UCare lost money on operations last year as the Minneapolis-based HMO saw a significant recovery in patient demand for health care services, including from people who likely deferred care during the pandemic period.

The red ink marked a departure from a three-year run of profits at UCare that included unusually high earnings in 2022 from Medicaid and related health insurance programs run by the state government.

The health plan took a 5% reduction in Medicaid rates last year and started to see enrollment declines in the program after the state resumed eligibility checks that had been suspended with the COVID-19 public health emergency.

"The higher medical cost ... is the result of increased utilization in pharmacy cost from prior year, and increased utilization of outpatient specialty services due to deferrals of preventive and elective care as well as provider contractual rate increases," UCare said in a filing with regulators.

Since early last summer, health insurers and employers have been pointing to signs in the U.S. of rising medical costs, including more spending on medications.

In a statement to the Star Tribune, UCare singled out expenses for GLP-1s, a new group of drugs widely used for weight loss and diabetes, including well-known brands Ozempic and Wegovy. The state Medicaid program mandated coverage, UCare said, "but did not adjust payment rates to cover the explosive utilization increase of these new meds."

The health plan also saw more costs for new RSV vaccines, UCare said, just as responsibility for covering the cost of COVID vaccines shifted from the federal government to health plans.

In 2023, UCare posted an operating loss of $82.1 million on $6.16 billion of revenue for a margin of -1.3%. It was a reversal from the previous year's operating profit of $338.5 million on about $6 billion in revenue, meaning a margin of more than 5%.

"This drop in income reflects the cyclical nature of our business and the challenges of predicting utilization patterns post pandemic," UCare said.

The loss didn't include $100 million that UCare set aside for payments on a legal settlement last year with the University of Minnesota. As part of the agreement, the U relinquished its board majority at UCare, which was founded in the 1980s by family medicine physicians at the university.

With about 1,600 employees, the health plan at the end of last year provided coverage for about 636,000 people, mostly in Minnesota. Enrollment was about 48% higher than at the end of 2019, due primarily to the pause in redeterminations for Medicaid eligibility.

At the end of 2023, UCare covered about 480,000 people in Medicaid and related state health care programs for lower-income and disabled residents. Another 108,000 were enrolled in the insurer's Medicare Advantage plans. And UCare was covering about 48,000 people in individual market health plans sold via the state's MNsure health insurance exchange.

Medicare enrollment has declined slightly over the last two years, the company said, due to increased competition from national for-profit health insurers. But UCare says Medicare Advantage and individual market enrollment is growing this year -- gains that will offset, to a degree, larger Medicaid enrollment declines expected during the first half of 2024.

UCare ranked as Minnesota's fifth largest nonprofit group as measured by revenue in 2022.