For the second straight year, more than 300,000 people covered by state insurance programs will need to find a new health plan to manage their care.

Minnetonka-based Medica says it will not renew its contract as an HMO for most in the Medicaid and MinnesotaCare programs due to mounting financial losses.

The insurance company gave notice in a Nov. 30 letter that’s prompting the state Department of Human Services (DHS) to find other insurers that can fill the gap that’s coming in May.

It’s another example of health insurance upheaval following months of discord in Minnesota’s individual market, plus the promise of sweeping change at the federal level.

“Medica’s decision is going to disrupt 311,000 people on our public health care programs,” Emily Johnson Piper, the state human services commissioner, said in a Thursday interview. “I want people to know, and these 311,000 people to know, that they will absolutely not have a gap in health care coverage.”

For decades, Minnesota has hired HMOs to manage care for enrollees in the public programs, which provide coverage to lower-income Minnesotans. For 2016, the state conducted its first statewide competitive bid for the business, which resulted in Minneapolis-based UCare’s downgrade from the biggest health plan in the programs to one of the smallest.

More than 300,000 Medicaid and MinnesotaCare enrollees left UCare, with the HMO divisions at Medica and Eagan-based Blue Cross and Blue Shield of Minnesota seeing big enrollment gains as a result. But through the first nine months of 2016, both Medica and Blue Cross have reported significant losses on the business.

For the past several weeks, DHS and health plans have been negotiating payment rates for 2017. Medica argues that DHS is underpaying health plans, and thereby “risking the collapse of the entire Medicaid market,” wrote Geoff Bartsh, a Medica vice president for the nonprofit’s state public programs business, in the Medica letter.

Piper, however, argued that Medica sought payment rates far in excess of what other managed care organizations will receive next year — rates that are beyond what the federal government likely would allow.

Medicaid is jointly funded by states and the federal government, and provides coverage for many groups including people with incomes at or below the poverty line. MinnesotaCare, which covers a slightly higher-income group often described as the “working poor,” also draws federal funding.

Last month, Medica was the largest managed care organization in the programs with about 312,000 enrollees in the “families and children” contract, which covers the vast majority of program enrollees. The debate over future payment rates for health plans plays out against the backdrop of last year’s shift away from UCare, which forced the HMO to shed more than 200 jobs.

The cost component of UCare’s bid was higher than those from the Medica and Blue Cross HMOs. On Thursday, UCare again issued a statement arguing that its bid was based on its experience managing care for Medicaid enrollees over 30 years.

Asked if UCare’s bid was the better estimate of actual costs for public program enrollees — and whether the winners “bought business” by bidding too low — Piper defended the competitive bidding process, which she said is saving the state more than $1 billion over several years.

“It’s my obligation to act in the best interests of the people of Minnesota,” she said, “and not the health plans.”

In an interview, Bartsh said Medica doesn’t take its decision lightly, as the HMO has participated in the public programs since the state piloted a managed care demonstration project back in the late 1980s. In 2016, Medica expects about $1.5 billion in revenue from the contract it’s abandoning, which is more than one-quarter of the company’s overall revenue.

“We were certainly very aggressive in our bid, but we certainly weren’t irresponsible in our bid,” Bartsh said. “We would have been willing to continue to accept losses ... but the level of losses that we’re seeing is driven more by the changes in the population than anything else.”

Medica projects it will lose in excess of $150 million this year, and says it would lose another $100 million for 2017 under the rates proposed by DHS. While Bartsh said Medica is open to further negotiations, Piper said Medica’s letter is a legal notification that it will not renew its contract starting on May 1. She pledged to work on new options from other health plans. The state will give Medica enrollees notice of their options 60 days before May 1, when they’ll need a new managed care organization.

Medica will continue as an HMO for people with public program coverage due to a disability, or because they are eligible for both the Medicare and Medicaid programs. For the much larger families and children contract, Medica on May 1 will stop managing care for Medicaid enrollees in 43 counties where it currently operates, and 55 counties where it works with MinnesotaCare enrollees.

“Medica is not the exclusive option in any county,” Piper said. “No one has to switch plans until May 1.”

Medica’s dropout brings uncertainty at a time when there already are questions about what Republican control in Washington, D.C., will mean for federal funding for the state’s Medicaid and MinnesotaCare programs. Talk of market collapse by an insurer echoes what state regulators have been saying for months about the state’s individual market, where self-employed people and those not covered by an employer buy coverage.

And it’s the latest chapter in the long-running debate at the State Capitol about whether HMOs have made too much money from the public program business.

“Today’s announcement ... represents another example where Minnesotans are left to scramble for care because insurers aren’t making enough money,” said Rep. Erin Murphy, DFL-St. Paul, in a statement. “Insurers chose to bid for this business, to cover the care of hundreds of thousands of vulnerable Minnesotans and now plan to drop out to protect their bottom line.”


Twitter: @chrissnowbeck