UnitedHealthcare, the nation’s largest health insurer, said Monday that it plans to start selling coverage next year to commercial groups in Minnesota — a state that has always been the company’s headquarters but hasn’t provided many employer customers.
The bigger move into the employer business, plus a planned expansion in Minnesota’s Medicare market the next year, has the potential to shake up large insurance markets that locally based nonprofit health plans have dominated for years.
Philip Kaufman, the executive who will lead UnitedHealthcare’s expansion in Minnesota, said a state law that passed earlier this year allowing for-profit HMOs in Minnesota for the first time in decades was a factor in the company’s thinking but wasn’t the driver.
“It’s just really important for us to kind of demonstrate what we can do,” Kaufman said, “whether it be on the technology front or [with] our collaborations with physicians here in our home state.”
UnitedHealthcare and other insurers have been sizing up the state’s Medicare market due to a separate regulatory change that’s scheduled for 2019.
UnitedHealthcare is the largest company in Minnesota, and is on track to post $200 billion in revenue for the first time this year. It employs about 18,000 people in Minnesota, but has provided coverage to state residents in relatively limited ways.
“It’s almost like us getting another airline,” said Bob Seng, a principal consultant with Benefit Comply, a St. Paul-based employee benefits consulting firm. “It’s a big deal, just for getting more competition in the Twin Cities.”
UnitedHealthcare previously administered some employee health plans for very large multistate employers that are based in Minnesota but now will pursue a broader market. The insurer also has sold certain Medicare plans for prescription drugs in Minnesota, but not “Medicare Advantage” plans, for which UnitedHealthcare is the largest seller nationwide.
Minnesota’s Medicare market has been dominated by “Medicare Cost” plans from local nonprofit carriers that are scheduled to go away in 2019. The plans differ in how they’re paid by the government health insurance program for seniors.
“They could have a major impact in the Medicare Advantage market,” Jon Christianson, a professor of health policy and management at the University of Minnesota, said in an e-mail. “This has been a significant profit center for United nationally, and I think they will be quite aggressive in this market if they do as they say.”
UnitedHealthcare’s announcement on Monday follows word earlier this year that health insurance giant Aetna also would expand its presence next year in the Minnesota’s insurance market through a partnership with Minneapolis-based Allina Health System.
Employers certainly will hope for the new competition to drive savings in health plan costs, said Steve Clausen, a benefits consultant with the Minneapolis office of Aon Hewitt. But it will depend in part on whether UnitedHealthcare can negotiate contracts with doctors and hospitals that include competitive payment rates, Clausen said.
Those contracts with health care providers present new insurers — even very large companies like UnitedHealthcare — with a “chicken and egg” problem when entering a market, said Christopher Ody, a health economist at Northwestern University.
“An insurer needs a lot of enrollees to get good rates from providers,” Ody said via e-mail. “To attract enrollees, an insurer needs competitive premiums. This means an insurer needs to be willing to lose some money while building a customer base.”
When it comes to contracts with doctors and hospitals in Minnesota, UnitedHealthcare in the past has relied on the network created by Minnetonka-based Medica. For years, the companies have partnered when serving large multistate employers that have some workers in Minnesota.
Those relationships will continue, but UnitedHealthcare now will develop its own network for products the company sells without Medica to large and small fully insured groups, and to self-insured groups with 3,000 people or fewer. Medica says it will continue to hire UnitedHealthcare for back-office functions such as claims processing and certain health care data services.
The UnitedHealthcare actions “will not have a direct impact on Medica customers or members,” spokesman Larry Bussey said in a statement.
Kaufman, the UnitedHealthcare official, said his company was drawn to the Minnesota health insurance market by the state’s “dynamic employer market” and lineup of strong industries. The company also wants to do more business, he said, in the state that so many employees call home.
“In my mind, the more competitors you have, the better,” Kaufman said. “I think it drives everybody to improve.”