UCare dropping lawsuit over Minnesota state health insurance contract

UCare is giving up on a lawsuit that sought to restore the HMO as an option for thousands in the state's public health insurance programs.

With the decision announced Friday, attention now shifts to about 350,000 lower-income enrollees who must switch their coverage from the Minneapolis-based HMO to a new health plan by year's end.

UCare, meanwhile, is likely to make significant cuts to its workforce, while competing health insurers prepare for more business from the state's MinnesotaCare and Medical Assistance programs.

In a statement Friday, UCare said it filed its August lawsuit as a "last resort" because it couldn't get answers from the state about why the HMO — currently the largest in the state programs — is being dropped.

"We continue to have legitimate questions and serious concerns about the procurement process," the insurer said. "We have decided to withdraw from litigation in the interests of allowing MinnesotaCare and [Medical Assistance] enrollees to go forward with their 2016 health plan selections without further delays or confusion."

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.

The bid for the 2016 contract, however, is the first time that contracts are being awarded statewide, so the impact is much larger. The state Department of Human Services says state and federal taxpayers should save $450 million, as a result.

While the savings are significant, DHS has said the scoring of competitive bids gave more weight to the quality of services provided by competing health plans than to the cost of their services.

"We appreciate that UCare recognized it's time to move forward," DHS Commissioner Lucinda Jesson said in a statement on Friday. "We believe the competitive bidding process was both fair and consistent with the law, and that it will bring the best value for our enrollees."

The state has not released specifics about the bids, or about the scores assigned to proposals from different health plans, saying the information is confidential until contracts are finalized. On Friday, DHS said contracts could be finished by the end of October.

In the meantime, the state and counties have been notifying UCare enrollees that they'll need to pick a new plan for 2016. No one will lose coverage through the process, state officials say. If an enrollee fails to select a new plan, he or she will be assigned to a default health plan that's established in each county.

"If they think they don't have coverage, then they'll make decisions based on that belief," said Ralonda Mason, an attorney with Mid-Minnesota Legal Aid in St. Cloud. "They'll forgo going to the doctor. They'll not get prescriptions filled. They'll think they can't afford the medical care they need."

Most HMOs have similar networks of doctors and hospitals, but there can be gaps. State and county officials have said they will work with enrollees to either prevent or manage situations where people must change health care providers.

UCare's lawsuit against the state was not scheduled to go to trial until November. Considering the timeline, the decision to halt the lawsuit isn't surprising, said Allan Baumgarten, an independent health care analyst in St. Louis Park.

"Everything's already in motion," Baumgarten said. "If the state had to make it's case, it would say: We're so far along in the process now, that our damages would exceed UCare's damages."

Earlier this month, the state announced the results of a county-level appeal process that will give UCare a chance at retaining some enrollees in Olmsted County. The HMO also continues to have a contract for state public programs aimed at certain special populations.

"That, presumably, becomes their number one focus," Baumgarten said.

In 2014, the contract for families and individuals in the public programs accounted for about half of UCare's $3 billion in revenue. UCare chief executive Jim Eppel said this summer that without the contract, the HMO could be forced to cut about half its 900-person workforce.

The statement released Friday did not address any impact on the workforce at UCare.

Minnetonka-based Medica expects to gain more than 100,000 enrollees with the new contract. Eagan-based Blue Cross and Blue Shield of Minnesota and Bloomington-based HealthPartners expect to gain membership, too.

"We continue to move forward on this work in order to ensure the smoothest possible transition of membership from other HMOs," Blue Cross said in a statement.

Christopher Snowbeck • 612-673-4744