Minnesota Health Plans Pile Up Big Reserves

July 16--After four straight years of profitable growth, Minnesota's health plans have stockpiled a substantial surplus of cash reserves.

The health insurance companies, which get nearly three-quarters of their business from state and federal programs, now have more than $1.9 billion in reserves -- $1.3 billion more than required by state law, according to a review by Twin Cities health care analyst Allan Baumgarten.

"It's so much more than they would ever need, even if there was a flu outbreak," Baumgarten said.

Combined, the HMOs have enough in reserves to cover 3.2 months of medical claims if no revenue were coming in, according to the analysis Baumgarten released Monday. In 2009, the health plans had enough to cover 2.4 months.

The surpluses have grown even as the nonprofit insurance companies have increased their premium rates, said Baumgarten, an independent analyst and consultant who compiles biannual reports on insurers and health care providers for eight states.

Minnesota law requires health insurance companies to hold a minimum level of funds in reserves to ensure that they can continue to pay doctors and health providers in case of a flu outbreak or other health emergency not anticipated when they set rates at the beginning of each year.

The state no longer puts a cap on how much a health plan can set aside to cover emergencies, but until 2004 insurers were limited to holding three months of surplus.

Julie Brunner, executive director of the Minnesota Council of Health Plans, hadn't seen details of Baumgarten's report, but she defended the reserves as sound business practice when doing business with the state, saying that nearly $1 billion "is on paper only."

"State contracts with HMOs allow the state to delay, withhold and shift payments due to the plans," Brunner said in a statement. "For the HMOs this year, it's nearly $1 billion in costs they have to cover until the state pays the money owed to health plans."

Excess reserve funds have become a hot topic in Minnesota and across the nation during the economic downturn, particularly as insurers have earned higher margins on public programs, such as Medicaid, than on the commercial plans they sell to companies and individuals.

With health care spending eating up a growing share of state budgets, contracts with insurers have faced renewed scrutiny.

In Minnesota, the state spent about $3.5 billion this year with the health plans to manage the health care of more than half a million people. Gov. Mark Dayton's administration launched a competitive bidding process in 2011 and got the four largest health plans to agree to a one-year profit cap of 1 percent on state programs, which returned about $105 million to the state.

The state Department of Human Services claims to have trimmed medical spending by more than $1 billion through competitive bidding and other reforms.

Lawmakers asked the Minnesota Department of Health to study the issue of excess reserves for possible action during the 2014 legislative session.

Baumgarten's report analyzes financial data from eight licensed health maintenance organizations that contract with the state to cover people on Medical Assistance and MinnesotaCare as well as a shrinking number of businesses and individuals. It also includes data from the four largest private health plans and three county-based purchasing organizations that cover public programs.

In all, Minnesota's HMOs posted revenue of $7.2 billion. About 42 percent came from state programs, according to Baumgarten.

Net income was $241 million, for an operating margin of 3.3 percent.

The Council on Health Plans reported in April that the state's seven nonprofit insurance companies had a combined profit of $120 million, or 0.57 percent, on its public and commercial plans. The variation comes because Baumgarten also includes county-based purchasing organizations.

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