In a recent editorial, the Star Tribune called attention to the issue of health plan reserves ("UCare donation raises questions," March 20) but came to the wrong conclusion.

UCare, a major Minnesota nonprofit provider of health care to public recipients, should be commended for its offer to make a $30 million contribution to the state treasury to help offset Minnesota's severe budget deficit.

Minnesota health care plan reserves are a complicated subject that needs explanation. First, it is misleading for the Star Tribune to use the term "minimum" as a measure to determine if a plan's reserve levels are excessive.

Under Minnesota's system to regulate health insurers' reserves, a health plan operating at the minimum level of reserves would trigger regulatory intervention and would be required to submit a corrective action plan to the state Department of Commerce.

Financially stable health plans are expected to maintain reserves well above the level the Star Tribune refers to as the minimum.

For example, while UCare reserves exceed the "minimum" required level, the $246 million in reserves cited in the editorial is enough to cover only about two months' worth of medical expenses.

This means, in the event of a government shutdown, a major public health event or medical emergency, UCare could continue to pay doctor, clinic and hospital claims for only 60 days until its reserves hit zero.

By any measure of financial accountability, having two months of capital in reserve is considered prudent, not excessive, and most small business owners understand this requirement.

People with good memories will remember that legislators enacted reserve requirements at a time when some health plans struggled with financial issues that put payments to hospitals, clinics and doctors at risk.

Second, the Star Tribune indicated that the state is too reliant on how much health plans say they need when awarding managed-care contracts. But that is not how payments to health plans are determined.

The Department of Human Services sets payments based on federal regulations that take into account the expected use of services and anticipated costs as well as the age, gender, locality and health status of the Medicaid members.

Further, the state's calculation must be certified by an independent actuary and submitted for approval to the federal Centers for Medicare and Medicaid Services.

This process for determining actuarially sound rates is a protection for consumers so that the state doesn't set rates so artificially low as to make it difficult for doctors, clinics and hospitals to remain in the program and jeopardize low-income Minnesotans' access to medical services.

Although DHS makes its best effort to forecast health plan payments, unforeseen factors can intervene and skew the best estimates. Such was the case in 2010. The Medical Assistance program experienced a much higher enrollment than anticipated because of the slow economic recovery and high unemployment.

New enrollees who were previously enrolled in private insurance were healthier and thus didn't seek care or visit emergency rooms as much as was estimated.

Also, when General Assistance Medical Care was moved out of managed care in July 2010, Medical Assistance rates were not lowered to reflect this overpayment.

The result was that UCare's revenues minus expenses for state programs exceeded the target set by DHS.

Finally, the Star Tribune asked whether Minnesota's nonprofit insurers are part of the solution or part of the problem.

UCare's decision to make a contribution to the state was based on an organization striving to be a good financial steward for the government funding it receives.

Also, as part of the announcement of the contribution, UCare shared with Department of Human Services Commissioner Lucinda Jesson and legislative leaders a proposal that would minimize the volatility in gains and losses in the state public program contracts and allow opportunities for the state to share in savings.

This concept is called a "risk corridor," and it would allow the state and health care providers to benefit from health plan efficiencies and cost savings, and motivate health care providers to help manage the total cost of care.

By proactively offering both a $30 million contribution and a proposal to prevent situations like this from occurring in the future, UCare demonstrated that it is both a good-faith partner with the state and an important part of the state deficit solution. Gov. Mark Dayton and legislators were right in commending UCare for its proposals.

Jay Kiedrowski served as Minnesota finance commissioner and is a member of the UCare board of directors. Bert McKasy served as Minnesota commerce commissioner and as a member of the Minnesota House of Representatives and is a member of UCare's Senior Member Advisory Committee.