For-Profit MCOs in Minnesota Medicaid: No More Welcome Mat

Like 41 other states, Minnesota requires most of those enrolled in its Medicaid program to receive services through managed care organizations (MCOs).  Unlike most other states, however, Minnesota is in the midst of a policy conversation about whether to move away from managed care toward fee-for-service.  In May 2023, the state legislature directed the Medicaid agency to develop an “implementation plan” for delivering Medicaid services through the “fee-for-service system, county-based purchasing plans, or county-owned health maintenance organizations.”  That plan is due in January 2026.  Last month, the legislature prohibited the Medicaid agency from contracting with for-profit HMOs on or after January 1, 2025 (HF 5247, section 256B.035). (Minnesota calls some of its MCOs Health Maintenance Organizations (HMOs)).

Currently, Minnesota’s Medicaid agency contracts with nine MCOs to deliver services to 1.1  million enrollees.  Only one of these is for-profit:   UnitedHealthcare Community Plan, a subsidiary of UnitedHealth Group, the nation’s largest health insurance company both by revenue and enrollment. Of the other eight, four are nonprofit and four are county-owned.  As of Q1 2024, UnitedHealthcare reported 7.7 million Medicaid enrollees nationwide; its Medicaid enrollment in Minnesota was 27,500, or three tenths of one percent (0.003) of its total Medicaid enrollment at the end of March.

You can see why UHG might take this personally, but the back story is more complicated.  As described in a recent state report, Minnesota has long had a tenuous connection with for-profit HMOs, both in Medicaid and its commercial sectors.  Beginning in 1973, state laws provided that only HMOs that were nonprofit and incorporated in Minnesota could be licensed to offer health insurance coverage.  That policy changed in 2017, when the legislature allowed for-profit HMOs (and HMOs incorporated in other states) to offer coverage in the state.  Even though UnitedHealth Group’s headquarters are in Minnetonka, the legislature has now partially reversed course and barred the state Medicaid program from contracting with its subsidiary, and any other for-profit HMOs, effective January 2025. (UnitedHealthcare and other for-profit HMOs may still operate in the state’s commercial market).

As one might expect, Health Plan Partnership of Minnesota, which represents UnitedHealthcare and other for-profit insurers, was not happy.  It argued that there is “no demonstrated performance difference between for-profit and non-profit HMOs,” pointing to the following finding in a February 2024 Minnesota Department of Health preliminary report to the legislature on HMO conversions:  “While the value placed on nonprofit and local HMOs is high, minimal data are available to shed light on whether differences exist between nonprofit and for-profit HMOs with regard to day-to-day operations, enrollee satisfaction, and quality of care.”

One data point that is available relates to performance on delivering the EPSDT benefit to children, which the state Medicaid agency posts on its website. (It does so not because CMS requires it to, but because transparency about performance of individual MCOs is the right thing for stewards of children’s health to do).  For the performance year ending September 30, 2022, the screening ratios for each of the nine HMOs ranged from a low of 0.53 to a high of 0.70.  The median HMO’s ratio was 0.62; UnitedHealthcare’s was 0.57. (Screening ratio is total screens actually received divided by the expected number of screenings).  The participation ratios ranged from 0.41 to 0.56.  The median HMO’s ratio was 0.49; UnitedHealthcare’s was 0.47.  (Participant ratio is the total eligibles who received at least one initial or periodic screen divided by the total eligibles who should receive at least one initial or period screen.)

The Health Plan Partnership also argued that “there is no regulatory difference between for-profit and non-profit HMOs,” pointing specifically to the Medicaid program’s minimum medical loss ratio (MLR) requirement of 85 percent, which applies to all contracting HMOs.  And, as the Partnership notes, because the Medicaid agency requires HMOs that do not meet the 85 percent standard to remit their excess capitation revenues to the state, “[no] HMO can keep excess funds whether they are called ‘profit’ or a ‘non-profit surplus.’”  The Medicaid MLR, however, is not a measure of profit or surplus; it is the percentage of Medicaid capitation payments that an MCO spends on furnishing covered services to its enrollees and on improving quality.  Assuming an MCO meets the 85 percent MLR, the amount of capitation payments not spent for those purposes can be kept by the MCO to cover administrative costs as well as profits or surplus. (One state, Nebraska, recoups “excess” profits in addition to enforcing a minimum MLR of 85 percent.)

It might be illuminating to know the MLR achieved by each of Minnesota’s nine contracting HMOs.  CMS regulations require each MCO to file with the state Medicaid agency a report calculating its MLR for the most recent contract year.  This annual report must include, among other things, the amount of claims paid, the amount spent on quality improvement activities, the amount spent on administration, and the amount remitted to the state (if any), but not the amount of profit or surplus.  These reports are a useful way of comparing MCO financial performance; unfortunately most states, including Minnesota, do not post the reports on their websites.  As a result, it’s not possible for the public to answer questions like:  What was UnitedHealthcare’s MLR for the most recent reporting year?  Was it required to pay a remittance to the state, and if so, how much?  What were its administrative costs, and how did they compare with those of other HMOs?

One thing seems clear:  the policy conversation about the future of Medicaid managed care in Minnesota is far from over.  At the end of this month, the Minnesota Department of Health is required to submit to the legislature a final report making recommendations on the regulation of conversion transactions that move assets from nonprofit HMOs to for-profit entities.  (Currently, a moratorium on such transactions is in place until July 1, 2026).  This is an issue that affects the state’s entire health care system, not just its Medicaid program.

In preparing its preliminary report, the department sought feedback from stakeholders on the value of nonprofit HMOs and limits that might be placed on for-profit conversions.  It concluded that, while there is a wide range of views, it “has heard loud and clear that Minnesotans continue to see value in the principle of nonprofit coverage and care, and feel strongly that the entities that provide health care coverage should be primarily motivated by a desire to maintain and improve the health of individuals and communities, rather than by a desire to produce a strong profit margin for owners, shareholders, or company executives.”

Apparently the legislature got the same memo.

Andy Schneider is a Research Professor at the Georgetown University McCourt School of Public Policy.