Record HMO profits from state programs

HMOs saw record operating profits in 2015 from their business serving as managed care organizations in the state's public health insurance programs.

The findings being released Wednesday line up with a Star Tribune analysis earlier this month that found HMO income nearly doubled last year as the federal Affordable Care Act expanded enrollment in the Medicaid program.

Those newly covered individuals used less care than expected, contributing to health plan profits.

The HMOs' operating income of $232.2 million last year was a record, according to the report by Allan Baumgarten, an independent financial analyst in St. Louis Park. The average profit margin of 6.8 percent was one of the highest posted, he said, since 2000.

"In the last couple years, you've seen the average revenues to the health plans go up, but you've seen the average medical expenses go down," Baumgarten said. "That's usually a pretty good predictor of profitability."

Overall, Baumgarten's report found that health insurers collectively posted a small loss last year, including policies sold to businesses and individuals.

The state Department of Human Services (DHS), which administers the public programs, said it has made changes in HMO contracts that should deliver more than $450 million in savings this year.

While Baumgarten stressed that the amount of profit for HMOs was a record last year, health plans stressed that it came on record enrollment and record overall expenses in the programs, too.

"Major changes in who gets care through Medicaid and MinnesotaCare have made it difficult for the state to predict the medical services these Minnesotans need," Jim Schowalter, president of the Minnesota Council of Health Plans, a trade group for insurers, said in a statement. "That's one of the reasons the state worked with health insurers to overhaul how it buys care in 2016. "

Signed last year, the new contracts factored the surprisingly low use of health care services by Medicaid enrollees who came into coverage as part of the federal health law.

Baumgarten's report covers financial results from Medicaid, MinnesotaCare and two other public health insurance programs where the state last year hired five HMOs to manage care. Those companies were Blue Plus, HealthPartners, Medica, Metropolitan and UCare.

Medicaid, which goes by the name "Medical Assistance" in Minnesota, generates most of the 2015 profit from state programs. It provides coverage for several groups including people near or below the poverty level.

Overall, the insurers posted a small loss, driven by $318 million of red ink in the individual market. That slice of the market includes the state's MNsure health insurance exchange, and losses in the market during 2015 were twice as much as the previous year.

The individual market is undergoing significant changes with the federal health law, and insurers have raised concerns about financial losses in that market. What has received less attention are the profits from the Medicaid program, where the Affordable Care Act is expanding enrollment in states like Minnesota.

The federal government this year proposed new limits on income for HMOs hired by states for Medicaid beneficiaries. Had the rules been in place for 2015, three HMOs would have made slightly too much profit, Baumgarten said.

The government's rule would require a "medical loss ratio" of at least 85 percent for HMOs, meaning they must spend 85 percent of revenue on medical care and certain allowed costs.

No more than 15 percent could go to administrative costs and profits.

Baumgarten said the five HMOs in Minnesota had a collective MLR ratio of 84.9 percent last year, even with record profits.

Christopher Snowbeck • 612-673-4744