The parent company of Blue Cross and Blue Shield of Minnesota saw its operating profit drop 40% last year due to higher medical costs and shrinking Medicaid enrollment, two factors that have trimmed earnings for many health insurers.

The managed care business for Medicaid, which is the state-federal insurance program for lower-income residents, is shrinking with the resumption of eligibility re-determinations that were paused during the pandemic.

Meanwhile, health insurers say costs have been making a comeback after depressed use of medical services with the pandemic helped drive a string of profitable years for carriers.

"Our Medicare Advantage cost trends have faced the same headwinds felt across the industry," Blue Cross said in a statement to the Star Tribune.

Eagan-based Aware Integrated Inc., the Blue Cross parent company, reported in a news release this spring that income from operations last year came in at $103.7 million. This was a decline from the previous year's operating profit of $173.2 million, as calculated from the company's audited financial statement.

Aware Integrated has provided financial statements for several years, but did not for 2023 due to competitive concerns.

The Star Tribune uses the term "profit" to describe earnings at the state's largest nonprofit groups, reflecting the significant capacity of these organizations to make money. Funds typically are re-invested in nonprofit operations, whereas for-profit companies generally make at least some earnings available to outside investors.

With about 3,000 employees and more than $8 billion in revenue, Blue Cross and Blue Shield of Minnesota is the state's largest nonprofit health plan. It's also the third largest nonprofit group in the state behind Mayo Clinic and HealthPartners. Minnesota also is home to UnitedHealthcare, a for-profit carrier that is the nation's largest health insurer.

Distinctions between for-profit and nonprofit health plans have been a recurring source of questions at the Minnesota Legislature, where lawmakers in May made changes that effectively re-instated a long-standing ban on for-profits winning Medicaid managed care contracts. This business generated record profits for health insurers in Minnesota during 2022.

State regulatory filings recently disclosed that in February 2023, the U.S. Department of Justice issued a civil investigative demand under the False Claims Act to determine whether Medicare Cost plans at Blue Cross properly coordinated benefits as required by the Medicare Secondary Payer Act. This law prohibits Medicare from making payment on a claim that could reasonably be expected to be covered by another insurer.

"The company believes that it is probable that a corrective payment will be made to the federal government at some future time; however, the ultimate outcome cannot be presently determined," Blue Cross of Minnesota said in the regulatory filing.

In a statement to the Star Tribune, the health insurer said the issue dates back to 2013 and is focused on a narrow range of years.

"Our current leadership team is working cooperatively with DOJ," the company said, "and is optimistic about the prospect of resolving this matter in the near future."