State paid $207M too much for health care Med plans' profits too healthy, report says

A long-awaited auditor's report has found that health plans serving Minnesota's poor through state contracts collected nearly $207 million more than planned between 2002 and 2011.

The excess revenue allowed the plans to post a 2.4 percent profit on that care — twice the targeted amount set by the state of 1.2 percent.

The care for Minnesotans covered by taxpayer-funded Medical Assistance and MinnesotaCare for those years gave the health plans an operating profit of $430.5 million on revenue of $18.2 billion. That profit total was $206.9 million greater than expected.

The auditors described it as "concerning" to see such a consistent pattern in which profits outpaced the plans' targeted amounts in all but two years of the period examined. In those two years, the plans lost money.

Over time, the auditors concluded, the results "should have called into question the data and/or methods being utilized."

The 113-page report by the Segal Group, released by state officials Thursday, was ordered by the Minnesota Department of Human Services in July to address persistent concerns that the rate-setting process between the state and the nonprofit health plans has been convoluted and potentially fraudulent.

While the report says premium rates set with the health plans were "actuarially sound" — a legal requirement that means insurers have collected enough premiums to offset the cost of paying doctors and other providers for care — it also highlighted problems with a process that relies on self-reporting by the health plans.

Administrative costs did not seem to be put under "any critical or diligent review," according to the report. Auditors also found problems with the analysis of historical data that led to "systematic overstatement" of cost trends.

State officials released a preliminary version of the report earlier this month, and Department of Human Services Commissioner Lucinda Jesson used it to fault former Republican Gov. Tim Pawlenty's administration for its lack of rigor in the rate-setting process.

Jesson, appointed by DFL Gov. Mark Dayton, said in a letter that the report "raises serious questions about the failure of the previous administration to take action to address high health plan profit margins."

Jesson has instituted a number of changes to try to get a firmer grip on how the health plans use state dollars. The plans agreed to a voluntary 1 percent cap on 2011 profits, resulting in about $75 million being returned to the state. The state also launched a competitive bidding process and other reforms that Jesson said have saved taxpayers "over a billion dollars compared to pre-reform projections."

The rate-setting process in Minnesota has come under scrutiny by federal investigators and has drawn fire from state and federal officials. A federal probe remains unresolved over whether the state may have set higher rates for Medicaid, the health care program for the poor that draws a federal match, to subsidize a state-paid health plan that covers single adults who didn't qualify for Medicaid.

Tina Liebling, chair of the House Health and Human Services Policy Committee, said that more information is needed on the actual costs incurred by insurers.

"We still don't have the full picture of what's been going on here, but this is a good step forward," she said.

"The real question for the state ... is whether this whole project is the best way to give medical care to our public program patients," Liebling added.

Staff writer Mary Lynn Smith contributed to this report.