Law blocks HMO sales to for-profits in Minnesota

Gov. Mark Dayton signed into law this week a two-year moratorium that would block the state's nonprofit HMOs from being sold to for-profit companies.

The moratorium, which was included in a large spending bill for health and human services, amounts to a compromise struck at the end of the legislative session after Republicans and DFLers couldn't agree on how to write a new law that would govern such transactions.

For 40 years, Minnesota required HMOs to be nonprofit, but a new law passed in January opened the market to investor-owned companies. The new law didn't speak to exactly what sort of review would be required if a for-profit company attempted to acquire one of the state's nonprofit health plans, or if one of the current HMOs attempted a conversion on its own.

"It gives a two-year pause on conversion transactions or sales of a nonprofit HMO to a for-profit acquirer," state Attorney General Lori Swanson said of the moratorium. "That means future Legislatures will have to tackle the issue down the road, though, in terms of either continuing the moratorium or passing conversion language that deals with it."

Swanson and other DFLers argued that tight conversion rules were needed because nonprofit HMOs have huge sums in community assets by virtue of tax advantages plus revenue for managing care in state public health insurance programs. By statute, only HMOs and certain county-based groups can be hired to manage care in the programs, and the business has been lucrative for insurance companies over the years.

Swanson and consumer groups sounded alarms in early May about bill language being advanced by Republicans that they viewed as gutting consumer protections that had been called for by the attorney general.

But Sen. Michelle Benson, R-Ham Lake, argued the proposed rules from Swanson were too strong, and would have given the attorney general powers she doesn't have over any other transactions in the state. House Republicans didn't think there was a need for any new law on HMO conversions, Benson added.

"We put a pause in place," she said of the moratorium. "There's more work to be done."

Minnesota's nonprofit HMOs include companies like Eagan-based Blue Cross and Blue Shield of Minnesota and Bloomington-based HealthPartners. Company officials have said they aren't interested in becoming for-profit companies, but Swanson and consumers groups are worried, nonetheless, that charitable assets could be wrongly surrendered in a transaction.

"Conversion isn't a pressing interest or problem," said Jim Schowalter, the chief executive of the Minnesota Council of Health Plans, a trade group for insurers. "We completely agree that selling off community assets won't lower the cost of medical bills or improve care."

The Legislature eliminated the 40-year ban on for-profit HMOs as part of a bill to provide premium relief for those who buy health insurance in the state's troubled market for individual policies.

Health care analysts said the change could prompt local HMOs to change their tax status, or outside insurers to enter the market by acquiring one of the Minnesota nonprofits.

Nationally, the 1990s and 2000s saw several examples of nonprofit hospitals and health insurers switching to for-profit status — either via sale or conversion — including several health insurers that sell coverage in other states under the Blue Cross and Blue Shield brands.

Consumer groups raised concerns at the time about how charitable assets would be valued in those conversions.

Swanson said that Minnesota's nonprofit health plans have assets of about $7 billion and reserves of $3 billion.

Christopher Snowbeck • 612-673-4744

Twitter: @chrissnowbeck