UCare is returning in a big way to Minnesota's public health insurance programs, state officials said Thursday, as they described a plan including $34 million in extra spending to fill health plan gaps due to an upcoming pullback by Minnetonka-based Medica.

The state Department of Human Services (DHS) said Minneapolis-based UCare will pick up most of the 55 counties being vacated in May by Medica, which announced last year that it would stop serving as a managed care organization for most in the public programs.

Medica currently manages care for about 300,000 lower-income state residents with Medicaid or MinnesotaCare coverage, but the HMO is dropping the contract due to financial losses.

The re-emergence of UCare is the latest twist in a story line that dates to July 2015, when Medica was one of the big winners in a statewide competitive bid that ousted UCare as an option for most in the programs.

"UCare is going to be an option in most of those counties," said Nathan Moracco, an assistant commissioner at DHS, in an interview Thursday. "The other important piece is, HealthPartners is coming back into Hennepin County."

To find new health plan options for enrollees, DHS negotiated contract changes for UCare, HealthPartners and four other managed care organizations. The health plan shifts come in the "families and children" portion of the public programs, which include most, but not all, with public coverage.

Not all enrollees will have to switch to UCare, since they will have other health plan choices depending on the county where they live. But it looks as if a large number might wind up with UCare, since amended contracts with HealthPartners and the HMO from Blue Cross and Blue Shield of Minnesota limit enrollment for those plans in some of the state's largest counties.

If UCare picks up a large share of Medica's enrollment, the HMO would have a shot at picking up several hundred million dollars in revenue, according to a Star Tribune analysis of bid documents.

"We are pleased to return in a significant way to state public program participation," said Ghita Worcester, a senior vice president at UCare, in a statement.

For decades, Minnesota has hired HMOs to manage care for most people covered by the public programs. The contracts have generated controversy over the years, with critics asserting they have been too lucrative for insurers.

In response, DHS about five years ago started shifting to competitive bids for the contracts.

The contracts announced in July 2015 were said at the time to have generated $450 million in savings.

In describing the contract changes Thursday, Moracco of DHS said there are two components to the $34 million in added costs.

In many cases, Medica was the low-cost bidder in the counties where it operates, so the state will pay more as enrollees move to health plans that receive higher per-member per-month payments.

In addition, the state will pay for some temporary transition costs.

"There is a temporary adjustment reflecting the required resources for moving that population," Moracco said. "That's not built into the base rate."

To find replacements for Medica, the state and federal governments will pay more money, Moracco said.

But he argued the extra sum is less than the pay increases that Medica sought for 2017 before the HMO decided to drop its contract.

One proposal would have added at least $110 million in costs, DHS said.

Medica disputed the point, saying taxpayers will pay tens of millions of dollars more than if the state had kept negotiating or accepted the HMO's best offers.

"The state can use selective offers to portray this as a victory, but it's a failure," said Geoff Bartsh, vice president for public programs at Medica, in a statement. "Medica presented multiple offers to the state during negotiations including a final suggested rate increase of an additional 3 percent — less than what others are getting paid."

Of the $34 million in extra costs, $22 million will be covered by the federal government, Moracco said.

The state will cover $12 million. Medicaid and MinnesotaCare are jointly funded by the federal and state governments.

Medica continues as an HMO in state public programs for special populations. For people in the families and children portion of the programs, DHS says it will send letters next week to enrollees about picking a new plan for coverage starting May 1.

The competitive bid results in 2015 transformed UCare from being the largest managed care organization in the public insurance programs to one of the smallest.

Losing the state contract cut the HMO's revenue in half and UCare wound up eliminating 250 jobs. Medica, meanwhile, saw its enrollment jump by about 100,000 people between December 2015 and January 2016.

The HMO division at Blue Cross and Blue Shield of Minnesota also saw more business.

But by November, both HMOs were complaining about financial losses with the new contracts.

On Nov. 30, Medica said it would not renew its contract in the families and children portion of the public programs.

In January, the HMO said it would eliminate 100 jobs as a result.

Twitter: @chrissnowbeck