HMO profits from state government programs more than doubled last year to about $675.8 million, a Star Tribune analysis shows, partly because enrollees required fewer health care services than expected.

The jump in operating income continued a pandemic trend of growing HMO profitability across the country due to historic enrollment expansion. Membership surged after states halted Medicaid eligibility re-determinations during the COVID-19 public health emergency.

Last year's margins in Minnesota were unusually high, however, and driven by a 10% increase in per-person revenue to the HMOs while per-person expenses grew just 4.5%, according to the Star Tribune review of regulatory filings released in April.

In 2020 and 2021, HMO profits in Minnesota were effectively capped by a "risk corridor" program that responded to COVID-19 uncertainties by limiting the financial exposure to mismatches between revenue and expense for both health plans and the state. Collective operating income for the HMOs in each of those years was less than $250 million, but the risk corridor program was not extended into 2022.

"The expectation was a return to more historical levels of health care utilization as indicated by emerging 2021 experience at the time of rate setting, as well as the possibility of pent-up demand from people who may have gone without needed care," the state Department of Human Services (DHS) said in a statement to the Star Tribune.

Payment rates in the largest of the public programs were lowered for 2023, the state said. The state programs are just one line of business for the health insurers, so the figures don't include financial results from selling Medicare health plans as well as services and coverage for employers and individuals.

Minneapolis-based UCare, the largest HMO in the state programs, recorded the highest operating income total at $276.4 million.

UnitedHealthcare — which made its debut as the first for-profit health plan in the programs — earned about $27.4 million while posting the largest operating profit margin at 14%.

UCare said it has agreed to a 5% reduction in 2023 payment rates for enrollees in pre-paid Medical Assistance, the largest of the public programs.

"2022 was an outlier year," UCare said in a statement. "The cumulative impact of three years of continuous coverage showed a shift to more healthy members due to more preventive, wellness and primary care use vs. acute care and hospitalizations."

Minnetonka-based UnitedHealthcare said in a statement: "We entered the market during an unpredictable time, with abnormally low medical costs across our small first year membership base. Our first year in Minnesota is not representative of ordinary market conditions."

About 1.3 million lower-income, elderly and disabled state residents have coverage through the Minnesota Health Care Programs, which include pre-paid Medical Assistance (Medicaid) and MinnesotaCare. For decades, the state has hired HMOs to manage care for beneficiaries in the programs as well as certain government-sponsored health plans that are owned and operated by counties in Minnesota.

In 2022, the collective operating income — a measure of profitability — for six HMOs was about $675.8 million, according to the Star Tribune analysis. That was up about 181% from $240.9 million across five HMOs with contracts the previous year.

Last year's earnings came on a revenue base of about $10.46 billion for a collective margin of about 6.5% — significantly higher than what the HMOs typically see.

The state hiked revenue to health plans last year, DHS said, to pay for better medical service reimbursements at Hennepin Healthcare as well as benefits mandated by the Legislature including an "increase in dental rates and services, expansion of telehealth services and increase in housing stabilization services."

Factoring results over the past five years — a time period that includes losses in 2019 — annual operating margins at nonprofit HMOs have averaged roughly 2%, according to the Minnesota Council of Health Plans. The trade group said 2022 margins for its member plans "are being invested in efforts to support Minnesotans during the unwinding of [public health emergency] policies."

Minnesota's results were unusual last year, said Ryan Wolfe of Mark Farrah Associates, a Pennsylvania firm that tracks data on health insurer financial performance.

"Minnesota Medicaid plans were slightly less profitable than the national average pre-pandemic," Wolfe said. "For 2020 and 2021, profitability improved in line with the rest of the country. In 2022, Minnesota Medicaid plan profitability jumped ahead of the national average."

Bloomington-based HealthPartners reported operating income of about $157 million from the public programs while the HMO at Eagan-based Blue Cross and Blue Shield of Minnesota saw a gain of about $140 million. Both insurers say they're taking rate cuts for 2023.

While the risk corridors program was not in place last year to cap profits, health plans were required to maintain a medical loss ratio of 85%. That means the HMOs had to spend at least 85% of premiums on health care services and other qualifying expenses.

Considering this regulation, filings suggest that UnitedHealthcare could be repaying some of its profit to the state; the company, however, said figures won't be finalized for several months.

Last year was a landmark for the public programs in Minnesota; it marked the first time that a for-profit HMO held a contract to manage care in the state programs. Previously, the business was reserved solely for non-profit HMOs as well as the county-based purchasing groups.

Operating income last year grew to $51.9 million at Medica Health Plans and $23.4 million at Hennepin Health. County-based purchasers saw underwriting gains jump from $15.8 million in 2021 to $54.5 million last year.

People enrolled in Medical Assistance and MinnesotaCare usually must have their eligibility reviewed once a year, but these renewals stopped during the pandemic. As a result, about 360,000 more people signed up for Medical Assistance and MinnesotaCare, the Department of Human Services says, which was an increase of more than 30%.

Like other states, Minnesota is beginning this spring to ask Medicaid beneficiaries to resume eligibility verifications for coverage.