Thousands on Medicaid, MinnesotaCare to switch plans as Medica drops contract

ST. PAUL -- More than 300,000 Minnesotans on public health programs could have to switch to a new plan next year after insurer Medica couldn't agree on a new contract with the state of Minnesota.

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ST. PAUL -- More than 300,000 Minnesotans on public health programs could have to switch to a new plan next year after insurer Medica couldn’t agree on a new contract with the state of Minnesota.

The move is fallout from last year, when Minnesota for the first time issued contracts to manage Medicaid and MinnesotaCare plans based on competitive bidding. Medica was among the carriers submitting winning bids - bids far below what the state paid in previous years. As a result of the low bids, officials forecast savings to taxpayers of about $450 million in the first year alone.

But Medica now says its winning bids may have been far too low.

“The current rates are simply not actuarially sound,” wrote Medica executive Geoff Bartsh in a Wednesday letter to state officials. “The rates offered to Medica for the (Medicaid) and MinnesotaCare programs for 2017 come nowhere close to covering what it will actually cost to administer those programs.”

The company said it was covering far more people than it expected to, and that its enrollees were consuming more care than expected.


“The losses this year, coupled with the losses we would experience next year, would essentially eat away so much of our reserves that it threatened to put the rest of the organization at risk,” Bartsh said.

Medica tried to negotiate with the Minnesota Department of Human Services to try to secure higher rates than its initial bid, but the state wouldn’t budge.

Human Services Commissioner Emily Johnson Piper was unsympathetic to Medica’s complaints about its losses - noting that before the competitive bidding, Medica and other companies had made money with their government contracts.

“Medica is the one that bid the price that they were awarded under the contract,” Piper said. “My obligation is not to ensure the profit margins of health plans in the state. Rather, my obligation is to ensure the best value for the taxpayers in our state and the best health care that I possibly can for the people on public health care programs in the state of Minnesota.”

Now that Medica’s out, the roughly 310,000 Minnesotans with Medica-managed Medicaid or MinnesotaCare plans will be moved to new plans by May 1, 2017.

While it’s possible the two parties could reconcile, Piper said Thursday that the matter was done.

“I take Medica at its word when it provides legal notice to the state of Minnesota that it’s withdrawing from its contract,” she said.



By the beginning of March, affected enrollees will receive a notice from the state with options for a new managed care provider.

Since the state and federal governments pay almost all the cost for Medicaid and MinnesotaCare, this change won’t have a big financial impact on enrollees. But it could mean changes in their medical provider.

Which options those enrollees will have aren’t yet established. Medica’s withdrawal means Human Services will go back to the runner-up health plan in each county from 2015’s competitive bidding and try to negotiate a new contract with that carrier.

Those new contracts would be based on the runner-up’s original bid - almost certainly higher than Medica’s winning bid - but with “adjustments” based on “the things we considered in negotiations this year,” Piper said.

It’s not clear whether any replacement contracts Human Services reaches will cost the state more than the Medica proposals rejected by the department.

Losing this Medicaid and MinnesotaCare business will cost Medica $1.5 billion in annual revenue, about one-third of its $5 billion total, and about 25 percent of its total membership.

That means significant layoffs are likely at the Minnetonka-based nonprofit insurer, Bartsh said.



This is the second major upheaval in just over a year in Minnesota’s public plans. The 2015 competitive bidding saw Medica, HealthPartners and BluePlus win lots of business at the expense of UCare, which previously had the biggest share of Minnesota’s public program business.

Almost 360,000 UCare customers had to switch to a new plan. Many of them ended up with Medica and will now have to switch again.

UCare’s bids came in considerably higher than other insurers. In a statement at the time, UCare said its “proposed rates were actuarially sound and sustainable.”

The change affects people who receive Medicaid due to low incomes - the “families and children” part of the public health program. Medica also manages Medicaid plans for special-needs populations, and those won’t change.

Minnesotans who have Medica health plans purchased on the individual market or through an employer won’t be directly affected. Neither will people with Medica-managed Medicare plans.

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