UCare to appeal to Gov. Dayton on Medicaid, MinnesotaCare contract

UCare and its supporters are scrambling to save a portion of the HMO's massive state contract for public health insurance programs.

The stakes are high for the Minneapolis-based health insurer, which generated about half of its $3 billion in revenue last year from the state contract.

In July, Gov. Mark Dayton announced the results of a competitive bidding process that will save the state $450 million, but would eliminate UCare as an option next year for most in the state's Medicaid and MinnesotaCare programs.

UCare's chief executive is scheduled to meet Monday with Dayton about retaining some of the business, and county officials who administer the insurance programs, fearing widespread disruptions, are expected to appeal the decision.

"It's an extremely important loss," said Roger Feldman, a professor of health insurance and economics at the University of Minnesota who has done consulting work for federal health care agencies and the Congressional Budget Office. "I would put this at the highest priority for the organization to get back into the programs that they lost."

Losing the contract would be a dramatic reversal of fortune for UCare, which has significantly expanded employment to about 850 people in recent years with growth in public program enrollment.

Now, the HMO is facing the prospect of slashing jobs, although UCare officials would not estimate the number.

Minnesota hires HMOs and county-based purchasing organizations to manage care for most public insurance enrollees. UCare, in fact, was created in 1985 solely to provide HMO coverage to Medicaid beneficiaries.

Over time, the business became lucrative for the HMOs and sparked controversy as a result. Dayton imposed a 1 percent cap on HMO income from the public programs in 2011.

In subsequent years, the Dayton administration instituted competitive bidding for contracts in hopes of getting better deals. In 2012 and 2014, competitive bids shook up the list of managed care organizations that are options for enrollees in certain parts of the state.

The contract starting next year, however, marks the first time competitive bids were taken on a statewide basis. It covers the largest portion of people covered by the programs — individuals and families — as opposed to certain special populations that will continue to have UCare as an option.

"This effort was not designed with any particular end except to get the best value for the enrollees and the state," wrote Lucinda Jesson, the state's Human Services commissioner, in an Aug. 11 letter to House Minority Leader Paul Thissen.

Medicaid covers people with incomes near or below the poverty line, while MinnesotaCare covers a slightly higher income group. Without the state contract, UCare's annual revenue would plummet to a level last seen in 2009.

The math makes employees nervous, since the insurer employed about half as many people at the time. Just last year, UCare cited the prospect for continued growth when explaining the $19 million purchase of an additional office building at its headquarters in northeast Minneapolis.

UCare still will have a significant business covering Medicare enrollees. In addition, the HMO has a small but growing presence in the individual market. Trouble is, it's tough to generate income in the Medicare market, and the individual market is very competitive, said Stephen Parente, a finance professor at the U who specializes in health economics.

Between 2009 and 2014, Medicaid and MinnesotaCare accounted for more than 90 percent of UCare's income, according to a Star Tribune analysis.

"If they're going to continue to operate given this loss of Medicaid," Parente said, "they're going to have to downsize considerably."

The changes create the potential for people to fall through the cracks, Ring said. It also creates a lot of work for county workers who have been struggling to get enrollees' coverage renewed in the troubled MNsure IT system.

Some counties are concerned about the loss of UCare, Ring said, while others are troubled about the loss of South Country Health Alliance, a county-based purchasing organization that will be lost as an option in 10 counties.

Ramsey County notified the state Friday that it intends to submit a formal request for reconsideration after competitive bidding results included Blue Cross and Blue Shield of Minnesota, HealthPartners and Medica — but not UCare. In June, Ramsey County officials gave a good review to all four HMOs.

Olmsted County has already submitted an appeal, said Paul Fleissner, the director of community services.

"UCare does the best job, in our opinion, with immigrant populations, behavioral health populations, they've done a nice job with dental access and they are, quite honestly, one of the easier health plans to work with in general," he said. "Out of our roughly 18,000 people currently on [the largest program], 16,000 have chosen UCare — so that says something."

"We understand there are concerns as we transition enrollees from one plan to another," Jesson wrote in her letter to Thissen. "We want to assure you that no enrollee will lose coverage as a result of this procurement."

Legislators are watching. Sen. Kathy Sheran, DFL-Mankato, called an information hearing for Tuesday to evaluate whether the potential for disruption for both enrollees and businesses is worth it.

"When you're talking about cost savings, where are those coming from?" Sheran asked. "Are you cutting out of the service delivery system some of the really good things built into South Country and UCare? What are we going to lose in the process, and what are we going to gain?"

Sen. Michelle Benson, R-Ham Lake, said the UCare situation is the second example in as many years of a small health insurer in Minnesota that's struggling to compete.

"What happens in any market when the small players can't compete?" Benson asked. "Do we lose an opportunity for innovation? Do we lose the opportunity to serve niche markets?"