Ramstad: Picking up what’s left of UCare is the biggest gamble Medica has ever taken

I thought the steep devaluation of UnitedHealth Group last spring and summer would wind up as the most shocking development in Minnesota’s business scene this year.

Then last month came the collapse of UCare.

We’re seeing the greatest turmoil in the health insurance industry in a generation, particularly in the public space. Government reimbursements for Medicare and new regulations for Medicaid are challenging both insurers and consumers.

Amid all this, it’s easy to overlook the gamble Medica is making. The company will take on UCare’s 300,000 Medicaid and Affordable Care Act, or ACA, customers, the biggest portion of UCare’s business.

It’s the biggest acquisition in Medica’s 50-year history, boosting its customer base of 1.4 million by about 20%. But until a few weeks ago, it wasn’t on the radar for the Minnetonka-based company. which is in the midst of its own multi-year strategic reshaping.

“We had some initial conversations earlier last summer and then kind of paused for a while, and then this fall, that really ramped back up again,” said Lisa Erickson, Medica’s chief executive, in an interview last week.

“We worked with UCare and the state to identify whether this was something that Medica could take on, how we would ensure UCare members got a seamless experience and ensure that we felt we had an approach that would be sustainable for Medica,” she added. “I certainly am thoughtful about the challenges that we’ve had, the financial strain that the industry is under and my obligation to make sure that Medica continues for another 50 years.”

She said Medica was “uniquely positioned” among Minnesota’s insurers to step in and is “the best possible solution” for UCare’s clients. About 650 UCare employees will join Medica as a result of the deal.

Health insurers get a bad rap, seen most extremely in the horrifying murder of one of UnitedHealth’s top executives a year ago. Everyone thinks their own health coverage premiums are too high and that insurers deny coverage too often, far more than they actually do. Most of all, people think insurers make too much money.

In reality, the amount of profit insurers make is highly regulated. Governments intervene when they see insurers making too much. But the market intervenes when insurers don’t make enough money — or lose money.

Medica posted a $176 million operating loss last year, partly because of lagging reimbursements from governments for payouts on Medica’s Medicare and Medicaid plans and higher payouts overall as clients sought more care than the company expected. Insurers call that “utilization,” and it’s been rising steadily since a decline during the COVID-19 pandemic in 2020.

“It’s a combination of some of the changes at the federal level as well as utilization patterns that just continue to escalate,” Erickson said. “So Medicare has been challenging. And then on top of that, the Medicaid business also tends to go in cycles. And for the last couple of years, that’s been a big challenge for all the payers in Minnesota.”

She arrived at Medica in 2023, and in mid-2024, she launched a five-year strategic plan to invest in technology and strengthen the company’s position in key areas. The firm, which had grown from operating in six states in 2016 to 16 by 2023, re-examined those gains and pulled out of three states.

“We had to get to a place where we had scalable infrastructure. Certainly, we were looking for growth, but our focus out of the gate was refocusing on our core markets,” Erickson said.

Absorbing UCare now, more than 18 months into Medica’s own restructuring, will be a little easier because of some of the technological improvements and cost-cutting, she said.

“I think we would have had a much harder time if this would have happened a year ago,” Erickson said. “At the same time, nothing ever feels like it’s perfectly opportune, because we still have work to do. We’d love to have another year to even move farther along in our strategic plan, but you can’t time most of these things.”

In 2023, the end of pandemic-related expansion of Medicaid forced recipients to re-enlist themselves for coverage, an effort known at the time as “redetermination.” One of the key elements of the One Big Beautiful Bill that Congress passed and President Donald Trump signed into law this summer is the imposition of work requirements on recipients. As a result, they will go through a kind of redetermination twice a year.

In Minnesota, where counties administer human services, that new requirement has become one of the reasons there’s a new conversation emerging about whether the state should take over certain duties, such as qualifying people for programs like Medicaid.

From an insurer’s perspective, the risk is that qualifying for Medicaid will become so burdensome, only people who most need it will seek it. Of course, insurance collapses if only the least healthy people enroll in it.

“It’s the same thing that’s likely to happen in the individual [health insurance] market if the subsidies aren’t reinstated, which looks increasingly unlikely,” Erickson said, referring to the current debate in Washington about extending federal assistance under the ACA.

“People who are healthy are most likely to drop coverage because of the affordability, and it will leave a population that has higher morbidity in the pool.”

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