UnitedHealthcare has acquired PreferredOne, a health insurer based in Golden Valley, in a deal that promises to help the nation's largest insurer compete for business in its home state.

The transaction closed Monday morning, said Hayes Batson, the chief financial officer of Fairview Health Services, which took full ownership of PreferredOne in early 2016. Financial terms were not disclosed.

The acquisition was a strategic move for UnitedHealthcare, which in 2017 announced a push for a bigger piece of the Minnesota health insurance market. Historically, PreferredOne stood as the fifth largest of the non-profit carriers in the state.

A spokesman for Minnetonka-based UnitedHealth Group, which is Minnesota's largest company by revenue, declined comment.

In applying for regulatory approval, UnitedHealth Group's chief accounting officer Thomas Roos noted United's "limited commercial health plan presence" in Minnesota.

"An acquisition of [PreferredOne] provides expansion of relationships within the state and geographic expertise, as well as creates a much closer alignment with a key local partner, Fairview Health Services," Roos wrote.

PreferredOne is known for selling administrative services to employers that "self-fund" their own health plans and take on the financial risk. About 200,000 people are enrolled in such plans, said David Crosby, the PreferredOne chief executive, in an interview.

Crosby said that another 50,000 people are enrolled in "fully-insured" health plans from PreferredOne, where the insurer takes the risk for the medical costs incurred by employer groups and individuals.

With more than 34,000 workers, Minneapolis-based Fairview uses PreferredOne to run its own employee health plan. PreferredOne also has been one of three health plan options for government workers in the state of Minnesota's group insurance program.

Fairview is one of the state's largest operators of hospitals and clinics. It operates 80 primary- and specialty-care clinics as well as nine hospitals, including University of Minnesota Medical Center in Minneapolis and Fairview Southdale Hospital in Edina.

Selling PreferredOne lets the nonprofit health group focus attention and capital on providing health care, Fairview's Batson said. It also strengthens Fairview's relationship with UnitedHealthcare as the insurer gets bigger in the Minnesota health plan market.

Fairview ultimately decided it wasn't in a good position to make needed investments in PreferredOne's insurance business.

"It really isn't realistic for us to be able to grow a small commercial plan significantly in today's market," Batson said. "You need more scale in order to really make the IT investments, and in order to be really efficient to be competitive."

The financial impact from the sale is "north of $100 million," Batson said, because Fairview receives cash and no longer needs to invest risk-based capital in the insurer.

COVID-19 has been tough on Fairview's financial results. In 2020, the health system posted an operating loss of $215.9 million on revenue of $6.12 billion, although losses so far this year have been smaller.

About 420 people work at PreferredOne, which garnered national attention during the early days of the federal Affordable Care Act for seeing significant market share gains through Minnesota's MNsure health insurance exchange. In the end, though, PreferredOne largely exited the market as the cost of medical claims far exceeded premium revenue.

"We've continued to grow, year-over-year," Crosby said. The insurer was "able to get over what occurred in the individual market and move forward."

UnitedHealthcare's ambitions in the Minnesota health insurance market extend into government health plans. The company bid this summer for a contract as a managed care organization in Medical Assistance, which is Minnesota's version of the state-federal Medicaid program for lower-income residents.

Since getting a Minnesota license a few years ago to sell fully-insured coverage to employer groups, UnitedHealthcare hasn't thus far become a big player in the market, said Cheryl Minks, a benefits consultant who is chief operating officer at Benefit Comply in St. Paul. So, the deal announced Monday makes sense, Minks said, because PreferredOne was well-known among the small and mid-sized employers across the state that UnitedHealthcare is trying to reach.

"I think this will allow them to establish a stronger foot-hold here," she said.

When UnitedHealthcare announced plans in 2017 to grow in Minnesota , Medicare Advantage plans were a big part of the push. Seniors have since benefitted from the competitive boost, said Chad Levis, president of the Minnesota Association of Health Underwriters, a trade group for insurance agents.

The question now is whether the PreferredOne deal will help UnitedHealthcare more quickly become a force in the state's market for employer coverage.

"You can grow organically," Levis said, "but you can grow a lot faster if you can acquire a company or two along the way."