3.9 percent. In 2016, Medica saw its worst financial performance ever, with a loss of $250.9 million on $4.52 billion in revenue.
One reason Medica's numbers on Medicaid look better for 2017 is that the health insurer the previous year established a $55 million reserve to cover expected losses before dropping the contract.
UCare's Medicaid numbers also improved due in part to a reserve created in 2016. The HMO added 230,000 enrollees during 2017 by making a big return to the Medicaid and MinnesotaCare contracts. For 2016, competitive bidding results meant that UCare lost about 300,000 enrollees in the programs.
UCare last year saw net income of $86.7 million on $1.25 billion in revenue, for a profit margin of 6.9 percent. That was a "financial turnaround," officials said, compared with 2016 when UCare lost $25 million on $1.69 billion in revenue.