UCare gives $30 million to help state budget

A large Minnesota health insurance company is writing a $30 million check to help chip away at the state's $5 billion projected budget deficit.

The unusual donation by UCare was lavishly praised Wednesday by Gov. Mark Dayton, though it amounts to less than 1 percent of the budget gap state officials are trying to close.

But Dayton is not stopping with a thank-you to UCare. He wants the state's other health insurers to kick in, too.

"I call on the other health plans operating in our public insurance programs to follow UCare's example, to step up and be part of the solution," Dayton said in a statement.

Dayton said they would be taking into account consideration of their plans' past and present earnings on government programs and reserve levels. Contributions from vendors, Dayton said in the statement, was one way of "achieving this critical cost-savings during tough budget times."

UCare President and CEO Nancy Feldman said "UCare is making this contribution now because we feel it is the right thing to do, especially in light of the state's severe budget deficit."

Blue Cross Blue Shield of Minnesota, Medica and HealthPartners offered a muted reaction to UCare's voluntary contribution, saying the financial situation of each organization is unique. All said they were committed to working with the state on its budget issues.

Medica spokesman Larry Bussey said the organization is "open and giving it some thought. All along we've recognized the state has fiscal issues to deal with, and we certainly want to do our part," he said. Public programs make up a fifth of Medica's business.

Blue Cross Blue Shield, the state's largest insurer, said in a statement that over the past five years, it is averaging a 0.9 percent loss on public programs.

HealthPartners said it posted $16 million in revenues on public programs, with an ultimate profit margin of 5 to 6 percent.

UCare's is not the first donation to state coffers by a health plan, but it may be among the largest.

In 2003, Medica returned $80 million in excess reserves to its members, including $19 million to the state treasury.

Michael Scandrett, former executive director of the Minnesota Council of Health Plans and a lobbyist for low-income and disabled Minnesotans, said he'd never seen such a large donation to the state.

In an e-mail, Scandrett said he suspects UCare might be making this move now "because they have been caught up in the anti-HMO firestorm at the State Capitol and are trying to remind people that they are unique among the private health plans."

UCare is a nonprofit organization created by the University of Minnesota's Medical School that provides coverage to 200,000 members in Minnesota and western Wisconsin. It serves only low-income people and those with special needs on public health programs and Medicare recipients. It does not provide private commercial insurance coverage.

"Their primary source of revenue is government, and they have a strong interest in ensuring that state health care programs are viable and adequately funded," Scandrett said. "Other insurers have private insurance business they can rely on if payments from government programs decline."

UCare said it was overpaid because of changes last year in state medical assistance programs, and that it has since lowered its rates. The donation to the state comes from the company's cash reserves and is based on UCare's earnings above expenses from its management of state public program health care. It did not include Medicare money, the company said.

TakeAction Minnesota, a liberal advocacy coalition, said the donation proves that the state's four biggest health care plans "have financial reserves far in excess of what is needed for insurance solvency -- over $600 million in excess."

Spending on health care and human services, second only to K-12 education in the budget, is an inviting target for officials trying to stanch the gusher of red ink flooding Minnesota's budget.

Republican leaders in the House and Senate have proposed cuts much larger than those put forward by Dayton.

Legislators are considering a proposal to cut health plans' reimbursement by 10 percent -- about $400 million. That measure is in an omnibus health and human services spending bill outlined Wednesday by chief sponsor Rep. Jim Abeler, R-Anoka.

Abeler, chairman of the health and human services finance committee, said he was getting close to his committee's target of cutting projected spending by $1.6 billion over two years. "I'm about $30 million short -- thank you, UCare," he said.

Together, the state's 12 HMOs earned $103.1 million in net income in 2009 from Minnesota's health care programs.

State government business is often more profitable than that from private insurance. In 2009, the average HMO profit margin for state health plans was 4.1 percent, compared with 1.6 percent for commercial business, according to a Star Tribune analysis.

Staff writer Warren Wolfe contributed to this report. vonste@startribune.com • 651-222-0973 jcrosby@startribune.com • 612-673-7335