Medicaid income jumps for HMOs in Minnesota

May 01--Expansion of Medicaid coverage under the federal health law has been lucrative for health insurers in Minnesota.

Operating income from the state's version of Medicaid, plus a related program called MinnesotaCare, nearly doubled last year to $265.8 million across four HMOs that are hired to manage care for enrollees, according to a Star Tribune analysis.

With expanded eligibility under the Affordable Care Act, managed care enrollment in the programs has grown significantly, and state officials say those new enrollees have used less care than expected.

The Medicaid profits in Minnesota and other states suggest the health law's impact on insurers goes beyond the financial losses many have reported on coverage sold through new health insurance exchanges.

"When people say that some insurers are losing large sums of money on their Obamacare products, I think we should also note that many of them ... are also enjoying very strong profits on their expanded Medicaid lines of business," said Allan Baumgarten, an independent health care analyst in St. Louis Park.

HMOs in Minnesota bristle at the description of their income as "profit," as they are nonprofit organizations, and prefer the word "margin." Whatever the term, the sums have long been a source of controversy at the Capitol, where Gov. Mark Dayton and HMOs in 2011 placed a one-year cap on profits at 1 percent.

The collective profit margin in 2014 for the HMOs was 4.2 percent, according to the Star Tribune analysis, and climbed to 6.6 percent last year. The state's contracts with the HMOs had a "target" margin of 0.75 percent, according to the state Department of Human Services (DHS).

State officials and insurers predict the high margins won't last.

New contracts finalized last year set rates for 2016, and were based on a first-ever statewide competitive bid. The process dramatically shrank the role of Minneapolis-based UCare as an option for most in public programs, while generating nearly $450 million in savings for 2016, state officials say.

"Medical claims were down significantly, meaning many people used significantly less or no services and population health risk was lower," the DHS said. It added: "Statewide competitive bidding resulted in managed care contracts that should reduce these profits and will result in significant savings for taxpayers."

For decades, Minnesota has hired HMOs to manage care for enrollees in Medical Assistance, which is the state's version of the state-federal Medicaid program. Many in the program have incomes that are near or below the poverty line.

HMOs also manage care for people in MinnesotaCare, which covers a slightly higher-income group sometimes called the "working poor."

The Star Tribune analysis focused on revenue and operating income from what's called the Prepaid Medical Assistance Program (PMAP) and MinnesotaCare. It didn't look at public programs for certain special populations where the state also hires HMOs to manage care.

Some HMOs posted significant losses in 2015 on those smaller public programs, said Jim Schowalter of the Minnesota Council of Health Plans. In an interview, Schowalter said HMO margins in 2014 and 2015 on PMAP and MinnesotaCare reflect the challenge for the state and insurers to predict how much care new enrollees would use.

"The state expanded competitive bidding and is saving money this year," Schowalter said in a statement. "To put last year's financials into perspective, the state is saving about double what health plans made in 2015."

The group represents the four HMOs: a division of Blue Cross and Blue Shield of Minnesota; HealthPartners; Medica; and UCare.

The Star Tribune analysis found the four HMOs last year earned combined operating income of $265.8 million on about $4 billion in revenue. The numbers were bigger than in 2014, when the HMOs as a group posted operating income of $135.2 million on about $3.2 billion in revenue.

DHS says it will be making adjustments to the 2015 rates in the coming months that likely will decrease the operating income for the HMOs. That was true of the 2014 results, as well.

"We're not happy to see that the reserves came in at a higher level than our target margin," said Chuck Johnson, deputy commissioner for the Department of Human Services.

The profit cap in 2011 was the beginning of changes in how the state negotiates rates with HMOs, Johnson said, including competitive bids for portions of the state. The process generated more than $1 billion in savings, he said.

The Affordable Care Act in 2014 brought changes that the state is still adjusting to, Johnson said, adding: "The whole health care industry is still sorting out what's going on in the marketplace."

The higher margins for PMAP and MinnesotaCare are the flip side, HMOs say, to the health law's impact in the individual market, where insurers say they've lost money because subscribers used more care than expected. In both 2014 and 2015, insurers lost more than $300 million in Minnesota's individual market, according to the Minnesota Council of Health Plans.

Revenue and income figures for the HMOs are much higher in 2014 and 2015 than historical norms because the public programs have grown so significantly due to the health law, said Geoff Bartsh, vice president and general manager for state public programs at Minnetonka-based Medica. Between the end of 2013 and this spring, enrollment in all public programs grew by about 250,000 people to roughly 893,000 Minnesotans.

"If you look at the population in its entirety, the newer members were healthier," Bartsh said. "So, as they were coming into the program, rates that were set based off of the historical health of the population were producing high margins."

He added: "Because of competitive bidding, the plans through their bidding bid out that margin in one quick swoop."

David Dziuk, the chief financial officer at Bloomington-based HealthPartners, said the state's projected savings of $450 million this year on the managed care contracts "would lead me to believe that any profitability would be much less, if at all."

Among the four HMOs, UCare posted the biggest chunk of income from PMAP and MinnesotaCare at $135.7 million, about $36 million more than the insurer's income from the two programs in 2014. UCare's PMAP enrollment grew by almost 20 percent last year, the HMO said, while MinnesotaCare enrollment grew by 64 percent.

"Some of [the] MinnesotaCare members who were deemed eligible for PMAP due to Medicaid expansion were relatively healthy, and up-to-date on preventive care because they had continuous coverage," UCare said in a statement.

In 2015, UCare was the largest health plan in PMAP and MinnesotaCare with more than 350,000 enrollees, but the tally under the new contracts was about 14,300 in April. Asked if 2015 margins were a factor in the state's decision to reduce UCare's role in the programs, DHS said in a statement that "2016 statewide procurement results and award were based on the technical and cost criteria as defined in the [request for proposals]."

The Star Tribune analysis also shows Medicaid expansion has expanded revenue for HMOs in Minnesota by about 51 percent between 2013 and 2015. It's a similar story nationally, with a November report from Mark Farrah Associates showing big gains in Medicaid membership for Minnetonka-based UnitedHealthcare and Indiana-based Anthem.

Baumgarten, the independent consultant in St. Louis Park, recently conducted an analysis in conjunction with Crain's Detroit Business that found increased profitability for Medicaid HMOs in Michigan. Ana Gupte, an analyst with Leerink Partners, said similar stories have been playing out across the country.

"Generally speaking, the Medicaid expansion profitability was higher than that of the legacy Medicaid populations in the early years of Obamacare, given the health risk profile was unknown," Gupte wrote in an e-mail. State Medicaid programs are now responding, she said, with rate reductions "to reflect the better-than-expected claims experience of the expansion population."

Twitter: @chrissnowbeck

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