Medica eliminates 100 jobs linked to dropped state contract

Medica has eliminated about 100 full-time positions, or about 5 percent of its workforce, after the Minnetonka-based health plan's decision to drop a major contract in state public health insurance programs.

The positions were eliminated effective immediately, Medica said Tuesday in a statement, and more job cuts could be coming.

For now, Medica has a contract to manage care in the largest portion of the state's Medicaid and MinnesotaCare health insurance programs through April 30.

"Additional impacts to the organization are expected after that," the insurer said.

Enrollment in public health insurance programs has grown considerably in many states as part of the federal Affordable Care Act (ACA). That has meant significant growth in revenue for some insurance companies, since Minnesota and other states hire HMOs like Medica to manage care for enrollees.

Expanded Medicaid coverage under the ACA helped grow profits for Medicaid HMOs in 2014 and 2015, including record operating income for Minnesota health plans during 2015. But Medica told the state in November that payment rates to health plans for 2016 and 2017 were not sustainable.

The insurer said it lost about $150 million on the business last year, and likely would have lost another $100 million in 2017.

Insurers are losing money, Medica said, because the government contracts don't adequately factor how program enrollees are using much more care than they previously did. The state countered that it adjusted payment rates for 2017 in light of cost trends, and argued Medica wanted to unfairly limit its business to certain counties.

Medica's decision applies only to its work as a managed care organization for the largest portion of public programs — those for families and children — and does not apply to its business managing care for certain special populations.

As of this month, Medica was managing care for about 295,000 people in the families and children contract. Those enrollees will have to pick another plan in the coming months for coverage that starts May 1.

"We hope to communicate with every impacted enrollee no later than March 1," the state's Department of Human Services (DHS) said Tuesday in a statement.

There was a similarly large disruption for public program enrollees at the end of 2015, when Minneapolis-based UCare lost most of the business through a first-ever statewide competitive bidding process. Medica was one of the big winners from that shift.

Currently, DHS is negotiating with other health insurers to step in once Medica's contract ends.

"Once that process is complete the department can provide more details about the negotiations," DHS said Tuesday in a statement.

Christopher Snowbeck • 612-673-4744

Twitter: @chrissnowbeck