Health plan cap raises new questions

  • Updated: April 7, 2011 - 12:44 PM

Will state see any money, and what did plans get in return?

Gov. Mark Dayton
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Gov. Mark Dayton

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Star Tribune Editorial

Gov. Mark Dayton has waged an admirable crusade to wring savings from the management of state medical programs by Minnesota's nonprofit health insurers. But his latest announcement -- an agreement to cap the four largest plans' 2011 public program profits -- deserves to be greeted with healthy dose of skepticism.

The Minnesota nonprofits had 2010 operating margins of 3.84 percent of revenue on state programs -- or $130.8 million. That figure was the highest in six years, though it should be noted that the plans do not make money on state programs every year. The 10-year average operating margin is 1.77 percent of revenue.

Although the Dayton agreement sounds promising, it's uncertain if any money will flow back into state coffers because of the one-time, 1 percent of revenue cap in place for 2011 for Medica, HealthPartners, Blue Cross Blue Shield and UCare.

Instead of continuing his push to have the plans follow UCare's lead in giving back $30 million from 2010 profits, the governor is giving the remaining three plans a pass on making a "donation" this year and waiting to see how 2011 plays out.

Health and Human Services Commissioner Lucinda Jesson said Wednesday that the Dayton administration simply didn't have the "leverage" with the three remaining plans to call for a UCare-like contribution this year, but did have enough clout to negotiate the cap.

Legislative cutbacks and the Medicaid expansion mean that all bets are off on the plans' 2011 financial performance. They could wind up giving back millions or nothing at all. Jesson said the plans would have returned about $85 million if the agreement had been in place for 2010, but she acknowledged that 2011 is "a large question mark.''

The plans this week declined to project 2011 profits. During a Tuesday meeting with the Star Tribune, Blue Cross Blue Shield of Minnesota CEO Pat Geraghty expressed doubt that his organization would exceed the 1 percent cap this year.

On Wednesday, a Blue Cross spokeswoman said Geraghty was just trying to explain how results can vary year-to-year and that it would be inaccurate to say he was predicting this year's results.

A letter from Geraghty to Dayton this week raises questions about what the plans thought they got in return for agreeing to the profit cap. The letter said Blue Cross accepted the cap proposal and wanted to confirm several points from a meeting with Dayton and Jesson. Among them: "You have agreed no attempt will be supported by your administration to reduce health plan reserves ..."

Reserves are funds the plans are required to set aside to make sure they can cover claims during an extreme event, such as a pandemic. In 2010, the four large plans had $1.5 billion in total reserves. Some health care activists charge that the plans hold too much in reserve, though the plans say the levels are within industry norms.

Jesson said the only firm agreement is that the state's 2011 contracts will be amended to include the cap. She said Dayton never promised nor implied a veto of a bill going after reserves. Instead, Dayton said only that he wouldn't go after the reserves, but added that he couldn't guarantee what the Republican-dominated Legislature might do.

So far, there doesn't appear to be any serious attempt by lawmakers to target plan reserves. However, the concern Geraghty conveyed in his letter to Dayton suggests that the administration may have had more leverage than it thought in asking for 2010 donations.

Republican lawmakers such as State Sen. Sean Nienow, R-Cambridge, are already asking hard questions about the value of the profit caps and exploring how the plans are paid by the state. This week's agreement is an excellent starting point.

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  • DETAILS NEEDED

    "I am perfectly happy to ask the plans hard questions and get answers. ... Right now everybody is wanting to avoid answering the questions and, seemingly, avoid the Legislature.''

    State Sen. Sean Nienow, R-Cambridge

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Gov. Mark Dayton