Legislators are already considering what lessons should be learned from a state contract decision that could prompt 475,000 people in public insurance programs to switch health plans for next year.

Legislators at a state Senate hearing last week were clearly riled about a process that is expected to generate $450 million in taxpayer savings, but is shaking up the list of managed care organizations in the Medicaid and MinnesotaCare programs.

Minneapolis-based UCare would be ousted from the biggest portion of the programs, forcing about 369,000 enrollees to find a new health plan by January.

The HMO generated about half of its $3 billion in revenue last year from the programs, and UCare officials say hundreds of jobs could be lost.

In addition, a county-based purchasing organization called South Country Health Alliance would see its service area cut so dramatically that officials with the governmental agency say it might not survive.

In an interview, Sen. Tony Lourey, DFL-Kerrick, said he wasn't ready to give up on competitive bidding but said the state might want to give more weight to the potential for disruption when scoring future bids.

"As a Legislature, we did instruct the administration to do this," Lourey said. "I'm not particularly pleased with the result."

Sen. Michelle Benson, a Republican from Ham Lake, offered a similar assessment.

"I think if we do another round of this, there will be questions [to health plans] about: How do you value diversity? How do you meet the needs of new immigrant communities? How much churning will be involved if you're awarded this bid?" Benson said in an interview. "We have learned a very hard lesson."

Gov. Mark Dayton's administration has stood by its process in the face not only of legislators' questions, but also a lawsuit last week filed by UCare. The company's request for a temporary injunction to block the new contracts is scheduled for a hearing Friday in Ramsey County District Court.

At a state Senate committee hearing on Aug. 18, human services Commissioner Lucinda Jesson argued that competitive bidding is an important tool "to drive not just for cost savings, but to drive for value and to help address some of the gaps we have overall with the health care system."

Minnesota hires HMOs and county-based purchasing organizations to manage care for people covered by the Medicaid and MinnesotaCare programs. Collectively, the programs cover just over 1 million Minnesotans, with more than 800,000 covered through managed care.

In July, Dayton announced preliminary results from statewide competitive bids on the biggest part of the programs — coverages for individuals, families and children.

Contract changes mean that more than half those enrolled in managed care plans will need to move to a new plan, which is by far the largest such shift since the state moved to competitive bidding about four years ago.

Enrollment moved up

Bids were scored with a greater weight given to the quality of service provided by health plans than the cost of bids submitted, state officials have said. But specific scores for competing health plan bids won't be made public until this fall, when final contracts are expected to be signed.

The Dayton administration moved to competitive bidding following concerns that HMOs, in particular, were making too much money off state public programs.

In preparation for the big transition ahead, the state Department of Human Services (DHS) moved up open enrollment to September so there's more time to help enrollees.

Legislators, however, say they're worried that state and county human services workers will struggle with the task as they try to administer public health insurance programs with the troubled MNsure IT system.

"I am unwilling to accept any guarantees at this time that re-enrollment will go smooth," wrote Sen. Terri Bonoff, DFL-Minnetonka, in a letter distributed to the Senate committee.

"This decision places a great burden on my constituents and the county," wrote Sen. Carla Nelson, R-Rochester, in a separate letter.

Less competition

At a news conference last week at the Capitol, UCare chief executive Jim Eppel said his company — which is still a Medicare health plan — won't bid on the public program business in the future, because it would be impossible for the HMO to compete, having dismantled its Medicaid operation.

The threat of losing UCare as a bidder on future contracts is worrisome, said Sen. Chris Eaton, DFL-Brooklyn Center. While UCare is the largest HMO in terms of public program enrollment, it is small in terms of revenue across all lines of business.

"The larger companies can take a loss in revenue and survive," Eaton said during the Senate committee hearing. "Eventually, what you end up with is the big providers telling us what they're willing to pay and willing to provide, because there won't be any competition."

Jesson responded that the DHS did not set out to eliminate any one health plan, but was simply scoring bids according to established criteria. Jesson said that while she understood concerns about the future of the marketplace, the state must stand by the bidding results.

"If we have competitive bids and then we say 'Well, we're not going to follow the results of that bid, and we're going to make exceptions,' then that changes the incentives," Jesson said.

Such a move would weaken future bids, Jesson told the committee last week, because HMOs would think: "Well, I don't have to step in and give my best bid, I can just step in and give it later."

Twitter: @chrissnowbeck