Featured Health Business Daily Story, Jan. 5, 2017

Medica Exit From Minn. Medicaid Leaves Lives Up for Grabs in 2017 (with Table: Minnesota Medicaid Enrollment Snapshot, December 2016 vs. December 2015)

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By Lauren Flynn Kelly, Managing Editor
December 15, 2016Volume 22Issue 24

Citing substantial losses incurred this year and a failure to secure actuarially sound payment rates for the second year of a new contract, longtime Minnesota insurer Medica has informed the Minnesota Dept. of Human Services (DHS) that it will exit two of the state’s public health care programs — the Prepaid Medical Assistance Program (PMAP) and MinnesotaCare — as of May 1, 2017. Medica’s exit will impact approximately 310,000 Medicaid enrollees, creating the potential for once-dominant insurer UCare to gain back some of the members it lost this year due to a new statewide competitive bidding process.

In a notice of non-renewal issued on Nov. 30 to DHS Medicaid Director Marie Zimmerman, Medica Vice President and General Manager of State Public Programs Geoff Bartsh asserted that reimbursement rates for all participating insurers have not reflected changes made to PMAP (Medicaid) and MinnesotaCare, which is for beneficiaries with incomes slightly above those eligible for Medicaid. “The population Medica serves in 2016 is dramatically different than the population we served and bid upon in 2014 and 2015,” charged Bartsh, referring to eligibility and other changes that were made by the state partly in response to Affordable Care Act requirements. “These changes, coupled with [DHS’s] struggles to properly manage enrollment accurately and consistently over the last three years, has fueled unparalleled losses in Minnesota’s Medicaid program for Managed Care Organizations in 2016.”

Medicare Advantage News

Medica Blames State’s Rate-Setting Process

Medica’s losses on both programs this year alone will exceed a projected $150 million, which it said tops “any earnings in this business since 2005 and will diminish Medica’s reserves to unstable levels.” Moreover, the rates proposed by the state for 2017 would result in additional losses of $100 million, estimated the insurer.

Bartsh added that Medica has presented numerous potential solutions to resolve its negotiation impasse with the state, including an offer to administer the program at cost (no margin) and/or at a 2% loss for 2017, but that DHS was unwilling to accept any of its proposals. Furthermore, he argued that current program experience must be used in the development of rates for 2017, which he implied the state has not done, instead using a rate-setting process that “ignores the reality of this changing population.” In the letter, Bartsh also offered additional alternatives that would allow the insurer to sign a 2017 contract, although he acknowledged that DHS’s position is it cannot negotiate with Medicaid while a notice of non-renewal is in place.

The not-for-profit health insurer, which is based in Minnetonka, Minn., provides health care coverage for about 1.7 million members in the employer, individual, Medicaid, Medicare and Medicare Part D markets in Minnesota, Iowa, Kansas, Nebraska, North Dakota, South Dakota and Wisconsin. Minnesota is the only state where it provides Medicaid coverage; its decision not to renew the Families and Children contract (which covers PMAP and MinnesotaCare) will not impact enrollees in the Minnesota Senior Health Options, Minnesota Senior Care Plus or Special Needs BasicCare programs.

In a Dec. 1 response from DHS, Zimmerman said the department disagrees with several of Bartsch’s assertions and “observes some relevant omissions.” For one, the 2017 rate for all regions (except the north region and Ramsey County) offered to Medica was based on the insurer’s bid with “adjustment for medical trend, acuity changes in the population, and legislative adjustments,” she wrote. That reflects an increase of 5.1% for PMAP and 3.5% for MinnesotaCare over the 2016 rates, and “is actuarially sound and certified by DHS contracted actuaries,” she added.

DHS Finds Flaws With Medica’s Argument

Moreover, she said DHS refutes Medica’s contention that the department ignored “emerging 2016 experience” in setting the 2017 rates, and explained that if this were the case, a negative trend in medical costs observed for 2013, 2014 and 2015 would have been built into the 2017 rates. Instead, the state not only made an “upward adjustment” for medical trend based on analysis of other health care market trends, it enhanced the 2017 rates “where appropriate” to reflect rising pharmacy costs and changes in the program population between 2015 and 2016, asserted Zimmerman. In addition, alternatives presented by Medica, such as reducing its service area to regions or counties where it felt the rates are more favorable, would be “unfair to other companies and to our enrollees,” she charged. And she likened that partial withdrawal to a tactic used by Medica when renegotiating its Special Needs BasicCare contract.

When contacted by MAN, Medica declined to comment further on the specific assertions made by DHS, and shared a Dec. 1 statement posted to the insurer’s website expressing its disappointment at having to withdraw from the program and reiterating many of the points made in its notice to DHS.

The state in 2015 conducted its first statewide competitive bid to manage PMAP and MinnesotaCare, after using competitive bid procurement in only a subset of counties since 2011. At the time, DHS said the proposals from UCare — which in 2015 served 62 counties in the PMAP program and 71 counties in MinnesotaCare — and South Country Health Alliance were less competitive than others. As a result, it decided not to contract with UCare and to limit its contract with the other MCO. UCare filed a lawsuit alleging flaws with the system used by the state (MAN 9/3/15, p. 3) — which it ultimately withdrew — and through mediation was allowed back into Olmsted County for both programs in 2016. The major service area change resulted in a membership reduction of about 360,000 lives for UCare, while Blue Cross and Blue Shield of Minnesota and Medica gained 176,305 and 128,236 new enrollees, respectively, accounting for two of the top 25 largest Medicaid HMO membership increases nationwide, according to AIS’s Medicare and Medicaid Market Data (MAN 11/17/16, p. 7).

Aside from Medica, seven plans currently contract with the state to manage the PMAP and MinnesotaCare programs (see table, below). According to DHS spokesperson Karen Smigielski, the two-year cycle established through the MCO contracts allows DHS to renegotiate and adjust bids for the upcoming year. And the seven plans have all agreed to the payment rates for 2017, she tells MAN. In the wake of Medica’s notice, however, the state must go back to plans that submitted bids — which could include UCare — and determine how they will fill the coverage gap in the counties served by Medica, explains Smigielski.

In a statement provided by Ghita Worcester, UCare’s senior vice president for public affairs and chief marketing officer, the insurer maintains that its 2015 bid to participate in PMAP and MinnesotaCare was actuarially sound and was based on its experience in serving Minnesota State Public Program members for more than 30 years.

“We understand and are concerned about the extent of disruption this news will bring to more than 300,000 Minnesota’s Medicaid members across the state, and also to the providers and agencies that deliver care and services to them,” added the insurer. “We stand ready to support the Department of Human Services as it works through this change.” UCare declined to provide any projections for 2016 financials at this time.

Minnesota Medicaid Enrollment Snapshot, December 2016 vs. December 2015


Dec. 2016*

Dec. 2015*

Medica Health Plans



Blue Cross Blue Shield of Minnesota



HealthPartners, Inc.






South Country Health Alliance






Hennepin Health



ITASCA Medical Care



SOURCE: AIS’s Medicare and Medicaid Market Data, now available online: https://aishealthdata.com/mmm. Minnesota Dept. of Human Services.

*Total enrollment refers to MinnesotaCare, MinnesotaCare Child and Medical Assistance programs for families and childless adults.

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