UCare is slashing more than one-quarter of its workforce, including layoffs for 200 people and job cuts that affect another 45.

The moves the Minneapolis-based insurer announced Monday follow a state decision this summer to drop UCare next year as a managed care option for most in the Medical Assistance and MinnesotaCare health insurance programs.

The state contract accounted for about half of UCare's $3 billion in revenue last year. UCare sued the state in August to retain a portion of the business, but it announced last week it was abandoning the legal fight.

While UCare is shifting focus to its large remaining business selling policies to Medicare beneficiaries, plus customers in a few other markets, company officials have telegraphed that losing the state contract would force big job cuts.

"Every UCare employee is a valued employee," UCare chief executive Jim Eppel said in a statement. "This has been a very difficult process for all of us across the organization."

UCare currently employs 833 people, so the layoffs and voluntary severance agreements will reduce the workforce by about 29 percent to 580 to 590 full-time employees. UCare expects to move forward with a staff of roughly that size for 2016.

In addition, there have been about 100 jobs at UCare that have gone unfilled in 2015 or were handled by temporary workers. Those positions won't be filled moving forward, company spokeswoman Wendy Wicks said.

"We are supporting departing staff over the next three months or longer with services such as outplacement help, workshops and time off for job searching," Eppel said. "Resources that support employees remaining with us for 2016 also will available as we restructure UCare for the future."

Without the contract, UCare will lose 350,000 clients that the HMO currently covers in state programs. Medical Assistance is the state's name for the state-federal Medicaid program, which covers people who are near or below the poverty line. MinnesotaCare provides health insurance to a slightly higher income group.

For years, Minnesota has hired HMOs to manage care for most people with coverage through the programs. UCare, in fact, was created in the 1980s with the sole purpose of managing care for enrollees in the programs, although it has since diversified into other markets.

Following concerns that contracts had become too lucrative for insurers, Gov. Mark Dayton's administration initiated competitive bids for the work about four years ago, with smaller numbers of enrollees having to shift plans as a result. The bids in 2016 were the first for statewide contracts, so the impact is much larger.

The state Department of Human Services (DHS) says state and federal taxpayers should save $450 million, as a result. But scoring of competitive bids gave more weight to the quality of services provided by competing health plans, DHS says, than to the cost of services.

UCare sued the state in August saying it couldn't get answers about why the HMO — currently the largest in the state programs — is being dropped. The state has not released specifics about the bids, saying the information is confidential until contracts are finalized.

Job cuts at UCare go against the general trend among health insurers. The industry has been adding jobs for decades, and there are signs the trend has accelerated with the federal Affordable Care Act.

Earlier this month, Minnetonka-based UnitedHealth Group announced it was adding 1,700 positions in the Twin Cities in the next six months, with plans for additional hiring in Duluth and for "telecommuting" positions.

"Health insurance jobs have been growing an average of about 4 percent a year since 2011, while jobs in the rest of the economy have been growing at 1.5 percent to 2 percent per year," said Ani Turner of Altarum Institute, a health policy group, in a statement. "It would be hard to believe that millions of people gaining insurance coverage since 2013, both from [the Affordable Care Act] and the increase in employment, hasn't had an impact on hiring."

UCare will continue to sell health insurance policies to Medicare beneficiaries and individuals buying through the MNsure exchange. It also will continue to have a state contract to provide insurance for certain special populations within the public health insurance programs.

Plus, the insurer will continue to work with individuals and the families portion of MinnesotaCare and Medical Assistance in Olmsted County.

Altogether, UCare expects health plan membership next year of about 135,000 people. Currently, about 500,000 have UCare coverage.

Christopher Snowbeck • 612-673-4744

Twitter: @chrissnowbeck