The business of managing care for lower-income Minnesotans has become less profitable for health plans, with one insurer arguing that low payment rates from the state this year have overcorrected the big profits of 2015.

Through the first three quarters of 2016, the HMO divisions at Minnetonka-based Medica and Eagan-based Blue Cross and Blue Shield of Minnesota posted a combined loss of about $195 million, according to a Star Tribune analysis of regulatory filings released this month.

Medica and Blue Cross were the big winners in terms of enrollment when the state dramatically downsized Minneapolis-based UCare's position for 2016 as a managed care organization in the largest chunk of state public programs.

Last year, health insurers in Minnesota and other states saw lots of operating income from the Medicaid business, where enrollment has grown under the federal Affordable Care Act.

"The market greatly overcorrected, which is creating the situation where we have the losses that we do," said Geoff Bartsh, the vice president and general manager for state public programs at Medica. "The payments to the plans from the state are nowhere near adequate to cover the costs of the program."

The state-federal Medicaid program provides health insurance for a variety of groups, but primarily serves people with incomes at or below the poverty line. MinnesotaCare covers a slightly higher income group often described as the "working poor."

For decades, Minnesota has hired HMOs to manage care for most enrollees in the programs. HMO profits on the business have generated controversy over the years, with some arguing the health plans make too much money.

The state Department of Human Services (DHS) administers the health insurance programs, and said the 2016 rates were set through competitive bids. Minnesota was one of 32 states and the District of Columbia that opted to expand eligibility for Medicaid as part of the federal health law.

"The final rates for 2016 were reviewed by DHS in consultation with our actuaries, and were agreed to and certified by the [managed care organizations]," the department said in a statement. "We are currently in contract negotiations with the plans for 2017, so we can't discuss 2017 rates at this point."

Last year's competitive bid focused on the "families and children" portion of state public programs.

It was a high-profile affair, since it resulted in UCare going from the biggest health plan to the smallest among four HMOs included in the contract. The nonprofit insurer lost more than 300,000 enrollees as a result, and eliminated more than 200 jobs.

Late last year, state officials released documents showing that UCare's bid was higher on price than competing bids from the HMOs at Medica and Blue Cross, which both saw big enrollment gains starting in January.

In a statement Monday, UCare officials said: "Our 2016 ... cost bids reflected over 30 years of experience serving member needs of these important programs.

UCare continues to stand behind these figures."

Asked if UCare's bid was closer to the mark than those from the winners, DHS said on Monday: "Since they had different assumptions and mechanisms for managing cost and their ability to achieve assumed efficiencies, DHS would not say one plan's bid was right or not."

Regulatory filings this month show the Blue Cross and Medica HMOs lost a combined $195 million on $3.1 billion in premium revenue, for a minus-6 percent operating margin during the first nine months of the year.

The HMO divisions at Medica and Blue Cross consist primarily, but not entirely, of managing care for the state's Medicaid and MinnesotaCare health insurance programs.

"Through September, we're running a deficit of approximately $90 million," Blue Cross said in a statement. The company's HMO, called Blue Plus, is "experiencing higher than-expected medical trend throughout the year, driven by the under-65 population in state Medicaid."

Current payment rates were set based on spending trends in 2014, Bartsh said, but the mix of enrollees has changed over the last few years, particularly as the state has improved its process for renewing enrollees.

Another factor, he said, is that new Medicaid enrollees seem to be using more care as they learn about the breadth of their benefits.

"The losses this year for Medica are significant," Bartsh said. "As we project what our losses will be at year-end, we'll be in a position where over the last five or six years combined, we're losing money on the business."

Bartsh said he could not comment on contract negotiations for 2017.

In its statement, Blue Cross said that while health plans expect a rate increase next year, "we do not expect it will be enough to cover the high trends and increased population risk."

DHS said it continues to monitor changes in eligibility and take such changes into consideration when it's appropriate.

"The plans' bids were based on 2014 data; therefore, any renewals or other eligibility changes that occurred in 2015 would not be included in the base for the 2017 rates," the department said in a statement. "Renewals or other effort to clean up eligibility could both increase and decrease the number of people covered."

A Star Tribune analysis earlier this year found that for 2015, HMOs in the public programs collectively saw operating income of $265.8 million on $4 billion in premium revenue, for a profit margin of 6.6 percent.

The analysis included profits for Blue Cross, Medica, UCare and Bloomington-based HealthPartners, and looked solely at operating income from Medicaid and MinnesotaCare.

UCare posted the biggest chunk of income from the programs, with an operating profit of $135.7 million. Overall, HMOs in Minnesota saw a record amount of profit for 2015, said Allan Baumgarten, an independent health care analyst in St. Louis Park.

HMOs in Michigan also posted big profits for 2015, Baumgarten said, and have seen smaller profits — but not losses — with new contacts for 2016.

Christopher Snowbeck • 612-673-4744

Twitter: @chrissnowbeck