Medica eliminating another 250 jobs as it exits state contract

Minnetonka-based Medica is eliminating another 250 jobs following its decision last year to drop a major state contract for managing care in public health insurance programs.

It was the second and final round of layoffs, the health insurer said, stemming largely from its pullback in the Medicaid and MinnesotaCare programs, which primarily serve lower-income state residents.

Medica let 100 workers go in January, bringing the overall impact to 350 positions — about 20 percent of the health insurer's workforce as of December.

Medica currently serves as the HMO for more than 300,000 people in state public programs, most of whom are switching to a new health plan effective Monday. In 2015, the state saw a similarly large enrollment shift as Minneapolis-based UCare's role in the programs was significantly downsized, prompting the HMO to eliminate 250 jobs.

"The amount of disruption in a short period of time is concerning," said Allan Baumgarten, an independent health care analyst in St. Louis Park. "I think there's something to be said for operating a system of contracts in which a certain amount of stability is maintained."

Sen. Tony Lourey, DFL-Kerrick, said the volume of disruption is too high if it continues. But it stems from the state implementing a competitive bid process, Lourey said, that was meant to limit HMO profits.

"We need to get to stability," Lourey said. "But it's a better place to be, truthfully, to insert that competition and maintain that competition. ... I think that there was too much profit."

Sen. Michelle Benson, R-Ham Lake, said the problem is that competitive bidding for 2016 — when UCare's role shrank, and Medica's grew significantly — was conducted on a statewide basis, which created the potential for the most disruption.

"Unfortunately, I think the lesson is particularly painful for Medica, and it didn't have to be this way," Benson said.

Until the end of the month, Medica will continue as one of the largest managed care organizations in the state programs. But in November, the HMO told state officials it would stop managing care for those in the "families and children" portion of the programs as of May 1 due to financial losses.

Medica said it lost $187.5 million on the contract, which was part of a total loss of $250 million in 2016. The overall figure includes advance recognition of public program losses in 2017.

"Medica remains strong and is committed to continuing to serve our more than 1 million remaining members," said John Naylor, Medica's chief executive, in a statement.

Medica lost money last year in the individual market, where self-employed people and those who don't get coverage from an employer or the government buy coverage. The company for 2017 also has seen a significant decline in enrollment in its Medicare health plans.

But company officials on Thursday said the bulk of the job cuts this year are related to the state contract. The impact on its business selling coverage to the private sector would be minimal, the insurer said.

About 110 Medica employees lost their jobs as of Thursday, the health insurer said, including 80 layoffs directly related to the state public program business. Another 140 open positions will not be filled in public program operations and other parts of the company. Public program workers accounted for all 100 of the layoffs in January, the company said.

With the job cuts Thursday, Medica now employs about 1,200 people.

For 2016, Medica had significantly expanded enrollment and hired more workers due to a contract win in the "families and children" portion of state public programs, which includes the bulk of all Medicaid and MinnesotaCare enrollees. But the nonprofit HMO said it learned through the course of the year that payment rates from the state were too low.

The state, however, argued that Medica exited the programs after seeking payments beyond what other health plans agreed to. Earlier this year, state officials said UCare agreed to significantly expand its business in the programs to help replace Medica.

Medica, in turn, has sued the state, with a hearing in the case scheduled for June. Medica argues the state didn't comply with contracting rules when hiring other plans; state officials counter that Medica is trying to manipulate its way into a better contract.

With the job cuts announced Thursday, Medica is restructuring its operations by combining the remaining state public programs business with its Medicare operations. Among other things, the change means that call centers that previously operated independently will now be consolidated, the insurer says.

The federal Affordable Care Act has significantly expanded Medicaid coverage and boosted federal funding for MinnesotaCare. For decades, Minnesota has hired HMOs to manage care for public program enrollees, and the business generated record profits for health plans in 2015.

At that point, UCare was the largest HMO in the programs, but it surrendered that position to Medica and the HMO division at Eagan-based Blue Cross and Blue Shield of Minnesota.

While Medica is dropping the families and children contract, the HMO continues to manage care for certain special populations in the state programs.

Christopher Snowbeck • 612-673-4744

Twitter: @chrissnowbeck